RFI Blog

RFI Blog

Legal Insights and Best Practices for
Texas Construction Professionals & Government Contractors

Taking Focus on the “Scope of Work”

Posted in Best Practices, Contract Negotiation, General Contractors, Subcontractors
microscope

Image courtesy of Flickr (Licensed) by © Steve Greaves.

 

One of the most important aspects of any agreement is the scope of work to be performed.  All too often disputes arise between general contractors and their subcontractors concerning the scope of the subcontractor’s responsibilities after work has begun.

It is not difficult to imagine a scenario where the project work has begun and the superintendent begins directing the performance of work that was never contemplated by the subcontractor.  Even worse, is when the subcontractor specifically excluded from its bid the work now been ordered.  How does this all too common dispute arise?

The question of who wins this battle is answered by Continue Reading

Sham Contracts and the Constitutional Mechanic’s Lien

Posted in Mechanic's Liens, Owners, Payment, Subcontractors

Compared to prime (general) contractors, it is much more difficult for subcontractors to perfect lien and bond claims on private projects.  Subcontractors must give timely notice of non-payment to the owner.  If the subcontractor claimant does not have an agreement with the prime contractor, notice must also be given to the prime contractor.  Failure to comply with the pre-lien notice requirements is fatal to a subcontractor’s lien claim

Prime contractors, on the other hand, are not burdened with pre-lien notice requirements.  They can still claim a lien (even if no affidavit is recorded) and the value of their lien claim is not affected by retainage.

The reasons for this disparate treatment stems from the fact that a general contractor’s lien rights derive from the Texas Constitution, common-law, contract and statute.  Subcontractors’ lien rights are derived solely from statute and are totally dependent upon compliance with these statutes. This system creates many obstacles and pitfalls for subcontractors that properly provide labor and materials. Continue Reading

Hell Hath No Fury Like a County Clerk Scorned

Posted in Best Practices, General Contractors, Mechanic's Liens, Payment, Subcontractors

 

After struggling to cobble together your mechanic’s lien affidavit, you’ve driven 150 miles to reach the county clerk’s office before close of business. Today is the filing deadline.  No worries, you made it!! But now you stand toe-to-toe and face-to-face with a clerk that refuses to record your claim.  WHAT NOW???

More often than you might imagine, this same scene plays out across Texas.  I’ve had to send my fair share of post-filing fight flowers to mend fences with clerks that do not understand the limits of their own discretion.  The fights are not limited to affidavits claiming mechanic’s liens.  I’ve witnessed clerks refuse to accept indemnity bonds, statutory payment bonds and other time critical records.

I will guarantee that posted in the office of every clerk is a sign advising, Continue Reading

When a Handshake is Not Enough – the Change Order

Posted in Best Practices, Change Orders, Contracting, Subcontractors

Any construction contract worth its salt includes provisions for modifying the agreement, either by agreement or by unilateral action.  The most common modifications increase or decrease the contract scope, contract dollar amount and time.  Commonly referred as a “change order”, when used correctly and consistently, this instrument works to avoid disputes when payment becomes due, the project seems untimely or the budget is exceeded.  They can also become a double-edged sword if not carefully reviewed and understood in the context of the contract language requiring their use. Continue Reading

Criminals in the Construction Industry – Texas’ Trust Fund Statute

Posted in Best Practices, General Contractors, Owners, Payment, Subcontractors

Do you know any criminals? 

If you have worked in the construction industry for very long then the likely answer is, “Yes”!  I’m not talking about folks that you believe are cheats, scoundrels and liars.  Nope.  Instead, I’m talking about contractors, subcontractors and owners that misapply funds for construction projects received for the benefit of those that furnish labor and materials.  It is rare (in fact, I don’t know of a similar statute) to find a serious crime located outside of the Texas Penal Code.  However, Chapter 162 of the Texas Property Code, commonly referred to as the “Texas Trust Fund Statute,” makes the misapplication of $500 or more a Class A misdemeanor.  If a person Continue Reading

When Owners Withhold Payment – Enforceability of Contingent Payment Clauses in Texas

Posted in Best Practices, Contract Negotiation, Payment
Licensed Image from Bulkimport/Photodisc/Thinkstock

Licensed Image from Bulkimport/Photodisc/Thinkstock

Who bears the risk when an owner refuses to pay the general contractor or experiences financial failure?  More than likely, the subcontractors whose agreements include a contingent payment clause.  Two types of payment clauses exist and both are enforceable.  “Pay-when-Paid” clauses and “Pay-if-Paid.”  Pay-when-paid clauses allow the general contractor to wait a reasonable time for the owner to pay before paying the subcontractor.  Pay-if-paid clauses shift the risk of non-payment completely to the subcontractor.  Stated another way, a pay-if-paid clause makes the general contractor’s duty to pay the subcontractor absolutely conditional upon receiving the owner’s payment.  Continue Reading

Avoid Being Bitten by Spoliation

Posted in Best Practices, General Contractors, Owners, Subcontractors

 

Image courtesy of Flickr (Licensed) by © Nick Carter

Image courtesy of Flickr (Licensed) by © David~O

Don’t lose downstream claims correcting construction defects.

Your project did not go well. Subcontractors performed poorly, the architect was impossible and delivery occurred late.  You were lucky to break even and glad to be finished.  A couple of years pass and the phone rings.  It’s the owner.  The project is now leaking and merchandise is being ruined.  Your investigation confirms construction defects and the owner is threatening a lawsuit if you don’t immediately begin repairs.  What’s the next step?

What is your plan?

Suppose you no longer work with the responsible subcontractor?  Do you self perform the work? Hire a replacement?  How do you appease the owner?  If you plan to sue the derelict sub or his insurance company for the repair work or the owner’s damages, it is imperative to consider how rushing to perform repair work now will impact your future claims. Continue Reading

Miller Act Bonds: Not Always the Protection a Subcontractor Expects

Posted in Bonds, Federal Procurement, Public Works

 

Image courtesy of Flickr (Licensed) by © Nick Carter

Image courtesy of Flickr (Licensed) by © Nick Carter

When a construction project goes sideways, a subcontractor’s ability to place a lien or perfect a bond claim is often the difference between making a profit (or breaking even) and taking a loss. And, as any contractor that does a substantial amount of government contracting work knows, bonds are the only game in town for most local, state and federal government work.

On federal projects, the statutory requirement for the provision of Miller Act payment bonds provides a measure of confidence for subcontractors that there will be payment at the end of the job, even if the prime defaults or breaches its agreement. To perfect a Miller Act claim, a first tier subcontractor need only bring suit on the bond within one year of completing itswork. A second tier subcontractor need only give notice to the prime contractor within 90 days of completing its work. Compared to a Texas public bond (which includes third month notice, sworn statement of account, and copies of contract requirements), perfecting a Miller Act bond claim is as simple as it gets. Continue Reading

Subcontractors Strike Out – City Eliminates Payment Bond

Posted in Bonds, Public Works, Subcontractors

 

Image courtesy of Flickr (Licensed) by © Mike Licht, NotionsCapital.com

Image courtesy of Flickr (Licensed) by © mark6mauno.

That Public Works Project you are bidding may not be bonded after all.  Under Texas Law, state and local projects with a price tag of $25,000 or more are required to be bonded.  Apparently, at least one Texas municipality has decided to save money and eliminate the bonding requirement from one of its projects.  This is a clear violation of law that places huge risks on the backs of subcontractors in the event their prime contractors experience a financial collapse.

According to an August 30, 2014 article in the Kilgore News Herald, Continue Reading

Reverse and Render – Texas 5th Court of Appeals Holds Trial Courts Lack Discretion to Deny Mechanic’s Lien Foreclosure

Posted in Mechanic's Liens, Recent Developments

 

Perfecting a statutory mechanic’s and materialman’s lien under current Texas law is difficult.  The statutes are less than clear and chocked full of traps and deadlines that trip up many contractors and material suppliers.  Fortunately, lien perfection typically results in payment or pre-trial settlement once foreclosure is threatened.  However, when payment is not forthcoming, a claimant must timely file a lawsuit to foreclose the lien. 

On more than one occasion I’ve represented contractors who managed to dot every ‘i’ and cross  every ‘t’ necessary to perfect a lien claim only to have a trial court deny foreclosure because he “just didn’t feel right about it”, “foreclosure seems vindictive” or because in their experience, “its customary that the lien will get paid whenever the property is sold.”  WHAT?!?  My unstated response is: “You can’t do that!”  or “Judge, you are rewriting the law based upon whims and feelings.  My client has no way of getting paid without foreclosure.”  Unfortunately, most of my clients were either unwilling or unable to appeal.

This week lien claimants won an important victory in Crawford Services, Inc., v. Skillman International Firm, L.L.C., when the Texas Fifth Court of Appeals published an opinion reversing and rendering judgment from Dallas County.  Specifically, the appellate court held that a Dallas County District court abused its discretion by refusing to foreclose a perfected mechanic’s lien. Continue Reading