In my latest Daily Journal of Commerce Construction column, I discuss Oregon’s new 5% retention rule. Parties negotiating construction contracts should stay mindful of how the new retention provisions may force changes to other contract and how such changes may affect all parties throughout construction of the project.
Read the full article at the Daily Journal of Commerce website. Subscribers only.
"Retention Rule Change May Have Unintended Consequences" was originally published March 19, 2014 by the Daily Journal of Commerce.
Yet another California court decision has been issued requiring a contractor to return over $750,000 received for work he performed on a casino while he was unlicensed. In rejecting the contractor’s arguments against disgorgement, the court found that (a) California Business and Professions Code § 7031’s penalties applied to work performed for tribal corporations and on tribal lands by a non-tribal entity, (b) the contractor, a sole ownership, could not use his individual standing as the RMO for a licensed separate corporation contractor to cover work done by the sole ownership, and (c) the contractor did not meet substantial compliance with the licensure statute when he knew a license was required yet waited until the construction work was nearly completed to apply for a license. Twenty-Nine Palms Enterprises Corporation v. Bardos (2012) 210 Cal. App. 4th 1435, 149 Cal Rptr 3d 52.
While this contractor's license failure was fairly blatant, the case serves as a reminder of courts’ consistent opinions that should a contractor allow its license to lapse for even one day from the time of contracting through completion, it may be denied payment or required to disgorge substantial sums already received. Contractors and owners alike should always ensure those contributing to the work of improvement are properly licensed. Both California’s Contractors State License Board and Oregon’s Construction Contractors Board have online license lookup services that are quick and easy. Checking these sites to ensure an active license may just be the difference between getting paid and performing significant construction work for free.
Any construction litigation party faced with responding to California’s standard form interrogatories is all too familiar with the confusing use of the undefined term “incident” and the largely inapplicable “personal injury” interrogatories in a construction case. Similarly, any construction litigator dealing with the standard form interrogatories has felt the burden of sifting through the plethora of boilerplate objections received in response. Last week, the Judicial Council of California addressed those issues by approving use of the new Form Interrogatories – Construction Litigation (DISC-005). Of note, these new interrogatories will:
- Allow for reference to document depositories commonly used in construction cases;
- Drop the personal injury interrogatories too often inapplicable to construction; and
- Replace the recurring term “incident” with “construction claim” or “construction defect claim."
The Judicial Council of California will post the approved form on its website in December 2012, and the form will become effective January 1, 2013. For those wanting a sneak peek, the draft form is available as attached to Agenda Item A10 from the Judicial Council’s October 25-26, 2012, meetings, available here.
Greater specificity to construction actions should allow the new form to better serve the purpose of California’s Civil Discovery Act. Also, these new construction-specific interrogatories may catch on in future years and serve as an investigative framework for construction claims in other states.
Parties to construction contracts take notice: the legislature enacted new consequences and contract restrictions to Oregon’s Prompt Pay Acts starting in 2012.
On public improvement contracts first advertised or solicited on or after May 28, 2012, the newly revised Act (a) changes the interest penalty rate for a prime contractor’s failure to make timely payment to subcontractors to 9 percent per annum from the current amorphous federally based rate; (b) requires prime contractors to provide first-tier subcontractors with a standard payment application form intended to clarify payment processing procedures throughout the life of the subcontract; and (c) mandates a 45-day notification period to subcontractors before changes are made to payment processing procedures. [HB 4034; ORS 279C.515; ORS 279C.580.]
On private construction contracts entered into after January 1, 2012, the newly revised Act (a) rejects attempts by any party to contractually force waiver or alteration of a subcontractor’s or material supplier’s rights to receive prompt progress payments within the time required by ORS 701.630; (b) requires private contracts expected to take 60 or more days to complete to conspicuously and expressly identify alternative billing cycles (other than monthly cycles); and (c) limits recovery of attorneys’ fees to the prevailing party in actions “to collect interest” under the Act (rather than the previous broader right to fees in actions “to collect payments or interest”). [SB 384; ORS 701.620 – 701.645.]
If you have not read through your contract payment terms recently, now is a good time to review and revise contract provisions to ensure receipt of prompt payment.