Monday, January 23, 2017

Michigan Legislature Renews Effort to Abolish Prevailing Wage

On January 18, 2017,  Senators Peter MacGregor, Dave Hildenbrand, and Arlan Meekhof, introduced S.B. 0003, which would repeal Michigan's Prevailing Wage statute (PA 166 of 1965; MCL 408.551, et seq) in its entirety. 

The proposed legislation also includes a nominal appropriation to make it more difficult to challenge the repeal if enacted.

We'll continue to monitor this proposed legislation, which is certain to attract attention in the upcoming months.   

Thursday, January 05, 2017

New Skilled Trades Regulation Act Impacts Section 114 of Michigan Construction Lien Act

During the recent lame duck session in December, the Michigan Legislature passed a series of bills aimed at consolidating the licensing and regulation of skilled trades, including residential builders, electricians, plumbing and mechanical contractors. All of these trades are now regulated under the “Skilled Trades Regulation Act.” 

S.B. 963 repealed the Electrical Administrative Act, the Forbes Mechanical Contractors Act, the State Plumbing Act, the Boiler Act, and the Building Officials and Inspectors Registration Act and created in its place the "Skilled Trades Regulation Act" to regulate all of those trades. Signed by Governor Snyder on January 3, 2017, the new statute, designated Public Act 407 of 2016 will take effect in 90 days on April 4, 2017

Passage of Skilled Trades Regulation Act also affects the Michigan Construction Lien Act for residential construction.  

Section 114 of the Construction Lien Act requires that contracts for residential construction include certain statutory language regarding licensure.  In a companion bill, S.B. 971 (PA 415 of 2016), the Michigan Legislature changed Section 114 to refer to the new “Skilled Trades Regulation Act.”  

TAKE ACTION IN JANUARY, 2017 –

1. Residential builders and other contractors that perform residential construction, you should update your contracts to incorporate the new language. It’s an easy fix. Do it today.   

2. Residential Builders and contractors who do not use a written contract or whose contract does not include any of the language required by Section 114, you should use this opportunity fix things. Amend your contract form to include the (new) statutory language. Don’t wait.

NEW LANGUAGE / ADD TO YOUR CONTRACT

“Pursuant to Section 114 of the Michigan Construction Lien Act, Homeowner is advised as follows:

“(a) That a residential builder or a residential maintenance and alteration contractor is required to be licensed under article 24 of the occupational code, 1980 PA 299, MCL 339.2401 to 339.2412. That an electrician is required to be licensed under article 7 of the skilled trades regulation act, MCL 339.5701 to 339.5739. That a plumbing contractor is required to be licensed under article 11 of the skilled trades regulation act, MCL 339.6101 to 339.6133. That a mechanical contractor is required to be licensed under article 8 of the skilled trades regulation act, MCL 339.5801 to 339.5819. 

“(b) If the contractor is required to be licensed to provide the contracted improvement, that the contractor is licensed and the contractor’s license number.

For residential builders, use the following: 

(b) {Name of Contractor} is a licensed residential builder in the State of Michigan (License No. ___________; {qualifying officer’s name}, Qualifying Officer.

For electrical contractors, use the following:

(b) {Name of Contractor” is a licensed electrician in the State of Michigan (License No. _______; {qualifying officer’s name}, Qualifying Officer.  

NOTE: Under Michigan law, for residential construction, the entity contracting for the work must be properly licensed. It is not sufficient for an individual to be licensed if the business entity, corporation or LLC, which is contracting with the homeowner, is not licensed. This is a common pitfall that builders, licensed individually, can fall into when they start a new business and fail to secure a builder’s license for the business.

For more about Michigan Construction Law Update, or to talk with one of our construction attorneys, click here.

Monday, December 02, 2013

FAR Amendments Designed to Speed Up Payment to Subcontractors

On November 25, 2013,  the DOD, GSA, and NASA issued a final rule amending the Federal Acquisition Regulations (FAR) to incorporate a new clause to provide accelerated payments to small business subcontractors.

The new clause [FAR 52.232-40] requires prime contractors, upon receipt of accelerated payment from the Government, to make accelerated payment to small business subcontractors, to the maximum extent practicable, after receipt of a proper invoice and all proper documentation from small business subcontractors. [ Note: If the Government does not accelerate payment to a prime contractor, that prime contractor is under no obligation to accelerate payments to its small business subcontractors.  78 FR 70478 ]

This clause will be inserted into all new solicitations issued after the effective date of this rule [December 26, 2013] and resultant contracts, including solicitations and contracts for the acquisition of commercial items. 

This rule does not provide any new rights under the Prompt Payment Act and does not affect the application of the Prompt Payment Act late payment interest provisions.

52.232-40  Providing Accelerated Payments to Small Business Subcontractors (Dec 2013)

(a) Upon receipt of accelerated payments from the Government, the Contractor shall make accelerated payments to its small business subcontractors under this contract, to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract, after receipt of a proper invoice and all other required documentation from the small business subcontractor.
(b) The acceleration of payments under this clause does not provide any new rights under the Prompt Payment Act.
(c) Include the substance of this clause, including this paragraph (c), in all subcontracts with small business concerns, including subcontracts with small business concerns for the acquisition of commercial items.  78 FR 70479

For more about the Federal Acquisition Regulations (FAR), click here. For a complete copy of all the FAR regulations, or to download a complete set, click here

For more about Michigan Construction Law Update, click here.

Sunday, September 15, 2013

Sixth Circuit Upholds Michigan Law Limiting Project Labor Agreements

On September 6, 2013, the Sixth Circuit Court of Appeals voted 2-1 to uphold the "Michigan Fair and Open Competition in Government Construction Act" (PA 98 of 2011).  

The act prohibits a city, village, township or other governmental unit from awarding a public construction project, grant, tax abatement or tax credit based on whether or not a bidder, contractor or developer employs union or non-union labor. 

The Court noted in a 13-page published opinion that "The act furthers Michigan’s proprietary goal of improving efficiency in public construction projects, and the act is no broader than is necessary to meet those goals." 

The Sixth Circuit's decision overturns a 2012 decision we reported here by U.S. District Judge Victoria Roberts, who had ruled that PA 98 violated the National Labor Relations Act.

Cite: Michigan Bldg & Const Trades Council v Snyder, 729 F.3d 572 (6th Cir. 2013).

For more about Michigan Construction Law Update, click here.

Additional reading:
  • "Sixth Circuit upholds Michigan's open competition law," Legal Newsline Legal Journal, Sept 9, 2013 (click here
  • "New Michigan Law Prohibits (Most) Project Labor Agreements," Michigan Construction Law Update, July 22, 2011 (click here
  • "U.S. Circuit Court Upholds Michigan Ban on Project Labor Agreements", National Legal and Policy Center, Sept 16, 2013 (click here

Monday, January 14, 2013

New Law Expands Protection of Michigan's Anti-Indemnification Law

The final days of 2012 saw a flurry of activity by the Michigan Legislature. Among the new legislation passed during an historic lame duck session was a significant legislative victory for contractors and design professionals.  Public Act 468 of 2012, which was sponsored by Rep. Kurt Heise of Plymough (HB 5466), clarifies and expands the protections of Michigan's “anti-indemnification statute” for Michigan’s construction industry. MCL 691.991.  The new law takes effect March 1, 2013.

Under generally applicable Michigan law, every person is responsible for their own negligence, and if found liable are required to pay damages only in an amount equal to their degree of fault. This principle is known as “comparative” fault.  In the construction industry, parties with greater bargaining power have historically sought, by contract, to shift risk to other parties with lesser bargaining power.  In response, the Legislature has provided certain limited protections from unfair indemnification clauses in construction contracts.

Under existing Michigan law, MCL 691.991 prohibits agreements in connection with construction projects from requiring one party (the “indemnitor”) to indemnify another party (the “indemnitee”) for damages arising out of bodily injury to persons or damage to property, where those damages are caused by or resulting from the sole negligence of the indemnitee.  These types of clauses are declared void as against public policy.

Another important protection for industry participants is existing MCL 18.1237c, which applies only to contracts with the State of Michigan, Department of Technology, Management & Budget (“DTMB”). Sec 18.237c requires that indemnification provisions in DTMB contracts be “comparative” in nature.

Despite these protections, the existing law still allows many unfair and overreaching indemnification provisions to be included in design and construction contracts.

The new law clarifies that Sec. 691.991 applies to design contracts, and that the protection includes contracts in connection with all manner of private and public construction.  Importantly, the new law will require that design and construction contracts with “Public Entities,” (including cities, villages, townships, counties, school districts, intermediate school districts, authorities, and community and junior colleges), must not violate comparative fault principles.  In addition, such contracts can no longer require that contractors, and Michigan-licensed architects, engineers, landscape architects, surveyors defend the public entity from negligence claims.  However, state universities are exempted from the requirements of the new law.

For more information about PA 468, contact Gary Quesada

For more about Michigan Construction Law Update, click here.

Monday, March 05, 2012

Federal Court Strikes Down Michigan Law Barring Project Labor Agreements, Finds that National Labor Relations Act Preempts State Law (UPDATED)

On February 29, 2012, U.S. District Judge Victoria Roberts issued an Order striking down the "Michigan Fair and Open Competition in Government Construction Act" (PA 98 of 2011) finding that its limits on project labor agreements (PLA) violated the National Labor Relations Act. Judge Roberts also entered a judgment that permanently enjoins enforcement of the Act.
 

As we reported last August (here), shortly after PA 98 was signed into law by Governor Rick Snyder, the Michigan Building and Construction Trades Council (AFL-CIO) and Genesee, Lapeer, Shiawassee Building and Construction Trades Council (AFL-CIO) filed suit in U.S. District Court challenging the legality of the Act. The plaintiffs alleged that PA 98 was preempted by the National Labor Relations Act (NLRA) (29 USC 151, et seq). The Court ultimately agreed. 

In its ruling, the Court found that Section 7 of the NLRA, which allows employees to engage in concerted activity, protected employees' rights to negotiate project labor agreements.  The Court also found that Sections 8(e) and (f) of the NLRA allows for project labor agreements in the construction industry.  The court held that PA 98 effectively prohibited governmental units, construction managers, private contractors and subcontractors from entering into project labor agreements on state construction projects.

The court found that PA 98 was an impermissible obstacle to the employees' right under Section 7 of the NLRA to negotiate a project labor agreement.  The court also found that PA 98, by prohibiting activity allowed by sections 8(e) and 8(f) of the NLRA, regulated an area of labor law that Congress intended to be left "unregulated and to be controlled by the free play of economic forces" which violated the preemption principle announced by the U.S. Supreme Court in 1976 case. See, Lodge 76 International Association of Machinists and Aerospace Workers v Wisconsin Employment Relations Commission, 427 US 132 (1976).

The Court rejected the Governor's argument that Section 13 of the Act, which states that the Act should not be construed so as to interfere with agreements or other activity protected by the NLRA. The Court held that Governor's reading of the Act would render the entire Act a nullity.

The Court's decision in Michigan Building and Construction Trade Council, AFL-CIO v Synder permits local units of government and school districts to resume the practice of using project labor agreements on public projects.

For more about Michigan Construction Law Update, click here.

Update (3/7): Crain's Detroit Business reported today that Michigan Attorney General Bill Schuette plans to appeal Judge Roberts' decision to the 6th Circuit Court of Appeals. 

Update (3/9): Michigan Attorney General Bill Schuette filed a Notice of Appeal earlier today confirming earlier reports that Judge Roberts' decision would be challenged. See, Case No. 11-cv-13520, Doc #39. 

Update (9/15/13): On September 6, 2013, the 6th Circuit Court of Appeals voted 2-1 to uphold PA 98 of 2011. The Court noted in a 13-page published opinion that "The act furthers Michigan’s proprietary goal of improving efficiency in public construction projects, and the act is no broader than is necessary to meet those goals."   

Citation: Michigan Bldg. & Const. Trades Council v. Snyder, 729 F.3d 572 (6th Cir. 2013).

Wednesday, February 29, 2012

Test Wells Count as "Actual Physical Improvement" for Lien Priority, Michigan Court of Appeals Rules

Test wells installed by a potential buyer prior to closing constituted a physical improvement, allowing a construction lien to attach prior to buyer’s closing and giving the lien priority over a mortgage granted at closing. The Michigan Court of Appeals reached this conclusion in a recent unpublished case. See, E.T. MacKenzie Company v Sutton Place-Raisin Twp, LLC (Mich. App. No. 297864, Nov 22, 2011) (slip opinion). 

Under Section 119(4) of  the Michigan Construction Lien Act (MCL 570.1119(4)), a construction lien has priority over a mortgage recorded after the “first actual physical improvement.” MCL 570.1103(1) states that an “actual physical improvement” does not include preparation for a change or alteration, such as surveying, soil boring and testing. 

In E.T. MacKenzie, the  buyer’s contractor drilled eight test wells prior to closing and left PVC pipes extending five feet above ground. In 2006, the buyer closed and granted United Bank a mortgage. Eight months later, the buyer contracted with E.T. MacKenzie Company for demolition and grading. The Court of Appeals opinion does not discuss the relationship of the well contractor and MacKenzie. In January 2008, MacKenzie recorded a claim of lien for unpaid services and asserted priority over the mortgage.

The trial court found that the wells were not the first “actual physical improvement,” and that the first improvement occurred after the mortgage was recorded. The Court of Appeals disagreed and reversed. 

Relying on Michigan Pipe & Valve-Lansing, Inc v Hebeler Enterprises, Inc, 292 Mich App 479, lv app denied, 490 Mich 874; 803 NW2d 688 (2011), the Court of Appeals held that the wells were the “first actual physical improvements” and the construction lien attached prior to recording the mortgage:
As defined in MCL 570.1103(1), an “actual physical improvement” does not “include that labor which is provided in preparation for that change or alteration, such as surveying, soil boring and testing, architectural or engineering planning, or the preparation of other plans or drawings of any kind or nature.”We do not dispute that these acts may suggest that the definition in effect recognizes a “due diligence process” that involves the specific procedures stated in the definition of “actual physical improvement.” Nor does the plain language of the statute, which states “such as,” suggest that the list is exhaustive. However, none of the procedures stated in the definition equates to the digging of a well, or any other act, which makes a “readily visible” “physical change” to the property. To the contrary, the acts identified in the statute are all of a nature that none of them will leave a permanent presence on the property. Consequently, we find [the defendant’s] assertion that the exception encompasses all acts done in the “due diligence process” is not supported by the plain and unambiguous language of MCL 570.1103(1). [Michigan Pipe at 486.]


Friday, October 07, 2011

SB 77 Signed into Law by Governor Snyder

On October 4, 2011, Governor Rick Snyder signed SB 77 into law (now PA 162  of 2011).  As we noted here, the new law solves the problems created by the Michigan Supreme Court's 2006 Ostroth ruling. The new law restores the applicable limitation periods to their previous durations, and restores the long-established rules that govern them.

(R/L: Benedetto Tiseo, Frederick Butters, Gov. Rick Snyder, Sen. Tonya Schuitmaker, and Gary Quesada)

Friday, September 23, 2011

Statute of Limitations: Ostroth Overturned by SB 77, New Law Takes Effect January 1, 2012

By: Gary D. Quesada, Esq
Cavanaugh & Quesada, PLC

One of the most effective defenses to a lawsuit is the statute of limitations. Limitations periods created by statute are grounded in public policy considerations which include encouraging the prompt recovery of damages, penalizing plaintiffs who have not been industrious in pursuing their claims, affording defendants security against stale demands and prolonged fear of litigation, and prevention of fraudulent claims. After a claim accrues (or is alleged to have accrued), if a plaintiff delays too long before bringing suit, the statute of limitations will serve to bar the claim, despite any other considerations.

Before February 2006, Michigan’s design and construction industry was subject to the same statute of limitations system as other businesses. However, in February 2006, the Michigan Supreme Court issued its ruling in Ostroth v Warren Regency, 474 Mich 36; 709 NW2d 589 (2006). Ostroth overruled existing case law and long-established practice, segregated the industry from general limitations law and lengthened all limitations periods specific to the design and construction industry in Michigan. 

The impact of Ostroth was significant.  For instance, according to a survey published by the American Council of Engineering Companies in 2008, Michigan’s statute of limitations for design professionals became the longest in the country. Ostroth also eliminated the rule that the limitation period begins to run when a claim accrues. In practical application, that effect served to double, triple or even quadruple the limitations period for many typical claims. Ostroth also eliminated any identifiable limitations period for incomplete projects. Clearly, the Ostroth decision negatively affected individual design and construction businesses, and the industry as a whole.

As early as the Winter of 2006, Michigan’s design and construction industry organizations began working together to reverse Ostroth by legislation. 

After 5 ½ years of political activity in connection with this effort, SB 77 was finally passed by the Michigan House of Representatives on Tuesday, September 20, 2011.  The vote was 87-21, with broad bi-partisan support. The Senate concurred the next day, and SB 77 is now expected to be signed into law by Governor Rick Snyder.  The new law will take effect January 1, 2012.

SB 77 solves the problems created by Ostroth, restores the applicable limitation periods to their previous durations, and restores the long-established rules that govern them. The period of time that facility owners have to discover latent defects is not affected by SB 77. 

As with any political campaign, teamwork and perseverance were required for success. SB 77 bill sponsor Senator Tonya Schuitmaker (R-Lawton) provided her leadership throughout the process, from introduction through final passage. Industry organizations that supported this successful legislative effort represent all sections of the design and construction industry, including the following:
  • American Institute of Architects of Michigan
  • American Council of Engineering Companies
  • Michigan Society of Professional Engineers 
  • American Society of Civil Engineers - Michigan Section
  • Michigan Society of Professional Surveyors, 
  • AGC of Michigan 
  • Michigan Infrastructure and Transportation Association (MITA)
  • Construction Association of Michigan (CAM), and 
  • Michigan Association of Homebuilders

Gary D. Quesada is a partner with the construction law firm of Cavanaugh & Quesada, PLC.  Mr. Quesada served as the point person for legal issues throughout the campaign to overturn Ostroth, and testified in favor of the bill on numerous occasions before Judiciary Committees in both the Michigan House and Senate. 

For more information see www.MichiganConstructionLaw.com, or e-mail gquesada@cqlawfirm.com.

Monday, August 22, 2011

Federal Lawsuit Challenges Legality of Michigan's New PLA Legislation (PA 98)

Not unexpectedly, a federal lawsuit was filed on August 11, 2011 challenging the legality of the “Fair and Open Competition in Governmental Construction Act” (PA 98 of 2011). As we reported last month (here), PA 98 prohibits most project labor agreements.

The Michigan Building and Construction Trades Council (AFL-CIO) and Genesee, Lapeer, Shiawassee Building and Construction Trades Council (AFL-CIO) filed suit in U.S. District Court against Michigan Governor Rick Snyder. 

Plaintiffs seek a declaratory judgment that PA 98 (a) is preempted under the Supremacy Clause; (b) violates the National Labor Relations Act; and (c) violates the Contracts Clause of the U.S. Constitution. 

The case is pending in U.S. District Court, Eastern District of Michigan, Case No. 11-cv-13520 before the Honorable Victoria A. Roberts

Monday, August 01, 2011

Michigan Supreme Court Decision Expands Liability Exposure for Contractors

By: Gary D. Quesada, Hon. Aff. AIA, J.D.
Cavanaugh & Quesada, PLC

On July 11, 2011, the Michigan Supreme Court decided the case of Miller-Davis v. Ahrens, __ Mich __ (2011), which held that Michigan’s special statute of repose, MCL 600.5839, does not apply to contract-based construction claims.  This decision means that contractors are at greater risk for lawsuits.

In 1967, Michigan enacted MCL 600.5839, the special statute of repose for claims arising from improvements to real property.  Section 5839 barred all claims for “injuries to persons or property” against architects, engineers and contractors that arose more than six years after “use, occupancy or acceptance” of the improve- ment. 

Originally, the statute was understood to apply only to third-party claims, and Michigan courts so held.  In 1988, Michigan enacted an amendment that was held by several courts to have expanded the statute of repose to include contractual claims as well as third-party claims.  However, the Supreme Court never addressed this issue.

Miller-Davis involved a claim by a general contractor against a subcontractor for breach of contract.  The issue was the construction of a natatorium roof, which the general contractor alleged was improperly constructed by the subcontractor.  The subcontractor argued the claim was brought later than six years after first use, occupancy or acceptance of the improvement, and was therefore “reposed.”  The Michigan Court of Appeals agreed and held the claim was barred.  Plaintiff then sought review by the Michigan Supreme Court.

In the Supreme Court, the plaintiff argued the statute of repose did not apply to its claim, which was based on breach of contract and not an “injury to person or property.” The Supreme Court reversed the lower court and held that the statute of repose “does not apply to a breach of contract claim for a defect in a building improvement.” In making its ruling, the court cited with approval the federal case of Garden City Osteopathic Hosp v HBE Corp, 55 F3d 1126 (CA 6, 1995).

The Miller-Davis decision significantly extends the duration contractors can be sued for building defects. The impact of the case is likely to be that warranty claims by building owners for defective work will be brought long after the building has been occupied. Owners have contracts with their prime contractor, and often have direct contracts with specialty contractors. There is no longer any repose period for claims based on these contracts. By statute, warranty claims may be brought up to 6 years after a breach is discovered.  Therefore, owners may bring suit up to 6 years after discovery of a latent defect, no matter when that discovery occurs.

The Garden City case cited by the Supreme Court is as example of the potential application of Miller-DavisGarden City involved an owner’s claim brought against a contractor approximately 21 years after construction.  Contractors should now be more careful to review their contracts and when possible, seek to limit their contractual obligations, including indemnification and warranty provisions, to reasonable durations.

For more information about the Miller-Davis decision and the Michigan statute of repose, you may contact Gary Quesada at Cavanaugh & Quesada, PLC, 1027 S. Washington Ave, Ste A, Royal Oak, MI 48067, Tel: (248) 543-8320. 

Friday, July 22, 2011

New Michigan Law Prohibits (Most) Project Labor Agreements

On July 19, 2011, Michigan Governor Rick Snyder signed SB 165 into law as the “Fair and Open Competition in Governmental Construction Act” (PA 98 of 2011).

The Act prohibits a city, village, township or other governmental unit from awarding a public construction project, grant, tax abatement or tax credit based on whether or not a bidder, contractor or developer employs union or non-union labor.
 

The Act generally prohibits a governmental unit from:
  • Entering into or spending funds under a construction contract if the contract terms: (1) require or prohibit a bidder or contractor from entering into an agreement with a collective bargaining organization relating to the underlying construction project or related projects; or (2) discriminate against a bidder or contractor based on their willingness or refusal to enter into an agreement with a collective bargaining organization relating to the construction project or a related project.
  • Conditioning a grant, tax abatement or tax credit on a requirement that the recipient include one of the terms listed above in a contract document.
  •  A governmental manager or construction manager from placing the above terms in bid specifications, project agreements, or other construction documents.
The statute has one significant exception: The Act does not prohibit employers or other parties from entering into agreements or engaging in any other activity protected by the federal National Labor Relations Act.   

The law is effective immediately.

Click here for additional analysis of this new law.

Update: Not unexpectedly, a federal lawsuit was filed on August 11, 2011 challenging the legality of PA 98. The Michigan Building and Construction Trades Council (AFL-CIO) and Genesee, Lapeer, Shiawassee Building and Construction Trades Council (AFL-CIO)filed suit in U.S. District Court seeking a declaratory judgment that PA 98 (a) is preempted under the Supremacy Clause; (b) violates the National Labor Relations Act; and (c) violates the Contracts Clause of the U.S. Constitution. (Hat-tip: Courthouse News Service). 

Friday, July 01, 2011

Davis Bacon Wage Determinations (Past and Present)

The U.S. Government Printing Office (GPO), in conjunction with the Department of Labor (DOL) and the NTIS, have collaborated to provide permanent public access to Davis Bacon Wage Determinations. 

The new site is called "Wage Determinations OnLine.gov" (www.wdol.gov), and contains both current and archived wage determinations.  Users can search or browse for a wage determination by state and county. Archived determinations are available from 2000 forward.

(hat-tip: Sabrina Pacifici of beSpacific.com)

Friday, May 27, 2011

New Legislation Bans Resale, Capital Recovery Fees for Residential, Commercial Real Estate in Michigan

Following the collapse of the real estate market a few years ago, a growing number of developers and home builders have been adding "resale fee" provisions to their sales agreements that allow the developer to collect 1 percent of the sales price from the seller every time the property changes hands — for the next 99 years. This practice was outlined by the New York Time in a September 10, 2010 article

Michigan recently enacted legislation that prohibits the imposition of such fees, also called capital recovery fees, on either residential or commercial real properties. PA 34 and PA 35 of 2011 were signed into law on May 24, 2011 by Governor Snyder. The new legislation takes effect immediately.

Under the new legislation, a transfer fee covenant that was executed on or after the bill's effective date, whether or not it was recorded, could not run with the title to the real property and would not be binding on or enforceable against any subsequent owner, purchaser, or mortgagee of any interest in the real property as an equitable servitude or otherwise. Any lien purporting to secure the payment of a transfer fee under a transfer fee covenant that was executed on or after the bill's effective date would be void. 

"Transfer fee" is defined in the legislation as a fee or charge payable upon the subsequent sale, gift, conveyance, assignment, inheritance, or other transfer of an ownership interest in real property located in Michigan, or payable for the right to make or accept a transfer, regardless of whether the fee or charge is a fixed amount or is determined as a percentage of the value of the property, the purchase price, or other consideration given for the transfer. The legislation includes a number if exclusions.

Wednesday, March 02, 2011

AGC Legal Brief Highlights Cedroni Decision, Other Recent Michigan Cases

The February, 2011 issue of the AGC Legal Brief highlights a number of recent court decisions affecting design professionals, contractors, subcontractors and lien claimants in Michigan.

This issue of the Legal Brief was written by Aileen M. Leipprandt, a construction  attorney with the Hilger Hammond firm in Grand Rapids, and includes the following articles:
  • What's New in the New AIA A-312 Payment and Performance Bonds? 
The AGC Legal Brief is published quarterly by the AGC of Michigan and its Legal Advisory Committee. The full text of the February, 2011 issue can be found here at the AGC's website.

Friday, January 14, 2011

Court of Appeals finds Contract, Airport Authority Bound by Accepted Bid

Matthew C. Norris, PLC

Occasionally, a contractor will successfully submit a low bid to a government entity and have the low bid accepted, only to have the public body refuse to formally enter into the contract.

The Michigan Court of Appeals recently decided a case in favor of a general contractor.  The Court ruled that accepting the contractor’s bid constituted formation of a contract.  The later refusal by the public body, to sign the contract, did not change the fact a contract had been entered into.  The case is The Garrison Company  v  Bishop International Airport Authority, Mich Ct App No. 293415 (Nov 18, 2010).

In the case, the contractor submitted the low bid, its bid was accepted by the Airport Board, and the public body communicated this to the contractor.  The contractor began to exchange emails with the architect for the airport.

A month later, the Airport Director refused to sign the contract, and the Airport Board rescinded its acceptance of the bid.  The contractor sued for lost profits.

The Court of Appeals ruled that there was a binding contract, even before the construction contracts themselves were signed.  The reasoning for the Court’s decision is that the Airport accepted the contractor’s offer to perform the contract at a fixed price, and the contract was enforceable.  The act of formally signing the construction contracts “was not a step that had to be completed before a valid contractual relationship arose.”
 
The Court of Appeals reasoned that, if the contractor attempted to walk away from its bid, the contractor could not “walk away from the project without liability.”  Since the bid and acceptance were binding on the contractor, the public body was also bound.

The Court was also not convinced by the Airport’s argument that the Airport needed to conduct “due diligence” after accepting a bid.  The Court reasoned that, if a public body were allowed to conduct due diligence after accepting a bid, the public body could accept a bid with impunity, and later interpose an indefinite due diligence time period before rescinding.  Due diligence should be done before acceptance of a bid.

The Court of Appeals cited a 100-year history of Michigan case law that a bid, once accepted, becomes a contract.

A low bid contractor is often disappointed if its contract is ultimately rescinded by a public body.  While cases against public bodies remain difficult, this Court of Appeals decision should make it more likely a contractor in this situation might prevail.

Matthew Norris graduated from Michigan State University (B.A., 1981); and Wayne State University Law School (1984) and has concentrated his practice on construction law. He was admitted to the Michigan and U.S. District Court, Eastern District of Michigan, in 1984; to the  U.S. District Court, Western District of Michigan and U.S. Court of Appeals, Sixth Circuit. 

Mr. Norris is a also member of the Oakland County Bar Association and State Bar of Michigan (Sections of: Business Law; Probate and Estate Planning; Real Estate Law; Construction Law Committee). He was Chair of the State Bar Construction Law Committee from 1997 through 2000. Chair, State Bar of Michigan Real Property Section Summer Conference, July, 2001; State Bar of Michigan Real Property Law Section, 2002 presenter: "Commercial Projections: What you Need to Know about Construction Contracts and Liens"; and Co-authored an article summarizing Construction Lien Act decisions and another dealing with pay-when-paid contract clauses, both published in the Michigan Real Property Review.

For more information about the Garrison case, you may contact Matt Norris  by e-mail or telephone at (248) 994-7320.

Monday, September 13, 2010

Municipal Codes Online

Municipal codes are not the sexiest part of the law, but occasionally there are issues that require you track down a local ordinance. I recently had to track down the procurement ordinance for Wayne County (Michigan). I got nowhere calling the Purchasing Department, but found what I was looking in short order through Municode.com.  

Incidentally, the Wayne County Procurement Code is Chapter 120, ("Unified Procurement System") and can be found here.

Wednesday, September 08, 2010

Public-Private Partnership Legislation May Be Limited to DRIC Bridge Project

Legislation to authorize public-private partnerships (P3) in Michigan (first reported here) may be limited to the Detroit River International Crossing (DRIC) project, according to a report in Crain’s Detroit Business.

Saturday, July 31, 2010

Negligent Building Design, Expert Testimony Required to Establish

The Michigan Court of Appeals recently affirmed the rule that expert testimony  is required to establish negligent building design. This rule was outlined in Lawrenchuk v Riverside Arena, Inc, 214 Mich App 431; 542 NW2d 612 (1995):
“In the absence of expert testimony providing standards for evaluating the relevant risks and advantages of [a particular] design, a jury would be denied an objective framework by which to evaluate [the] plaintiff’s claim, thus precluding any genuine determination whether the design was unreasonable.”  Id. at 434. Therefore, a plaintiff’s negligent building design claim must be dismissed if not supported by expert testimony.  Id. at 436.
See, Tappen v. Carlton 54th L.L.C., (Mich. Ct. App. July 30, 2010). A copy of the slip opinion can be found here.

In Tappen, the Court of Appeals found that the trial court  had erred when it failed to grant summary disposition to the Defendant where the Plaintiff failed to present expert testimony in support of its claim of negligent design.
"It is well settled that a jury must not be permitted to speculate or guess whether a defendant has been negligent; nor may a jury be permitted to speculate concerning the causation of a plaintiff’s injuries. (citations omitted)  Because plaintiff failed to present expert testimony to support his claim that defendant’s hotel was negligently designed, the circuit court erred by declining to grant summary disposition in favor of defendant with respect to this claim."

Saturday, June 19, 2010

Bill to Abolish Michigan Homeowner Construction Lien Recovery Fund Passes House

On June 16, 2010, H.B. 5830, and a series of companion bills that would abolish the Homeowner Construction Lien Recovery Fund, was passed by the Michigan House of Representatives by a 94-9 vote. The bill has been referred to the Senate Appropriations Committee.

As we noted in earlier posts (here and here), the Lien Fund is out of money, overwhelmed by claims, and without a legal mechanism to replenish itself. PA 497 of 2006 repealed Section 201(2) of the Construction Lien Act and eliminated the ability of the Fund to make a $50 special assessment when the Fund fell below $1 million. Instead, the Fund can only assess members a $10 annual renewal fee.

 Update: H.B. 5830 was voted out of committee by the Senate Appropriations Committee on July 21, 2010. A vote by the full Senate is expected shortly.  

Wednesday, June 02, 2010

Legislation Creating Public Private Partnerships, to Enable the DRIC Advances

Legislation to enable the Detroit River International Crossing (DRIC) project, through the creation of Public Private Partnerships (P3) has been moving forward under two other bills, H.B. 4961 and H.B. 6128.   H.B. 4961 was approved by the Michigan House on May 26, 2010. 


Update: On September 8, 2010, Crain's Detroit Business reported (here) this legislation may be limited to the DRIC project as part of a legislative compromise.