August 2011

Yesterday, I presented at a CLE on Pennsylvania’s Mechanics Lien Law.  As usual, I received great questions from those in attendance.  One questioner asked an interesting questions regarding whether an equipment rental company was prohibited from filing a mechanics lien in Pennsylvania.  I thought the answer was fairly easy and gave a quick “No” response.  However, after emailing with the questioner following the presentation I realized that the question was more nuanced than I originally thought.  And, after further review, I believe the answer is “it depends.”

Three sections of the Pennsylvania Mechanics Lien Law make this question more complex than it appears.  First, let’s start by seeing who the Lien Law says is entitled to file a Mechanics Lien as a matter of right.  Section 1301 of the Lien Law states that a contractor or subcontractor is entitled to a mechancis lien to secure a debt incurred “for labor or materials furnished in the erection or construction, or the alteration or repair of the improvement, provided that the amount of the claim, other than amounts determined by apportionment under section 306(b) of this act, shall exceed five hundred dollars ($500).”  49 Pa. Stat. Ann. § 1301 (West).

Next, let’s look at what the Lien Law defines as “labor and materials furnished.”  According to Section 1201(9)  of the Lien Law “Labor” includes the furnishing of skill or superintendence.”  49 Pa. Stat. Ann. § 1201 (West).  According to Section 1201(7) of the Lien Law “materials means building materials and supplies of all kinds, and also includes fixtures, machinery and equipment reasonably necessary to and incorporated into the improvement.”  49 Pa. Stat. Ann. § 1201 (West).

If we stopped out analysis here, then the answer to our question appears straightforward because clearly the Lien Law includes “equipment reasonable necessary to . . . the improvement.”  Therefore, pursuant to Section 1301, a lien would be available for rental of such equipment, provided all of the other factors necessary for filing and perfecting a mechanics lien are met.

However, as the questioner pointed out Section 1303(e) of the Lien Law states ” Security interests. No lien shall be allowed for that portion of a debt representing the contract price of any materials against which the claimant holds or has claimed a security interest under the Pennsylvania Uniform Commercial Code or to which he has reserved title or the right to reacquire title.”  49 Pa. Stat. Ann. § 1303 (West)  Clearly, a company that rents equipment retains title to that equipment.  So, is a rental equipment company out of luck if it needs to file a mechanics lien?

If the rental company provides labor to operate the equipment, then it appears that the right to lien is clear because the labor provided was utilized in construction of the project.

But what about a rental equipment company that did not provide labor and just rents equipment to a contractor who will supply the labor?  Well, there is no controlling case law on point.  However, there are a few pre-1963 Lien Law cases that say equipment furnished to a project that is not incorporated into the project as a fixture is not lienable.  Moreover, the Westmoreland County Court of Common Pleas held “the equipment or fixtures must be of a permanent character which will pass as a part of the freehold and reasonably necessary to equip the building for the purpose for which it is intended.”  Joyce v. Sarnelli, 29 Pa. D. & C.3d 544, 547 (Pa. Com. Pl. 1984).  However, the question before the Court of Common Pleas Court involved whether refrigeration equipment used in a supermarket was lienable.  While the Court ruled that since the refrigeration equipment was not of a permanent quality of the building and thus lienable, it also should be noted that the refrigeration equipment was not used to construction the building either.

Moreover, the Lien Law’s use of the word “and” in the clause “equipment reasonably necessary to and incorporated into the improvement” seems to indicate that the equipment furnished must become a permanent part of the improvement.

Still its a close call.  Certainly, there is a good faith basis for a company that only rents equipment without providing labor to claim a lien.  Who knows, maybe that lien claim will end up with the Superior Court to clarify the issue.  In any event, great question!

Last night, I took a break from Hurricane Irene coverage and caught an episode of  the Discovery Channel’s award winning, Steven Spielberg produced documentary, The Rising:  Rebuilding Ground Zero.  Interestly, the episode I caught dealt with construction project scheduling and delays.  Specifically, it focused on the challenges that  the project’s concrete subcontractor was having maintaining the schedule and the impacts the concrete sub’s delays were having on subsequent trades.  Leave it to Steven Spielberg to make delay claims, long known to make Judges beg for settlement and juries’ eyes glaze over, interesting and understandable to the average viewer.  The episode is a lesson to construction attorneys on how to explain delay claims in an uncomplicated understandable manner. 

However, in the process of presenting the challenegs a contractor faces in maintaining a construction schedule in an enjoyable and understanable manner, the episode also probably doomed any chance of the concrete subcontractor – who the producers as far as I know do not name in the program – from recovering any delay claim it may have.  Throughout the episode, the concrete sub’s colorful (and no doubt well intentioned) forman, Georgie Fitzgerald, repeatedly admits that it is the subcontractor’s fault that the project is behind schedule and that the concrete sub’s delay is impacting following trades.  You get an idea of what I am talking about in the imbedded clip below.

What the clip doesn’t show that the full episode does, is Mr. Fitzgerald explaining how he intends to make up project time and why he feels the project is delayed.  The episode even goes as far as showing project meetings involving all players discussing the delay.  Rarely do we see first hand how such meetings playout as we are usually left to only speculate based upon vague project meeting minutes.  If the delay claim ever did go to litigation, one could imagine a resourceful attorney simply playing these clips of Mr. Fitzgerald to a Judge, Jury, or Arbitrator. 

Because my bedtime is around 9 pm, I did not stay up to watch later episodes and am not sure if the concrete sub ever made up the delay.  I am also curious to know if a delay claim ever arose from the concrete sub’s delay.  And, if so, if this episode is being used in that litigation.  I know I certainly would use it. 

In an earlier post, I outlined what a common seanse infrastructure bill should look like.  As the Wall Street Journal reported yesterday, President Obama is apparently not an avid reader of Supplemental Conditions because he is getting ready to market a new “investment” in infrastructure spending program that misses the mark entirely.  I understand that many underemployed construction firms see a new infrastructure spending program as a silver lining to the dark cloud that hangs over the industry right now.  Indeed, the AGC is all but begging to for this bill to be passed.  But, as the Journal alludes to, any new infrastructure spending program is likely to have little impact on the economic realities the industry faces.  First, many of the so called shovel ready projects are at least 3 years from the first shovel being put into the ground.  Additionally, President Obama’s plan will undoubtedly require the use of project labor agreements thereby funneling the spending to union only construction firms and leaving an overwhelming majority of construction firms out in the cold. 

What we need is not targeted spending, but pro-growth policies that will benefit the entire market place.  Public spending directed at 11% (the percentage of the construction industry that is unionized) is simply not going to do it.  Yes, infrastructure spending is nice – and necessary – but it is also useless without vibrant private sector projects.  Unfortunately, no amount of President Obama’s “investment” can get those projects going.

A few months ago I wrote an article for Construction Executive Magazine about a Western District of Pennsylvania case, Sauer, Inc. v. Honeywell, that discussed the devils that exist in the details of standard lien waivers and releases and the dangers that lurk for those that do not pay attention to them.

My article that appears in today’s Legal Intelligencer which discusses both the Honeywell case and a recent case from the Eastern District of Pennsylvania, First General Construction Corp. v. Kasco Construction Co. Inc, concerning the same subject.

It was also the subject of my June 15, 2011 blog post.

You now have been warned.  Review those lien waivers.

In a recent mediation, I commented that the two most important terms in a construction contract are (1) scope and (2) price.  I should have added a third – terms and timing of payment.  A contractor that cannot get paid and manage cash flow will not be around too long.

When a client asks me to review a subcontract for them, I am always amazed how hardly any of them have questions on the payment timing clauses.  Most construction subcontracts employ some form of payment timing mechanism which usually falls into one of two categories.  One type states that payment is due to a subcontractor within a certain number of days after a contractor receives payment from the owner (a pay-when-paid clause).  The other type states that  a contractor’s receipt of payment from the owner is a strict condition precedent on payment to a subcontractor (a pay-if-paid clause).

The differences in the language used in a pay-when-paid verse a pay-if-paid clauses are often subtle .  However, these subtleties dramatically alter the terms of payment. Pay-when-paid clauses merely create a time period for releasing payment to a subcontractor once a contractor is itself paid.  Conversely, pay-if-paid clauses actually shift the risk of non-payment by an owner from the contractor to the subcontractor.

A recent decision from the Third Circuit, Sloane v. Liberty Mutual Ins., highlights how these nusiances in contract language can play out in a construction contract payment dispute.  (For a complete breakdown of the decision, check out Jennifer Horn’s blog post over at Construction Law Signal.)  In Sloane, the contract in question contained the following contract provision:

“Final payment shall be made within thirty (30) days after the last of the following to occur, the occurrence of all of which shall be conditions precedent to such final payment… [contractor] shall have received final payment from [owner]  for [subcontractor’s] Work” (emphasis added)”

The Circuit Court held that this language unequivocally created a “pay-if-paid” clause which conditioned payment to the subcontractor on the contractor having first received payment from the owner.  The Third Circuit’s decision in Sloane tracks decisions from the New Jersey District Court and New Jersey Superior Court last year concerning pay-when-paid clauses and which I wrote about on my old blog.

I see two takeaways from all of these decisions.

  1. Yes, a contractor or higher tier subcontractor can “shift the risk” of non-payment from the owner (or higher tier contractor) to you.
  2. Courts have now given us clear guidance on what will be considered a “pay-when-paid” clause v. a “pay-if-paid” clause and subcontractors need to pay close attention to the language a subcontract uses concerning when payment is made (it is suffice to say if it contains language saying receipt of payment is a “condition precedent” then it is the more draconian “pay-if-paid” clause.)

Just remember what is the point of negotiating price and scope if you can’t get paid?  So, next time, take ten extra minutes looking at the payment timing clauses in your subcontracts, otherwise you could end up the topic of a future blog post.

 

Despite the slowing economy, the threat of a double dip recession, and the general malaise in the construction industry, the cost of building materials continues to rise.  In this month’s issue of Construction Executive Magazine, I offer some ideas on dealing with rising price of materials.  Here is a link to the article.

Crain’s New York Business is reporting that an arbitrator has ordered striking concrete workers back to work on four sites covered by project labor agreements (“PLA’s”).  In my previous post, I discussed how these workers were violating the terms of the PLA’s No Strike/Work Stoppages Clause.

Despite the Cement Union’s decision to ignore the clear terms of the PLA and go on strike, the Real Estate Board of New York still finds value in them:

“When we got the [project labor agreement], the main thing we got out of it was the no-strike clause,” said Mr. Spinola said. “The fact that we had the PLA and enforced it, and they’re back working today demonstrates there was a value to the PLA.”

Moreover, although it is reported that workers have honored the arbitrator’s ruling and returned to work on some sites, the Union plans to appeal the decision.  According to Crain’s:

“A source close to the building trades said the Cement and Concrete Workers District Council would appeal the ruling. The source said the union’s counsel was not properly notified about Tuesday’s hearing and therefore did not know about it in time to show up. Had officials known about the hearing, they would have argued that the no-strike provision was no longer in effect because the workers’ contract expired at the end of June.”

I will continue to monitor this interesting story.

The Concrete Union strike in New York and subsequent walk off on the World Trade Center Memorial and Madison Square Garden projects  made minor fanfare this week.    What many do not realize is that the Concrete Union was the signatory to a project labor agreement (“PLA”) covering these project which is supposed to prevent strikes, walkouts, and labor stoppages.  As Crain’s New York Business reported:

“Workers are not supposed to strike at sites where developers and unions inked project labor agreements, but an industry source said concrete workers did not show up Monday for their jobs at the new Weill Cornell Medical Center research building on East 69th Street, a project that does have such an agreement. The source said a request for an arbitration hearing was made to the Building and Construction Trades Council.”

Unions sell PLA’s to private developers and government bodies as a way to prevent strikes and walkouts and to assure overall labor “peace.”  However, the situation in New York draws into question whether Unions can continue to make this selling point.

The strikes in New York also unmask the true intentions of Unions when promoting  the use of PLA’s.  While Unions claim PLA’s prevent strikes and walkouts, clearly this is not the case.  The ABC has a great post about repeated violations of the No Work Stoppage/No Strike clauses in PLA’s by unions throughout the country. Apparently, Labor does not deny that these No Strike Clauses are being repeatedly violated.  Moreover, the collective bargaining agreement between a local union and a signatory contractor likely already prevents strikes and walkouts.  Thus, what the Unions are really saying when they pitch PLA’s as a way to guarantee labor “peace” is that the job will be free from unlawful secondary picketing, threats of violence, and other shenanigans Unions pull to get their way.  In other words, PLA’s are a veiled form of extortion.  And, on government funding projects, what do the taxpayers get in return for extracted labor “peace?”  Typically, projects that cost more and take longer to complete.

What is even troubling about Union violations of a PLA is that owners are apparently powerless to stop the violation.  The Norris–La Guardia Act Anti-Injunction Act, which, as those that followed the NFL lockout will recall, prohibits a court from issuing an injunction that interferes with a labor strike and, thus, ordering workers striking in violation of a PLA back to work.  Moreover, even if the Act did not apply, it is doubtful – indeed the standard is very high – that a Court would issue an injunction forcing someone to return to work.

Conversely,  if a contractor violates a PLA by not hiring employees through the hall the consequences are severe.  Potentially, a contractor could be required to pay contributions to the local union’s benefit funds for the non-union employees that worked on the job, whether those employees were actually union members or not.  Because those contributions are based on the  the number of hours each employee worked on the job, the financial liability can quickly add up to significant amounts.  Furthermore, the officers of the offending firm face personal liability to the Union Funds for these contributions.

Hopefully, this recent dust up over PLA’s will continue to erode public support for them.  If Unions do not honor PLA’s what is their purpose?

 

 

As promised, I am back blogging on construction (however, my previous posts will not be the last your hear about hard money lending).

In a previous post, I discussed the scuttlebutt surrounding NLRB’s decision in Brandon Medical Center, which blessed the use of large inflatable rats to protest a secondary employer’s decision to hire a non-union contractor.  Based upon the Board’s Brandon Medical Center, and earlier decisions in Eliason, Silverline Construction, and Forcine Concrete & Construction Co., Inc., I predicted that short of outright thuggery, it would be difficult to imagine what conduct the Board would deem coercive.  A recent General Counsel advice memorandum shows that my prediction may be coming true.

In Abestos, Lead, & Hazardous Waste Laborer’s Local 78 (Midway Jewish Center),  Local 78 picketed the Midway Jewish Center using an inflatable rat and hand-billing after the Center’s general contractor hired a merit shop asbestos abatement contractor.  The Rat held a sign that encouraged the public to call the Center’s rabbi to chastise him for allowing a merit based firm on site.  Expectantly, the General Counsel advised the Regional Director that following the Board’s decision in Brandon Medical Center that the union’s action did not violate Section 8(b)(4)(ii)(B). Never mind that the the picketing, including handing handbills to worshipers coming to the Center , continued during passover and on Saturday (which the Board’s memo reminds readers is the “Jewish Sabbath,” as not to be confused with other Saturday Sabbaths). A copy of the Midway Jewish Center case is available here.  Midway Jewish Center.

Seriously, can the union really argue that it was engaged in expressive activity directed to the public?  And, would it have really hurt Local 78 if they gave picketing a rest during Passover?  Of course not, because the Local’s goal was not to influence the public, rather it was to harass those going to worship, who had little — if anything — to do with the selection of the merit shop asbestos abatement firm.