How will getting paid change in the new normal?
Watch this webinar to:
- Get proactive and protect your rights
- Learn Lesser-known techniques to speed up payment
- Prepare yourself for the new normal
Full Transcript
Seth:
I’m really excited to today. I’m Seth Bloom. I’m senior director of attorney services at levelset. I’m, I’m out of new Orleans this morning or this afternoon. Excuse me. We’re really excited today to have David Adelstein. He’s a construction lawyer from Kirwin Norris, practicing out of the Fort Lauderdale area. So David, if you wanted to start we look forward to hearing what you have to say about maximizing payments in Florida during the COVID economy.
David:
Great. Thank you. Seth. My name is Dave Adelstein, as Seth mentioned, I’m a partner at the law firm, Kirwin Norris, where we keep construction firm that does everything construction related in Florida representing parties across the construction industry.
David:
Today we’re going to talk about maximizing payments in Florida during the COVID 19 economy, but realistically it’s maximizing payments no matter what jurisdiction you’re operating in. In light of the current shelter in place orders or the impacts and new world that we’re all living in, dealing with the COVID 19 and the related concerns, the best thing you can do is to get proactive to start protecting your rights from this point on. Existing projects and moving forward on future projects. And you want to prepare yourself for what we’re going to call the new normal. Pierce is helping me transition the slides, so I may be saying next to transition the slide to the next slide. Be proactive. The first thing you want to do is to make sure you’re preserving your construction lien and bond rights. Whether you’re a general contractor, a lower tier subcontractor or a supplier, and as the expression goes, an ounce of prevention is worth a pound of cure and knowledge is power.
David:
Preserving your construction lien or bond rights will allow you as an unpaid entity to secure nonpayment against the real property. If you’ve got lien rights or against a surety if you have payment bond right and you want to make sure on the front end whether you’ve got lien rights or payment bond rights, you know how to best maximize your payment in the event you remain unpaid. Also by putting a an owner or even a contractor on notice if you have bond rights, we’ll put the onus on them to ensure that they’re getting the applicable releases from you in the event in the event you’re paid. And you’re obviously going to have some amount of priority if you’re not paid because you’ve got those construction lien and payment bond rights and in certain jurisdictions whether an owner is, has paid a general contractor or not, will not prevent a subcontractor or supplier from pursuing a payment bond claim. So it’s extremely important that you preserve your lien and bond rights for every job moving forward and definitely for current jobs you working on. Next slide please.
David:
Preserving your construction lien or payment bond right. We’ll do three things. One, it will maximize your right to get paid from a third party, that being an owner or a surety, right? Cause if you’re an owner and a subcontractor has lien rights, you know, and he’s going to want to make sure that that subcontractor gets paid and provides the applicable lien release so that the sub doesn’t come back and lien their property. Two, it’ll help you maximize your right to collect payment, which is really what it’s all about. And three, it will remove the pay if paid provision from the equation, right? So if you’re a subcontract and you enter into a contract with the general contractors, most sophisticated contractors are going to have a pay if paid provision in the contract conditioning your payment on their receipt of payment from the owner. If you’ve got lien or bond, right, you’re removing that,uprovision from the equation. Next slide please.
Seth:
David, real quick. I have a question. I know it’s pretty basic, but I know a lot of people have asked before. I mean, I know mechanic liens have been around for hundreds of years. But why wouldn’t you, if you’re having problems with getting paid, why wouldn’t you just automatically, you know, send a lawyer demand letter and file an injunction or some sort of a lawsuit?
David:
Well, we’re going to, we’re going to discuss that in a minute, but the, the advantage of a of a lien is you’re collateralizing your nonpayment against real property. You can’t do that with a lawyer demand letter. And most of the time demand letters get ripped up and cast aside and ignored for a later day. Whereas with a lien, you’ve, you’ve actually have to address because it’s now an encumbrance on the property. Thank you. So the first step is in preserving your right because you want to know what I need to do from a preliminary notice standpoint. And every, every state will have different requirements. In Florida you have different requirements. If you’ve got a, if you have construction lien right, if you’ve got a private payment bond right, if you’re working on a private job, well, if you’re working on a public job that’s not a Florida department of transportation job and then you’ve got different rights.
David:
If you’re working on our Florida department of transportation job and then you’ve got other rights if you’re on a federal project with the Miller Act typically where they, where they lien, do I need to serve a preliminary notice, which is a notice to owner. The answer is yes. If you’re not in privity of contract with the owner and you need to do that within 45 days of your initial furnishing date and that’s going to be served on the owner, the general contractor typically and any other person listed in the notice of commencement as being required to receive notices from the owners. If you’re working on a private job and you pull up the notice of commencement and you see that that owner, that contractor has an unconditional payment bond, then you will need to serve a notice of intent to look to the bond.
David:
Oftentimes if you go to a company, if you go to levelset that does this regularly, they’re going to know they’re going to serve a notice to owner in conjunction with a notice of intent to look to the bond. It’s going to be served within 45 days of initial furnishing and it’s going to be served on the GC and most of the time the owner as just in case. Same thing with a public public project where you are, where the contract is required to furnish a public payment bond. If you’re not in privity, you’re going to have to serve the notice of intent to look to the bond within 45 days of initial furnishing. Can you go to the next slide please?
David:
Preserving your lien and payment bond rights is only the first step because at the time you’re preserving your paint, your payment bond or lien rights. Typically you’re in a good mood. The project is just ramping up and you don’t have a payment issue yet. So the important part is after you preserve your lien rights, what do I need to do to enforce my lien or payment bond rights in the event I’m not paid? And in today’s economy you want to make sure there are no hiccups and you’re preserving those enforcement rights sooner than later. Can you go back to the other side please?
David:
So when it comes to lien rights, obviously you want to record a lien within 90 days from your final furnishing date. Your final furnishing date will never include punch list or warranty work. So you want to make sure that you record that name while you’re doing base contract work. When when you’re dealing with a private, a private project with a payment bond, you need to furnish a notice of nonpayment to the general contractor and surety also within 90 days from final furnishing. And then if you’re on a public project, you need to serve a notice of nonpayment only if you’re not improving with the general contractor within 90 days of final furnishing. In order to Sue from a lien standpoint, you’ve got to file a lien foreclosure lawsuit within one year. From the date the lien is recorded. With a bond, however, you file your lawsuit within one year from your final furnishing date. In today’s economy, you should never let it drag out to a year. You should act sooner than later.
Seth:
David we have a question. Let me ask you, since we’re talking about liens and, and, and, and also part of the webinars about COVID has Florida granted any extensions during this time, and maybe we’ll talk about it later. And or is that County by County?
David:
No. So there, there hasn’t been any extensions that will extend the lender’s right to record a lien or preserve a claim against the bond. So the hiccup has been, there have been public or clerk’s offices that have been closed. So in order to record a lien, you’ve got to do it online and that’s not always efficient based on the jurisdiction you’re operating in. Because it clerks like such as Miami Dade where you can file something online and sometimes it can take a week or so for the clerk to receive it and stamp it being recorded. So now that things are opening up, hopefully that that will not no longer be the case, but you want to make sure that particularly if you’re recording anything online that you’re not doing it on the Eve of the expiration of when you can record only. Do you want to do it sooner than later?
David:
Next slide please. Okay, so those were just tidbits as it relates to kind of how to preserve and maximize lien and bond rights in Florida. Every jurisdiction is going to be different, but the analysis will be the same to make sure you serve your preliminary notices to preserve those rights and then promptly enforce those rights mean that you’re not paid. But there are other things someone can do to make sure that they are maximizing payments. Number one, when you receive a progress payment or even a final payment and you get a lien release or a claim release to assign and consideration of that payment, do not release rights. You’re not prepared to release it or currently in dispute. If you’ve got a delay claim, obviously you want to make sure you carve out your relay claim so that no one can waive that release in front of you and say, gotcha.
David:
Same thing with change orders. If you’ve got, if you’re in a change order dispute and they were about to change order request, carve out those arguments that you’re not prepared to release so that those rights get preserved. The second tibit is really, really important. It’s, it’s you want to engage in effective document management to document amounts that you wrote for claims. Particularly now if you’re experiencing any impact associated with COVID 19, whether it’s a suspension of work, whether it’s you’re working in efficiently as a result of different job constraints, whether it be you now to make up time as things start loosening up with acceleration. So you want to make sure everything’s documented in daily reports, photographs, schedules, field reports, emails. I always find it good practice to separately cost code events to make sure that you’re accurately keeping track of, of costs, particularly costs that you know are going to be in dispute.
David:
The third bullet point is you want to make sure you understand the notice provisions in contracts for a change order request force majeure issues and claims so that these rights are properly preserved during construction. I always suggest having a master chart with each project that you’re working under, particularly now and understanding, okay, the force majeure provision is paragraph 9.2. This provision requires me to serve notice within five days from experiencing the impact. Paragraph 9.4 deals with suspension of work and an unauthorized as X, Y or Z. If the job is unilaterally suspended by the contractor or the owner, there may be a provision dealing with emergency situations. The re, the reason why the charting, the notice provisions are important is to make sure you don’t waive or release any right by not timely notifying who you’re supposed to notify. And also because we’re dealing with a lot of uncertainty with COVID 19. By way of example, no one drafted a contract prior to March of 2020 with the thought that the global economy would experience a pandemic.
David:
I haven’t seen one and I’ve drafted a million contracts and I can tell you I certainly didn’t draft one. I’ve been involved in contracts where an epidemic has been considered a force majeure issue, but that only allows you to get additional time, not additional costs. And when you’re dealing with the current, a current COVID 19 issue that could result in certain inefficiencies or delays or shut downs including governmental shutdowns, there are going to be costs with just remaining idle or not working efficiently. So short those notice provisions for every contract because there’ll be different for every contract. Next slide please.
David:
This is a type of a chart that I’ve put together where for purposes of COVID 19, you’ve got your project name and the projects in the left hand side, you’re looking at your current contractual substantial completion date per approved change orders, right? That’s the date. You know, you know, you’re going to get exposed to LDs potentially if you don’t contraction and completed on time. What is the force majeure language in the contract? Does it, does force majeure allow me to get additional time? If I experience a force majeure event, does it allow me to get additional compensation? I’ve drafted a number of contracts where if you experience a force majeure issue such as a hurricane in Florida, you will get additional compensation. What are the notice requirements where I need to notify the other contracting party that I’ve experienced an actual impact? What is the suspension of performance language in the contract? Can suspension lead to termination of the contract? For example, if the project is suspended for X number of days, does it allow a party to terminate the contract? And if so, what are the compensation that that’s associated with that? Bye bye. Charting your notice, right? It will allow you to not only make sure claims and rights are preserved, but allow you to make prudent business decisions moving forward if you do experience an issue. Next slide please.
David:
You want to assess mentioned earlier, sometimes a demand letter is the way to go. Sometimes it’s good with a lawyer just to knock on someone’s door, let them know, Hey look, we’re represented and unless we can work this out, we are going to pursue legal recourse. Sometimes it’s a notice of intent to pursue a lien or bond rights based on your jurisdiction. Yeah, a lot. A lot of parties when they remain unpaid want to refuse to perform warranty work or punch list work. I’m always against doing that. In the event is a payment dispute because all you’re doing is you’re giving the other side leverage not to pay and you’re giving them the argument that you now breach a contract by not performing contractual duties.
David:
Third is don’t automatically be opposed to join checks. Sometimes getting your suppliers or subcontractor paid to get them off your back is a good thing. But what you don’t want to do is you don’t want to enter into a joint check agreement without seeking advice from counsel to ensure by entering into that agreement you’re not releasing rights. You want to make sure that, yeah, joint check agreement could be feasible and practical and could make sure that my suppliers and subs get paid. But in doing so, I don’t wanna make, I wanna make sure that I’m not releasing and giving up any rights in the event. I’m not paid. And if you have not properly preserved lien or bond rights, and there may, there may be a project, sorry about that, but you have not properly preserved lien or bond rights. You want to, don’t be afraid. Pursue a breach of contract claim.
David:
Next slide, please. Okay. Yeah. And on the, on the last slide, the last slide begins with start with your contract and any contract you’re negotiating really from this point forward. In light of the new world we’re operating under, the first thing you always want to do is to make sure that you understand what your scope of work is. Make sure that that’s clear. More often than not, scope of work disputes start off because the scope of work provision in the contract is unclear or leads to certain ambiguities that can all be cleared up by spending the due diligence on the front end to make sure that you know what your scope of work is or what you’re carving out from your scope of work or what your qualifications are on the front end to there are a number of considerations that you want to consider in light of COVID 19 from this point forward, one is force majeure.
David:
If you’re entering into a contract now with a force majeure provision, please make sure that you look to see whether or not COVID 19 or a pandemic or a health crisis is considered a force majeure issue. Not doing so is a mistake. When you’re also looking at the force majeure provision, you want to understand whether you get additional time and or additional money due to a force majeure issue. And you may even want to carve out to say, well as it relates to a force majeure issue dealing with COVID 19 or a health crisis, I need to, I need to make sure that I get paid as it relates to any delays or impacts I experience. Two, material price escalations and lead time. Are there going to be any material lead time issues that you foresee as it relates to COVID 19 or any global supply chain issue?
David:
What about material price escalations? Maybe you want to accelerate ordering price ordering materials today to lock down today’s prices. So that in the event is a global supply chain impact. You’re not burdened when those prices increase. And if you do so who’s going to pay for the additional storage for those materials? On the other hand, what if you don’t have that provision and the material material prices escalate to a point where it’s not only unprofitable for you to do that work, but it’s potentially a business hampering so because you’re now suffering a severe cost overrun if you were to purchase those materials then. Additional safety and health managers, right? With COVID 19, you know, contractors and owners have imposed additional health and safety measures to make sure the project is as safe as possible based on OSHA guidelines, who’s paying for those costs.
David:
You want to make sure that for projects moving forward in the event those measures are being implemented or new measures are implemented that those costs are sufficiently covered. Dispute resolution. I can tell you that judicial systems are not the most efficient right now and while why a lot of them are operating virtually getting you, getting your case to trial is not an overnight process. It was never an overnight process in the best of worlds. It’s definitely not. Now maybe you want to consider an arbitration provision or manuscript arbitration provision where you specifically outline kind of how you want the arbitration to go forward more so than you would have in the past with the boilerplate arbitration provision. Pay if pay provision, something to consider. Do you want to bear the risk of the pay if paid provision or is there any negotiation around a pay if pay provision?
David:
Maybe that’s not a big deal. If you make sure you preserve your lien and bond rights, change orders in claims, what are, what are, what are my rights and the notice provisions as it relates to change orders in claims. Obviously you want to make sure that you’re not entering into a contract that has severely onerous notice requirements that you know, don’t ever achieve, no damage for delay provisions where you’re basically agreeing that in the event you’re delayed, you can use your only recourse is time, not money. Obviously most jurisdictions will to the extent it’s enforceable, there are carve-outs for no damage for delay, but maybe that’s something you want to consider and carve out, particularly as it relates to impacts with COVID 19. The other is contingencies. I’ve asked it a few contracts within the last week where we’ve had COVID 19 contingencies or just a contingency or allowance amount, I guess is probably a better word for certain things that may be encountered. But with COVID 19, such as additional health and safety measures certain overtime or acceleration work that may need to take place in order to make up time on the schedule, things of that nature that maybe you want to start considering on the front end.
David:
And that’s, that’s it for me. I just, I appreciate everyone’s time. I don’t know if anyone has any questions. Yeah. David, we do have a few questions and, and maybe we’ll see as we talk for a second, if there’s any more in a minutes here.
Seth:
Just generally, I know you mentioned it, but us being in Louisiana, you been in South Florida, we’ve all experienced hurricanes when hurricanes have, how are hurricanes and natural disasters, did that create an uptick and mechanics liens? And have you seen that during the COVID pandemic,
David:
I’ve seen an uptake in parties preserving liens in the COVID 19 pandemic. I’ve also seen owner is perhaps being a little more conservative with their, their funds, which has resulted in perhaps more liens regarding hurricanes. I haven’t necessarily experienced an uptake with any liens or bond claims as it pertains to a hurricane.
Seth:
And in, and in your professional opinion, I mean, no one knows what’s happening now with this pandemic. Do you anticipate this is going to create a ton of new construction litigation?
David:
You know, that, that that is the question. I don’t know. Originally I thought that it, it perhaps could particularly in Florida, but I’ve only been involved in one project in Florida that was shut down as a result of COVID 19. And that project was shut down, not by the government, but by the owner making the unilateral decision that it didn’t want to move forward with that project. Although in that, in that particular instance, the owner was willing to carve out a bunch of money to pay for idle auto related time and terminations for convenience and things of things of that nature. Other than that I could see maybe certain inefficiency or delay related claims. But so far I see parties kind of working together as it relates to COVID 19, simply because including lenders even getting involved in the process since no one has really drafted an agreement that covers this particular issue. Whereas with hurricanes, particularly in Florida, I mean you’ll see, you’ll see provisions that specifically deal with hurricanes in, in contracts.
Seth:
And, and another thing is, I know in Louisiana, and I know every jurisdiction and state is different, although this may be national construction is deemed an essential service. Are there any ramifications or is this applicable all, does this make construction a little bit unique since technically they didn’t have to quarantine they could continue with their projects if it was safe?
David:
Well, it’s obviously a great thing for construction, particularly contract within the labor is that, you know, the guys that need the money have an opportunity to continue to work. So it’s certainly perhaps unique in that where other industries have shut down and truly and truly has been impacted. Contractors still have the opportunity to work. They are working there, they’re busy. So busy is good. Particularly at a time where there’s a lot of unemployment and economic uncertainty. I know that in, in March and April particularly in the Northeast where there were more restrictions on construction, the the number of people in construction drastically decreased. However, that seemed to level off towards the end of may. And you can slowly see, see an incline where more and more people are going back into construction and the more jobs and opportunities opening up.
Seth:
And I know I’ve already seen on TV, at least in Louisiana. I imagine Florida as well. The plaintiff’s bar is certainly gearing up to file business interruption class actions and business interruption insurance. How do you think just being tied up in the business interruption litigation if it is successful or not successful will affect kind of the, the ongoing projects? Could that delay them or,
David:
I don’t, I don’t think those types of claims are going to delay current projects. I’m trying to think of a circumstance because most current projects have not been shut down by the government. The ones that have been perhaps hampered or you know contractors that do maybe tenant build out or residential remodeling where they can’t get into the building simply because the ownership doesn’t want to allow other people in the building. But regarding the bill the business interruption claims, I’ve not been exposed to one yet. Dealing with an ongoing project against the builder’s risk insure due to that project being hampered or hindered or impacted as a result of, of COVID 19. I’ve been in a few projects where, you know, someone has tested positive for COVID 19 there was some deep cleaning, but that was not a cost that the parties elected to submit to the builder’s risk carrier as part of maybe a business interruption or that type of property damage claim.
Seth:
And I guess that leads right into my next question. And that is, you know, there’s all these new safety protocols and phase one, and I’m sure it’ll change during phase two as far as, you know, people in the industry wearing face masks. But, but face masks aren’t that expensive. But what about, you know, having to bring in companies to sanitize sites and so forth. Who’s going to pay for those costs? Are those gonna be built in or there’s going to be change orders? What are you seeing in Florida?
David:
So the projects that I’ve been involved in, I’ve been involved in a number where in order to get into the project there are, they are taking your temperature which it’s certainly an added cost there. Additional hand sanitizing station so I can’t speak. And things of that nature as it relates. There’s additional sanitation that’s going on, more cleaning is going on. In all of those projects, the owner has been working with the contract to cover those costs. I haven’t been involved in one where an owner refused outright to pay for any additional health measure to ensure that their project gets completed when they want completed.
Seth:
Well. I think that wraps up, I don’t have any more questions that I haven’t seen any more asked by our participant, but I just wanted to thank David for taking his time out of his busy day. With everything that’s going on to host this webinar. David’s information is up on the screen here. These slides will be made available very shortly. So if you have any questions or you want some of the good forms that he’s put on these slides there’ll be available to you. You’re more than welcome to post any questions to our expert center. In addition to that, you can see, you can contact David directly. He’s, he’s happy to speak with people and talk about their construction issues and go from there. So David, I just really want to thank you from level-set. We really appreciate your contribution and we look forward to doing more webinars and more panels in the future.
David:
Great. Thanks a lot Seth, and thank you Pierce.
Seth:
All right, thanks everyone. Have a nice day. Stay safe and enjoy your weekend.