My Construction Law Wish List

I’ve been good this year.

Not great mind you, but good, and good is the standard, right?

So, here’s my construction law wish list this holiday season:

1. More Transparency. So much uncertainty and resultant litigation exists for the simple reason that contractors and subs don’t know when a higher tiered contractor or owner (on a lender financed project) has been paid for their work. So how about a requirement that owners, contractors and subcontractors of all tiers be required to disclose when payment applications are submitted, when payments are made and in what amount, and what pay applications have been paid. And because I’m pretty sure I’m at least within the 20th percentile of “good” this year how about a requirement that this information be provided through an online database accessible by all persons working on projects valued at over a certain dollar amount, say $500,000.
2. The Undefined “Owner” Problem. The code is replete with references to the “owner,” and in some cases, the “reputed owner.” But what owner is being referred to? The project owner? The owner who holds legal title? The code is very good about requiring notice, but if you don’t know who to give notice to, problems are bound to occur, and they do. For example, subs and suppliers must serve a preliminary notice on, among others, the owner or reputed owner. But if the sub or supplier doesn’t get paid and wants to record a mechanics lien what happens if the preliminary notice was sent to the project owner but not the legal owner? That is, the owner who is at risk of having their property sold. Conversely, what if the sub or supplier wants to serve a stop payment notice but the preliminary notice was sent to the legal owner but not the project owner who is holding the project funds? Compounding this is that in California these remedied are “cumulative,” meaning that you can pursue all of them at the same time. In short, we need a clear definition of “owner.” Even better: how about requiring that notice of the identity of the owner, direct contractor and any lender be recorded and updated if there are any changes before a building permit will be issued. It also wouldn’t hurt to disclose the project location or description. There are just too many potential “I gotcha” situations where a party claims that another party has not named the proper entities in preliminary notices, mechanics liens and stop payment notices.
3. Do What You’ve Promised to Do. If you’ve agreed to name someone as an additional insured you should be required to provide an endorsement, not just a certificate (which is often meaningless), showing that the entity you’ve promised to name as an additional insured is in fact an additional insured. And, how about requiring a party who has promised to carry certain types and amounts of insurance to provide a copy of the insurance policy – the full, current policy would be nice – if requested by the party who you contractually agreed to provide that insurance. You did, after all, agree to name them and to provide insurance, right? Why play games.
4. Let’s be Upfront About the Rules. Since preliminary notices vary depending on whether a project is a private works project or public works project, and your statutory remedies vary based on the same, how about a requirement that every construction contract is required to disclose whether the project is a private works project or public works project.
5. Standardization of Indemnity Clauses. California amended its construction indemnity clause sections a couple of years back. However, they’re still confusing. They vary depending on the type of project, who the indemnitor and indemnitee are, and whether a wrap insurance policy is in place, among other things. It’s like reading William Burrough’s Naked Lunch and not knowing whether you’re gaining or losing brain cells. So how about standardized indemnity clauses, much like California’s standardized waivers and releases, with provisions clearly articulate what claims they apply to, when defense obligations kick in, and whether such claims are insurable. Ok, that last one may be difficult since the insurance lobby would fight tooth and nail against it, plus insurance companies are like the Ebenezer Scrooges of the construction industry. But even Ebenezer turned around in the end, right?
6. Remove the “Hidden” Payment Bond Claimant Problem. Did you know that while you are required to serve a preliminary notice before making a mechanics lien claim or stop payment notice claim, you are not required to in order to make a payment bond claim. Few do, but it’s true. Even if you didn’t serve a preliminary notice you can still make a payment bond claim if you give notice to the payment bond surety within certain time periods set by whether a notice of completion or cessation has been recorded. For general contractors on public works projects who are required to furnish payment bonds this creates risks, because you might think everyone has gotten paid and you’re in the free and clear, but nope.

And here’s a holiday wish list from someone whose always been good, whether in French or otherwise. Meilleurs vœux!