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Coronavirus & Construction: How to Get Paid During Project Suspensions and Terminations
What you’ll learn
- How to protect yourself in the event of project suspensions
- How to protect yourself if your project is terminated
- Will a force majeure clause protect me my business from our inability to perform?
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Full Webinar Transcript
Nate Budde:
We are very lucky to have some attorneys from over Gibbs joining us on this webinar. We know that everybody has a lot of questions about how the coronavirus pandemic is affecting construction and affecting your ability to get paid. So, we’re lucky to have some construction expert attorneys here that can give best practices and give some insight onto that.
Nate Budde:
If you have questions during the webinar, feel free to type them into the chat or question and answer box that you see and they will be addressed either immediately or during the end of the presentation, probably during the end. But with that being said, I’ll kick it over to Chris, who can introduce the rest of his team over there and thanks for joining us.
Chris Ng:
Thanks for having us, Nate and Justin. My name is Christopher Ng. I’m the managing partner of Gibbs Giden. We are a Los Angeles-based construction law firm serving the entire state of California and the entire state of Nevada. We have a network of construction attorneys around the country through the American Bar Association Forum on Construction Law. Many of those members are part of the Levelset expert team around the country.
Chris Ng:
And in this time, which is one of the most impressive unprecedented things that’s ever happened in probably human history, we’re all sort of coming together to figure out how we move forward, how we protect ourselves, how we ensure our own livelihoods. So, I have with me today two of my colleagues who are my partners, Sara Kornblatt and Richard Wittbrod. Collectively, we have about 75 years of, maybe longer, 80 years, of experience in the construction world. We are construction lawyers and we all have leadership positions within the American Bar Association Forum on Construction Law.
Chris Ng:
And as you might imagine, we’re all interconnected right now in speaking on a pretty much a daily basis talking about the different issues that face us around the country when it comes to the coronavirus and construction. So, today, just to give you a little roadmap, our initial idea was to do a 30-minute presentation. And we decided because of quite literally the hundreds of emails we’re getting every day and the phone calls, that we’ll do our half hour, but we’ll extend as long as we have questions.
Chris Ng:
And I know there’s a lot of you that are worried and concerned. And we’re going to talk you through things that you can do to protect yourself, things that you need to look out for, things that you should be doing on your current projects that might be subject to shutdowns, suspensions, or terminations, what force majeure means, what are your contract documents tell, tell about your situation and your rights, duties and responsibilities, and then how we move forward to protect ourselves using your statutory rights regardless of whatever state you’re in.
Chris Ng:
So, I’m going to set the table a little bit just by recapping. And these slides are brand new as of this morning. And I know again, most of you are following us on a daily hourly basis, the coronavirus death toll is now 10,000. And the situation in the United States is, unfortunately, getting worse before it gets better. And when we say worse, it’s not perhaps that more people have coronavirus, it’s just the course that we’re getting better testing. And when we get better testing, our numbers are skyrocketing. And because of that and because of the highly contagious nature of the disease, we are taking drastic steps from a federal state and county and local level to try to curb this.
Chris Ng:
Any of these slides by the way, some of these are screenshots from CDC and other organizations, but these are all the ones that I’m sure most of you are familiar with, about social distancing and how you can stay healthy yourself. Things that are safe to do and things that you should be avoiding doing.
Chris Ng:
And so, again the focus today is on the impact of coronavirus in our ongoing construction projects. Of course, if you Google the terms coronavirus in construction, you can spend all day with daily updates. ENR has a nice list of the latest headlines. And I won’t say panic around the country but definitely concern in pretty much every state.
Chris Ng:
And it’s really affecting some municipalities more than other. We know Boston, for instance, has shutdown. To my friends over in Boston, the mayor of city of Boston has shut down construction. And unfortunately, what was a booming market a month ago has come to a screeching halt as the headline says.
Chris Ng:
We haven’t quite gotten there in other venues. Chicago unfortunately, looks like it may be headed to something close to a Boston shutdown, but we’re going to see. Dallas I know is concerned about what’s happening. Florida is obviously taking it pretty hard right now as is New York.
Chris Ng:
There is some interesting headlines out there you’ll find a couple days ago. Hawaii indicating that in some ways, that they’re going to let construction continue and go on. And so, the impact may actually not impact them and let them continue to focus on infrastructure and other projects. So, it is hitting us a little bit differently.
Chris Ng:
Clearly, there are reasons why because of the coronavirus, we’re all going to be impacted. The first concern that we had, as we talked last week, was about the supply chain. And literally, headlines and quotes from the largest contractors in the country are completely obsolete seven days later because of how this has progressed.
Chris Ng:
Still, the supply chain is a concern. China is getting back on its feet as some of you know, but for sure, 30% of our raw materials coming from those countries impacted, we are going to have delayed materials, delayed shipments, some of which will impact critical path, some of which will not. We’ll have price escalations and other issues.
Chris Ng:
Clearly, the new wave of quarantines and shutdowns are impacting our ability for our workers to do onsite work, as we’ll talk about in a minute. There’s a 30,000-foot view as far as the economic and market challenges that clearly we’re going to face lenders, owners and contractors, their ability to get through and survive for the next couple of months as we push through and then figure out how we move these projects forward.
Chris Ng:
And for those of you that are and I know the majority of our audience here are contractors, there’s some suppliers and mostly contractors here, clearly, you’re concerned especially if you’re a smaller contractor and if you’re a larger contractor is that the suspensions and terminations are going to impact you, impact your ability to make payroll, impact your ability to pay your folks, slow down your pay draw process. And so, clearly, this is having a major impact.
Chris Ng:
And we know that as we move forward, when continued performance isn’t possible, it may come from the top with lenders, it may come from owners, it may come from the GCs that are working on those projects. There’s going to be lots of talk about suspension and termination. So, again, we’re going to walk through sort of our top tips here about how to protect yourself and how to get paid on these projects.
Chris Ng:
First and foremost, let me say that this can’t go without really emphasizing that it’s imperative that we all stay current on the COVID-19 public health orders. And if you’re in a jurisdiction that really seems still far away, we have 10 cases. We’ve got 15 cases here in Salt Lake or we’ve got six cases in South Carolina, it’s still on the horizon. I mean, that’s what we saw in Los Angeles about seven days ago. And as you may have heard last night, we are shut down. We are a stay at home policy except for essential business functions.
Chris Ng:
So, things could change rapidly. And so, it is imperative for all of you to understand not just what the state and what the county but also what the local government orders are that pertain to your projects. It’s very important to see what the effects are and then look at the exemptions. And we look around the country and there’s a couple dozen states that are already impacted by these orders. You have exemptions for in some cases, public construction.
Chris Ng:
Some of the exemptions include housing, even mixed use to promote that and not slow that process down, but a lot of them do bar commercial construction. There are exemptions for mothballing projects so that while you have to shelter at home, contractors can go out and protect their working place and mothball until given a further order.
Chris Ng:
Even if you are exempt, for instance, even if you are in jurisdiction that allows public construction, your exempt activities will be governed by the social distancing mandate of six feet, as I think we’re all getting used to.
Chris Ng:
Now, one other thing is even if you’re allowed to continue work, there are certain jurisdictions and I gave you the example here of the city of Berkeley, who say you can keep working, but you’re not going to get inspections. In their case, the only exception they’re going to make is for income qualified affordable units.
Chris Ng:
So, you can imagine what that means if you can continue working with social distancing, what happens when you can’t get your next inspection, clearly, our projects are going to be impacted and on the critical path.
Chris Ng:
So, that’s really the biggest piece, I think the first piece to think about right now. And it’s Important to talk to folks that know, your attorneys that can help you interpret. What happens when you have orders that conflict and we’re dealing with this in the last 12 hours. We’ve got a county of LA order, which speaks one language. We’ve got the city of Los Angeles, which seemingly speaks a different language. And then we have the state of California, which comes out and issues a different unit.
Chris Ng:
And so, us as lawyers are trying to figure out what applies. Does the state trump the city, or does the city because of the particular mandate trump the state? So, lots of those conflict issues. I’m sure you guys have questions about that later. We can talk about particular sort of situations that we’re dealing with here in the west coast, but even other places, how you interpret those conflicts.
Chris Ng:
I will tell you that there is a bright line answer as lawyers will say. This is an ambiguous area and it depends, but this is certainly an important area of whether or not you can even show up on the job tomorrow when you come into and shelter and place order.
Chris Ng:
Our office is keeping track of various counties, the different orders. I know AGC has a similar chart that they are maintaining, which is good. Maybe for your projects, you should create a chart of what’s happening in the counties where you are working, in the cities where you were working.
Chris Ng:
I gave you an example here. One of the exemptions that we’re seeing, and we imagine that a lot of jurisdictions, regardless of where you are in the country, will use similar language about even if you’re in a sheltered home that you’re allowed to carry on essential infrastructure.
Chris Ng:
The question is, is essential infrastructure broad, like this excerpt from Sacramento, which says construction, it doesn’t have limitations on the type of construction, with social distancing requirements, or is it going to be more limited, where it’s talking about construction of particular types of works like again, public works only, infrastructure works only, housing only. But the ones that we’ve seen city of Los Angeles, Sacramento, digging in, you can see this as a part of a paragraph that’s buried in the order. But it’s important to parse out this language to understand what’s going on.
Chris Ng:
Number two is understanding your project. So, knowing your status of your project as of now, being in tune with it so that if you do get shut down like we are here in California in some respects, and we’ll get into the governor’s clarification last night about construction being able to carry forward, we think, throughout California, but if your project is shut down, it’s important to know where you’re at, what is the schedule? What is your cost accounting look like? What materials do you have in place? What is still off site? What impacts are you going to suffer?
Chris Ng:
And you’re thinking about of course, if you have to demobilize from a project, what’s your demob cost, your deceleration, your acceleration if and when you are told, hey, we got to catch back up with the project schedule. What are your acceleration damages?
Chris Ng:
Thinking about social distancing efficiency claims, I know we talked about that this morning. If workers have to be six feet apart at a minimum, how’s that going to impact your efficiency on a project? Clearly, it will. Again, the inability to get a permit potentially or get an inspection for a particular trade or path of work is going to create other issues.
Chris Ng:
So, it’s making sure you understand where you’re at in the project, making sure you’re comfortable with documentation, exploring any applicable insurance coverage. There is a way of lawsuits that are just underway now with folks making claims under their business interruption policies, commercial, so think about it. Think about whether you have insurance coverage, talk to your broker, talk to your attorney and maybe something where you want to move forward to claim and get a claim number and adjuster and see where things go with the litigation that’s breaking out around the country.
Chris Ng:
And of course, it’s all about documenting, documenting, documenting. I know a lot of us are used to handshake deals. We talk to our folks in the field of your sub. You talk to the GC super. We do changes on a handshake or oral basis. That’s sort of what we do. We’ve done for 30, 40 years. It’s important more than ever to memorialize everything. Just because somebody says, “Don’t worry, don’t worry, we’ll take care of you.” It’s time to document what impacts you are suffering as a result of coronavirus, your demob issues, again, your acceleration issues, et cetera.
Chris Ng:
And making sure that if you do have an oral conversation that you memorialize that in writing. It can be an informal friendly writing. It doesn’t have to be a stern legal ease or email, but something that memorializes the communication that’s going on, on the project as projects are impacted, okay, that’s super important as more lies in that stuff.
Chris Ng:
Protecting your job rights, so this hopefully goes without saying and some of you are sophisticated in this world and others of you have never had to do a mechanics lien before. Remember that you have various remedies depending on what state you’re in. Every single state has a mechanics lien remedy for private works. Some even mix PPP sort of projects. Fifteen states have a stop payment notice remedy. Usually it may have a different name to it. But as a construction lien on construction funds, that may be available in your particular jurisdiction.
Chris Ng:
Payment bonds, federal, state, local, any public work is going to have a payment bond, usually $25,000 or more but that’s clearly something to think about. If you are a sub and you’ve never seen the payment bond and didn’t know it existed, it’s maybe time to start trying to ask around and get a copy of that payment bond so you know if and when you need to make a claim as you have that at your disposal. For owners and some GCS that have subs on performance bonds clearly knowing that those remedies might be there for you.
Chris Ng:
And then there’s other remedies that you’d have to think through. So, in addition to the traditional ones like mechanics liens and stop notices, it’s also thinking about, do you have particular ones in your state that might help you. I know in California, we have a remedy that’s not used very often. But it’s a statutory product security remedy, where a general contractor can demand adequate assurances and the posting of job security by owner. And this may be the perfect time to think about whether you invoke something like that.
Chris Ng:
When you think, oh boy, my owner is going to have some financial issues here or the lender is going to have financial issues, it may be time to do something like this, especially if you’re in California is to demand that the owner post a bond, a letter of credit, or some other security for you. There’s lots of limitations and requirements for that. But that may be an important exercise to explore.
Chris Ng:
In California, if the owner does not comply with the 10 days, you are free to walk off regardless of the other circumstances, or sorry, not walk off, but suspend your project. So, again, thinking through all of your potential security rights, that’s very important.
Chris Ng:
So, some special considerations I wanted to make sure that I address with you guys is making sure you got the proper claim amounts with your lien or stop notes upon rights. Making sure that you’re including the value of labor materials first to the project.
Chris Ng:
In most jurisdictions, you’re not going to be able to include the items of specially manufactured goods that are still sitting in your warehouse have not yet been furnished to the job. I say that that’s most jurisdictions, not all jurisdictions, some will let you do that. The federal Miller Act statutes we believe let you do that make a claim for special manufactured goods that are not yet incorporated into the project. But most jurisdictions, you’re going to have to show that your labor materials are in the project to be part of a proper claim.
Chris Ng:
Making sure that you know in your jurisdiction whether you can include anything other than direct damages. Can you include indirect things, home office overhead, that sort of thing, lost profits? Generally not, but again, you got to check your jurisdiction and understand what the law is for wherever your project is.
Chris Ng:
If you don’t have all the relevant information, maybe you did a prelim haphazardly or maybe you didn’t do a prelim, it’s time to make sure that you know who all the players are upstream. You know who the lender is, who the owner is, you know who the sureties are. If you need to move forward, do you have the information handy to help your provider, maybe it’s Levelset, maybe it’s your attorney moving your claim forward.
Chris Ng:
Making sure of course that you timely are enforcing your rights. Following all of the statutory requisites for timing, making sure that you don’t wait too long because deadlines around the country are very, very short, especially when it comes to mechanics liens. For instance, in California, you may have as little as 30 days from completion of the job to record a mechanics lien. So, things like that, be careful that you follow those deadlines.
Chris Ng:
On the other hand, being careful that you don’t record prematurely. In some jurisdictions, if you record a lien and you’re not done yet, your lien is invalid. In fact, we had that case in California, I think about four months ago now. The appellate case, it’s good law that deemed a subcontractor’s mechanics lien because it wasn’t done with the job yet. So, you have to be careful on both ends, not recording too late and not recording too fast.
Chris Ng:
And so, you’re going to have to think through how you’re going to cease your activities. For instance, you may be issuing a deductive change order for the balance of your project, perhaps, in order to make your claims. That’s something you’re not going to take lightly. It’s something you’re going to talk to your counsel about in detail to make sure that we don’t want to be the ones breaching the contract.
Chris Ng:
We want to make sure we document properly. We do whatever we need to do to be the folks that are standing ready, willing and able to move the project forward. But we got to make sure that we protect ourselves in the event that we’re running out of time. So, the deductive change may be something to think about.
Chris Ng:
And don’t forget, in this day and age, we have lots of county recorder offices and ports that are closed. Last count, I know Levelset is doing a fantastic job at keeping track of the various county recorder offices that are impacted. You may not be able to get a lien done the same day. So, don’t wait to the last minute because it may take time for you to mail in your mechanics lien or send it in Levelset, fantastic resource for you to use to try to make sure you understand the timing and who’s close and who’s open. So, again, lesson is don’t wait too long.
Chris Ng:
And then one of the topics that I want to bring up that we don’t talk a lot about in the good times, like we had three weeks ago, but it wasn’t really and I think last time was the last downturn. I mean, we’ve seen since I’ve been practicing law, I think three downturns in the economy, we’ve never seen anything like this. Some of you’ve been around for a lot longer than that. But in my 20 years of practice, I think the last time about 10 years ago, we had our downturn and we had products that were being suspended, mothballed.
Chris Ng:
And what that means in a lot of jurisdictions is if you mothball a project for a certain amount of time, that can equal the completion. So, cessation of labor for an extended period of time, it could be 30 days, it could be 60 days in your jurisdiction, that equals a completion. So, I cannot underscore how important that is.
Chris Ng:
Don’t just be thinking, “Well, my project got a roof, it’s just topped off right now. I barely have roof on it. But we’re not done with windows and we’re not done with doors. We’re not done with finishes.” So, clearly, I’ve got time to record my lien or enforce my rights. If the project is mothballed for a particular amount of time in California, that could be as little as 30 days.
Chris Ng:
If the owner sends out a notice of cessation of labor, that equals a completion and that gives you a very limited amount of time to go ahead and enforce your rights. Okay? So, very important to make sure that you understand what that cessation of labor rule is in your jurisdiction because if you have it and it deems that completion, you better get your lien down or bond claim notice enforced right away. Otherwise, you’ve lost it.
Chris Ng:
And when you come back to the project, it’s all about doing a brand new prelim and a brand new … It’s considered a new project if your initial project is suspended for that requisite amount of time. So, be very careful in your jurisdiction.
Chris Ng:
Example, I know this is a screenshot of Levelset’s county by county, a list of county recorders offices and clerk’s offices that are being impacted around the country. And they’re adding to it on a daily basis. So, I encourage you to check out the Levelset page.
Chris Ng:
I want to move quickly. I know we’re getting close to the 30 minutes here. I want to just move into the key contractual provisions. Now, everybody’s talking about force majeure and I know a lot of you know what that is. But remember that the key contractual provisions here are not limited to force majeure. They’re much broader than that. We’re going to talk about force majeure in a minute because it is important.
Chris Ng:
But there’s lots of other provisions in your contract documents which are going to dictate what your rights, duties and responsibilities are going forward to protect yourself. For instance, notice provisions, what are the notice provisions of your contract? When do you have to give notice of a force majeure or an impact and delay? How quickly you have to do it? Who does it go to? What method of service does it go by? Your change order provisions clearly are going to be important in this sort of situation as you negotiate changes in time and dollars.
Chris Ng:
Limitations of liability clauses, clearly are going to be a very important provision for suppliers and contractors moving forward. What are the termination provisions for cause, for convenience, understanding what those look like? And then default provisions, completion of work by other’s provisions mean those all are parts of most industry contracts and they all play a part in understanding what your rights, duties and responsibilities are.
Chris Ng:
So, let me get into force majeure. Because again I know most of you have heard this term and this is the one that everyone’s hanging on and it is important. We typically kind of describe it as things, causes or events that are unforeseeable, unavoidable or beyond the party’s reasonable control. And the force majeure clause will act as a potential defense to the breach of contract claims. And so, it’s an important thing that we consider.
Chris Ng:
Now, the things you need to think about of how your force majeure clause is going to play out for you starts with what state you’re in. Are you in a civil law jurisdiction? Are you in a common law jurisdiction? Civil law implies force majeure in this contract. So, in other words, the contract can be silent about it and civil law will jump in. And for those of you that are in states that fall civil law system, just like the duty of good faith and fair dealing, you will have a force majeure applicability.
Chris Ng:
Common law systems, it’s not that way. If you don’t have force majeure, you don’t have force majeure. Then we’ll talk about in a minute in the sale of goods for you suppliers out there or purchasers of materials, there is a uniform commercial code provision which applies in all 50 states about force majeure for sale of goods. But for purposes of construction performance contracts, if you don’t have force majeure in your contract, it’s not going to be implied. Okay?
Chris Ng:
There may be other doctrines to think about like impossibility or impracticability. Those doctrines, legal doctrines exist in various states and the states common law will dictate whether or not that is a plausible defense for you.
Chris Ng:
Secondly, and of course, probably the most important thing is what does your force majeure clause say? What does it lay out? Sometimes, but not often, the force majeure clause will actually refer to a pandemic or epidemic. And so, the question a lot of times is, does my contract, is it going to protect me in this particular force majeure world coronavirus?
Chris Ng:
So, if you look at some of the most popular industry contracts like the AIA, you’ll notice that in 8.3.1, we have a little bit of liberality, a catch-all clause if you will. It describes fire, delays, weather, et cetera, but then it has a catch all of other causes beyond the contractor’s control. So, that is a fairly broad force majeure provision. It does contemplate an extension of time and potentially additional money.
Chris Ng:
So, a lot of times in your AIA contract, if it’s a GC using it, they will strike 8.3.2 or 8.3.3, or modify it a bit. But under the default provisions, at least in the 2017 form, you will be able to get additional time as long as you comply with the notice requirements and potentially, the recovery of delay damages as long as again, you follow the provisions of your contract.
Chris Ng:
ConsensusDocs does specifically refer to epidemics and unavoidable circumstances. So, that’s a form contract that probably would kick in, the force majeure provision would kick in for ConsensusDocs. And the FARs, also refers specifically to epidemics.
Chris Ng:
And again, the important part here is we’re not going to go through you’ll notice and change order provisions, the termination provisions. I know most of you have read those and know what they are, but there may be other sorts of clauses that will kick in as well that sort of support the force majeure issue or defense.
Chris Ng:
For instance, template four of the AIA form contract talks about emergencies. And when you have declarations of emergencies like we’ve had at the city, state and county and federal level, this may kick in 10.4 to further support your force majeure issue and related sort of argument. So, that’s why an exhaustive look at your contract from beginning to end is super important.
Chris Ng:
And of course, price escalation clause provisions. Again, this is the one that we thought was going to be in front and center a few weeks ago, and it’s gotten much broader than that. But your price escalation clause will be important, not just with tariffs, but of course now with coronavirus issues.
Chris Ng:
For suppliers, so I know there’s a few suppliers out here on this broadcast. So, this is a somewhat more complicated issue and area. So, for the subs that buy the supplies and for the suppliers that sell and even for the suppliers that purchase in our traders and sort of in the middle, those are the ones that are typically at most risk here. Because while there may be a force majeure clause with its manufacturer or its original supplier in China, it may not have the reciprocal force majeure provision upstream with the person that it’s selling to, the end user here.
Chris Ng:
So, that obviously is an issue that’s popping up and we’re seeing that now almost a daily basis where someone would call and say, “Oh my gosh, I have a force majeure provision. My Chinese manufacturer has invoked it, but I don’t have a force majeure provision upstream with my guy, what do I do?” And if you haven’t specified materials to the end user, they don’t know the specified source, that could be an issue. And so, again, without going through a whole battle of the forms analysis, which would be a three-hour class, it’s important to know that your contract as a supplier doesn’t just consist of a credit agreement with terms and conditions. You may have master supply agreement.
Chris Ng:
And in that case, this provision, the force majeure provision might be much more readily available. However, if you’re doing business on a purchase order and an invoice basis you give a quote, you got a purchase order, you would invoice, maybe the sales order confirmation in between, what are the rights, duties and remedies? And it depends. It depends on what your terms leadership say, depends on what your customers terms and conditions say, it depends what’s on the internet and online terms and conditions.
Chris Ng:
I will say and I’m not being flippant about how wonderful terms or conditions of sale are. They are great. They are important. You should have them in every credit agreement. But when you move forward in a relationship, oftentimes, you have changed the underlying terms and conditions with new purchase orders and invoices that are fulfilled down the road.
Chris Ng:
And so, what will often happen is you’ll have what we call for us UCC geeks and I teach business line and the UCC at university, so I geek out about this provision, but we have what’s called a knockout provision, where the terms and conditions would cancel each other out of the purchase order and the invoice and you’d be stuck with whatever the UCC provides.
Chris Ng:
And the UCC is usually buyer friendly. It’s very buyer friendly. And there is a very particularly important section of the UCC called 2-615 or 2-615, which does have a broad force majeure sort of protection. It talks about commercial impracticability, which is good, compliance in good faith with any applicable governmental regulation or order. Obviously, we’ve got lots of those here.
Chris Ng:
So, for you, suppliers, that getting a battle form situation, you may be protected. But again, I’m not trying to oversell the expertise here of construction lawyers, but it’s imperative that you talk to not just an attorney, but a construction attorney in your jurisdiction. We always will recommend the ABA for my construction law attorneys. Again, a lot of them who are members of Levelset because of their particular expertise and their knowledge of how this all works to help you understand what terms are going to control here and what your obligations are, and what you’re liable for and what you’re not liable for. Okay. So, that’s all very important stuff.
Chris Ng:
So, let me take one step back here, before we start taking questions. So, the force majeure provision, don’t be mistaken, it doesn’t itself let you walk away. There’s going to be other things that fall along. There’s going to be other language that’s going to require you to give notice of the force majeure provision, maybe in some contracts, submit a mitigation plan, maybe within 10, 15, 20 days. So, you may have an obligation on you as soon as you identify the force majeure issue, to document it, and then maybe show your customer that you’re doing everything you can try and mitigate that issue.
Chris Ng:
Making sure you document. Again, document, document, document, taking reasonable steps. And look, a lot of this is not illegal. But a lot of this is just human stuff. It’s able to call and talk to your customer, the owner, the GC, and trying to work out together what reasonable steps you guys can take together to mitigate the losses, what your expectation is for the future. And try to work this out on a human business level, not just on a legal level.
Chris Ng:
So, monitor the situation, keep on track of those orders that are coming out on a daily basis in your jurisdiction. Review your contract documents with your counsel. Keep and maintain detailed records. Review your insurance coverage, and take steps to mitigate and explore whatever else you can do to try to satisfy your contractual obligations.
Chris Ng:
We have some resources here, obviously some stuff just from the CDC and Johns Hopkins, but also AGC is doing a fantastic job of staying on top of things and advocating for the construction industry and what helps you to interpret what these words mean.
Chris Ng:
And Levelset doing a fantastic job. They have a survival kit for construction businesses on its website and as updated blog Tuesdays and it’s all good stuff. So, I encourage you all to stay up to date with this stuff, continue to do more webinars and seminars. We’ll keep doing them. We’ll be around to answer questions. Stay healthy, be safe, and we’ll take some questions.
Nate Budde:
Chris, I see there’s a question that’s talking specifically about lien rights deadlines and the effect of closures of courts. The question says specifically, but I guess the same thing would apply to county recorders offices, potentially a business they can no longer receive mail for notices. What do these closures of either governmental offices or businesses themselves? What how’s that going to affect people trying to do what they’re supposed to do in maintaining their security rights on a project? How do they go about that? What’s going to be the question here?
Chris Ng:
Yeah. And here’s my lawyer answer. It depends. I know it’s not what people want to hear. This is unprecedented uncharted territory for all of us. So, I will say however, there’s a couple of takeaways for sure with that question.
Chris Ng:
One is if you are contemplating you’re going to need to record a mechanics lien because your project is suspended for an extended period of time or you’re terminated or you’re going to need to walk off because you can’t make payroll and you’re going to need to try to salvage your situation, whatever it is, make sure you get your mechanics lien recorded as soon as possible because it may be delayed. And we don’t know yet what the jurisdictions are going to do as far as granting leniency. They may they may not.
Chris Ng:
Likewise, for lawsuits, I would say it’s important for you to turn over your cases to your attorneys as soon as possible because they may not be able to file a lawsuit the next day for you to foreclose on a mechanics lien. I mean, we ran into yesterday where courts are like, “Hey, sorry. It’s not going to happen today.” So, it’s very important to turn over stuff sooner rather than later. Don’t wait to the last few days on a foreclosure deadline to move those things for you.
Nate Budde:
I’d like to jump in really quick as well. I think that’s absolutely the right information that Chris is giving from a perspective here of somebody who has gone through a not a similar event, but a similar event in terms of closures with Katrina, when we had to try to file stuff down here in Louisiana, in the aftermath of that type of a disaster. The advice is absolutely perfect and that you want to stay ahead of everything and get everything done as quickly as you can and not wait until the end because you don’t know what’s going to happen.
Nate Budde:
But it’s not necessarily a doomsday scenario if something comes up where potentially the courts closed down completely. Sometimes there are provisions where the deadline is told so that you don’t lose your rights for exactly one of the reasons that he was talking about contractually of circumstances completely beyond anybody’s control. But the real takeaway is to be proactive and try to avoid that situation where you’re going to be in a situation like that to begin with.
Chris Ng:
Now, Richard, Sara and I were talking this morning about for instance, in a lot of states, you have an obligation to serve a notice of intent or your mechanics lien before you record it or after and how do you do that if businesses are shut down? I know like an hour building, our building will not accept FedExes or overnight deliveries or anything like that.
Chris Ng:
So, it’s being careful and mindful of the method that you’re going to use to make sure that you comply with the statute as best you can. And I know in California, again, the law says that even if a certified mail is refused, that that could still count as good service. So, it really depends on your jurisdiction and again, talking with your counsel to make sure that you’re doing the best you can to try to protect yourself. Sara, Richard, am I on or you want to add to that?
Richard Wittbrod:
Yeah. This is Richard. Just to put a final point on that, most jurisdictions as long as the lien claimant has taken the reasonable steps to comply with the statute, I would suspect that a court wouldn’t, as an affirmative defense, reject the lien because the building was closed or the business was closed.
Richard Wittbrod:
So, as long as you take your reasonable steps, and then also, in terms of the courts, right, there must be an equitable tolling, the courts are closed and you cannot accept filing. In some jurisdictions remember, they will accept filing electronically. And if that’s the case, that’s what you also want to take a look at, either you as a contractor or supplier or your counselor.
Chris Ng:
So, if I might make, so I have a text message here from a client in Arizona. I’m not sure they’re not using the webinar chat here. And this is going to be a topic that Richard and Sara, I’m sure will love to jump in on. We’ve been talking about this for the last 8, 10 hours ad nauseum. We were all up super late last night trying to help our clients with this issue, which is, in Arizona, we’re concerned that they’re going to follow suit as in California, where you’re going to have conflicting state and county orders. What do you do in the event, which has precedence?
Chris Ng:
So, what does the city of Scottsdale, the county of Maricopa or the state of Arizona, the issue separate and conflicting orders, what do we recommend they do, just like we’re trying to figure out here in California?
Sara Kornblatt:
Well, conflicting orders is kind of the rule right now. So, everybody’s going to have to try to balance what is being heard. But what we’ve been telling our clients now is look at what the state is issuing and move forward, look for guidance from the project owner or the contractor if you aren’t the prime and assume that you can keep working because there are a lot of exemptions for construction, whether they be broad or narrow.
Sara Kornblatt:
So, go to work, maintain social distancing at your job site, and certainly at your offices, but look to the owners and get written directives from the owners as to what should be done, so that if they’re shutting things down, you need to know that you’re having to do all of those notice issues. Again, document, document, document. You have to make sure that all of this is going on in writing, both upstream and downstream.
Chris Ng:
Another great question from Melanie, who asks, and this is a great question. So, construction projects can continue with social distancing. But how about our business offices, which we think should be shut down? Does it apply?
Richard Wittbrod:
We just had that happen, again, we’ll focus on California and in Nevada. So, what we had indicated to our clients, told our clients that you have to have a home office in order to support the site, the crews on site. They’re not mutually exclusive. So, you have to have the home office. So, therefore, we believe that the home office can be operational and people should show up and support their site crews.
Richard Wittbrod:
But having said that, number one, it should be close to the public. No public meetings. You’re not going to meet a new potential client or do any of those types of things. So, you close the office. And number two, you post a sign that it is close to the public. But folks can, from the contractor or the owner, maintain the office. Also, as Sara just said, you have to practice social distancing, that is very important. And you have to instruct the client that way. And number three, obviously, if someone’s sick, they should not show up. And then finally, if you do have a staff person who can work remotely and efficiently, we recommend that they do that.
Nate Budde:
I see another question here with respect to notice of intense, whether that can be done over email and whether that’s valid. I can jump in for a little bit at the start and say, a notice of intent is not required in every state. So, the first answer to the question is if you’re in a state where you’re sending a notice of intent to lien as kind of a demand letter with the lien power behind it, absolutely, you can send it any way you want to, if it’s not a prerequisite to filing the valid lien itself. You can find out whether that’s the case by talking to your attorney, by looking on the resources that we make available at Levelset.
Nate Budde:
But if it is a requirement to a future lien claim, then there are methods set out by which that notice has to be provided in the state statutes and you can either use a service like Levelset or your attorney or some other lien provider who will be compliant with that, but it’s not often that email is accepted as a specifically delineated statutory form of delivery for a notice of intent to be to be valid.
Nate Budde:
There are exceptions like I mean, Utah and Iowa use an entirely online electronic system for notices. So that will be an electronic version. I know North Carolina I believe contemplates electronic delivery of notices with some sort of receipt confirmation. But it really depends on your state. Again, that’s the lawyer answer that nobody really likes to hear, but it really depends.
Chris Ng:
I see another question from Mr. Eaton in our chat window that asks about notarization. It’s a great question, I actually thought about that this morning, is how do you notarize documents? I mean, I think it can still be done within the confines of social distancing. It also depends on your jurisdiction and with the shutdown what it looks like. But I think a notary could still stand six feet away and probably notarize documents.
Chris Ng:
There are essential services that are going to be open. The FedEx Office is going to open. The post office is going to be open. And so, I imagine you’re going to have notaries available a lot of times in those places that will be available for these sorts of things, but it definitely does present a challenge, no doubt.
Sara Kornblatt:
And it’s another reason to make sure that you’re planning ahead because it’s just one more stumbling block that might take you more time to get done than you think would normally take.
Chris Ng:
We focus really on construction, obviously here. Remember, there’s so many other legal implications. With our employment department we had, it gives getting, talking about all of the issues that come along with what you need to do when somebody on the job shows up sick, maybe it’s your employee, maybe it’s another trades employee. What are your employees’ rights? What do you have to do as a company to protect your employee, if anything?
Chris Ng:
There’s lots of things, employment issues. So, clearly, there’s lots of things to think about as we try to figure out how we move forward from this. And it’s important to also have you’re not just your construction counsel, your claimant counsel, that everybody onboard to help you get through this.
Chris Ng:
Any other questions? I know there’s some questions about, yes, we will get the presentation. I think Levelset will circulate the materials, happy to share those.
Nate Budde:
Great. I don’t see any other questions coming through right now. But just to reiterate, if you have more questions, there is an expert center available on Levelset’s website where construction attorneys and other experts but even Chris is on there. I’m on there. A bunch of other construction attorneys are on there, you can ask a question, you can get information that way.
Nate Budde:
Also, we have reached out to a handful of construction attorneys who have said that they are willing to talk to people on short consultations for free to help people talk through some of the issues that have arisen due to the coronavirus and the implications that that has for their business and construction. So, that’s another opportunity that people have to get questions answered.
Nate Budde:
And like Chris said, we’re going to continue to be doing webinars and making information available to people to try to help out as much as we can. And I really want to thank Chris and Sara and Richard for taking their time and giving their expertise to this. I know everybody has a lot of questions. It’s a difficult time. We don’t really know what’s going on even, let alone what’s going to happen. So, it’s really great of them to share that expertise. And thank you all for joining us.