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.

Monday, May 24, 2010

LEED Legislation Profiled

The Hilger Hammond firm has posted an article (here) profiling S.B. 1111-1114 (2010), which were introduced in the Michigan Senate earlier this year. This legislation would  amend the Commercial Redevelopment Act (PA 255 of 1978), and would provide financial incentives for construction and renovation projects achieving LEED certification. 

Monday, May 10, 2010

Legislation Introduced to Prohibit Pay-When-Paid Clauses on Michigan Public Projects

On May 6, 2010, Senators Michael Switalski (D. Roseville)  and Dennis Olshove (D. Warren) introduced S.B. 1319, which would prohibit a surety’s reliance on a “pay-when-paid” clause in defense of payment bond claim. 

Specifically, S.B. 1319 would amend Section 3 of the Public works bond statute (MCL 129.201, et seq) by adding the following prohibition:
(2) A payment bond for a contract executed on or after the effective date of the amendatory act that added this subsection shall not contain any provision that conditions the payment of the subcontractor upon the receipt by the contractor of its money from the governmental unit.
S.B. 1319 would also add a fee-shifting, and interest provision in Section 7 for the prevailing party:
(6) In any action brought under this section, the prevailing party is entitled to recover from the nonprevailing party the reasonable costs and attorney fees incurred in the action. If, in such an action, the finder of fact determines that there was no good faith basis for the nonpayment of the amount sought by the claimant, the claimant is entitled to recover interest at the rate of 12% per annum on the amount found to be due by the finder of fact from the date that payment was due until fully paid.
Note: Michigan is among a small minority of states that uphold the use of "pay-when-paid" or so-called "pay-if-paid" clauses. The controlling case is  Berkel & Co v Christman Co, 210 Mich App 416 (1995).

Monday, May 03, 2010

Personal Liability under the Michigan Builder’s Trust Fund Act, Michigan Court of Appeals Affirms

Proof that a corporate officer personally misappropriated contract proceeds “is not necessary to find an officer liable” for a violation of the Michigan Builder’s Trust Fund Act (MCL 570.151, et seq).  
“[A] reasonable inference of appropriation arises from the payment of  construction funds to a contractor and the subsequent failure of the contractor to pay laborers, subcontractors, materialmen, or other entitled to payment.”  
So declared the Michigan Court of Appeals recently in BC Tile & Marble Co v Multi-Bldg Co., 2010 Mich App LEXIS ____ (Mich Ct App, April 13, 2010) (slip opinion), another decision affirming the principal (and risk) of personal liability for the owners of construction companies under the Michigan Builder’s Trust Fund Act (MBTFA).

In BC Tile, the defendant general contractor built and sold a condominium to a homeowner.  Although the contractor received funds at the closing for Unit 5 to pay his tile and marble subcontractor, the contractor failed to pay the subcontractor citing defective workmanship and delayed performance.  The subcontractor, who had recorded and served a construction lien four days prior to the closing, then filed suit to foreclose his lien, and included a claim against the contractor’s president, in his individual capacity, for violation of the MBTFA. As indicated in an earlier posting to this blog, this fact pattern is fairly typical. 

The MBTFA provides that upon receipt of payment from the owner, a trust is created for the benefit of contractors, laborers, subcontractors and suppliers, and makes the contractor or subcontractor who receives the payment a trustee of the funds.  The MBTFA is a criminal statute, but the courts have also recognized a civil cause of action under common law. To make out a civil cause of action under the MBTFA, a plaintiff must establish the following elements:  
  • The defendant is a contractor or subcontractor engaged in the building construction industry, 
  • The defendant was paid for labor or materials provided on a construction project, 
  • The defendant retained or used those funds, or any part of those funds, 
  • The funds were retained for any purpose other than to first pay laborers, subcontractors, and materialmen, and  
  • The laborers, subcontractors and materialmen who were engaged by the defendant to perform labor or furnish material for the specific construction project.
See, Livonia Bldg Materials Co v Harrison Construction Co, 276 Mich App 514, 519 (2007). See also, DiPonio Construction Co v Rosati Masonry Co, 246 Mich App 43, 49; 631 NW2d 59 (2001), lv app denied, 465 Mich 896 (2001).

In BC Tile, plaintiff asserted that the president of Muti-Bldg Co. was personally liable because he had signed the closing documents that allowed payment to other contractors, but not BC Tile & Marble Co. The president denied that he had had any day-to-day involvement with or exercised any decision-making for the particular construction project. He further denied that he had personally received any of the funds at closing.

While the Court of Appeals agreed that “there is no evidence here that [the president] personally used the funds owed to BC Tile,” it found that this was not dispositive of the MBTFA claim.

First, the Court reiterated its decision in the appeal of a criminal prosecution under MBTFA:  “there is no requirement that contract payments be made directly to the officer of the corporate contractor in order to hold the officer individually responsible under the MBTFA.”  People v Brown, 239 Mich App 735, 743-744 (2000).

Second, relying on a 2007 decision involving civil claims, the Court of Appeals noted:
“In Livonia Bldg, the defendant contractor received funds for a project but did not pay the plaintiff in full. The corporate officers gave testimony regarding their decision to put the funds received in various accounts and subsequently, their actions in writing checks to entities other than the plaintiff. This Court found that the individual corporate officers ‘acted in direct contravention of the MBTFA.’ According to this Court, there was sufficient evidence to create a presumption of misappropriation and to find the corporate officers individually liable.”
The Court of Appeals concluded that the president of the construction contractor should not have been granted summary disposition, and reversed the trial court’s ruling. The corporate officer thus faces a trial and possibly a personal judgment.

Not addressed in the Court’s decision, but another significant issue for individual defendants, is the impact a trust fund claim may have on a personal bankruptcy. Since the statute is predicated on the existence of a trust, a violation of the MBTFA is also breach of the (contractor) trustee’s fiduciary duties. Under Section 523(a)(4) bankruptcy code, fraudulent conduct while acting in a fiduciary capacity (defalcation) is one of the specified grounds for excluding a claim from discharge. Said another way, a Builder's Trust Fund Act claim is a debt that can survive a bankruptcy when most other claims are discharged.
 
Comment: To avoid personal liability issues, contractors must take care in these turbulent economic times to address shortfalls in payment with subcontractors and suppliers by securing waivers and releases that include officers and shareholders, especially when making compromise payment agreements, and documenting the reasons for non-payment to subcontractors and suppliers where facts and circumstances warrant the withholding of payment. 
  
For More Information

Since the facts of each case are unique, this case summary should not be taken as legal advice. For more information about the Michigan Builder's Trust Fund Act, and how it might affect you personally or your business, please contact Peter Cavanaugh or visit our website at www.MichiganConstructionLaw.com

Update: The Michigan Court of Appeals decided June 8, 2010 to publish this decision.  A full citation will follow. 

Friday, April 23, 2010

ARRA Money Creates Pitfall for Contractors Bidding on Detroit Public Schools Construction Program

Following voter approval last November of Proposal S, the Detroit Public Schools (DPS) is currently embarking on an ambitious program to construct 8 new high schools and renovate another 10 schools over the next three years.

Approximately half of the money raised by the Detroit Public Schools for its new $500 million school construction and renovation program is coming through the federal Qualified School Construction Bond (QSCB) Program. This is a new tax credit program created by the American Recovery and Reinvestment Act (ARRA).

Projects funded with bonds under the QSCB program, however, must comply with all ARRA provisions.  Pursuant to the ARRA, Division B, Section 1601, Davis-Bacon labor standards must be applied to projects financed with the proceeds of Qualified School Construction Bonds.
Warning! The inclusion of federal labor standards in the DPS School Construction program creates a trap for the unwary contractor who wants to hire "Pre-Apprentices" or "Student Pre-Apprentices" or "Assistants."
Here’s why --
 
Section 11-3 of the Project Labor Agreement (PLA) for the DPS School Construction program requires that contractors commit to a goal that apprentices will perform 25% of total craft hours on a craft-by-craft basis.  In addition, 75% of the apprentice and pre-apprentice hours must be performed by Bona-Fide City Residents. Up to 15% of the 75% apprentice hours can be performed by "Pre-Apprentices."

The PLA also requires in Section 11-9 that Contractors participate in the City’s BEST Program, which is designed to create employment opportunities for students 16 to 25 years in age. These students are considered “Assistant” or “Pre-Apprentice” and must work under the direction of a skilled construction mechanic or construction professional. 

The Problem:  Federal Davis-Bacon labor guidelines recognize ONLY journeymen and registered apprentices. There is no classification for a Pre-Apprentice or Student Pre-Apprentice or Assistant. 

These classifications are not recognized as Apprentices and contractors could be forced to pay Journeyman rates for an employee working in these classifications  if they are not part of an bona fide apprenticeship program, one that is recognized by the U.S. Department of Labor Wage and Hour Division.  Quoting from the applicable federal regulations --  
(4) Apprentices and trainees--(i) Apprentices. Apprentices will be permitted to work at less than the predetermined rate for the work they performed when they are employed pursuant to and individually registered in a bona fide apprenticeship program registered with the U.S. Department of Labor, Employment and Training Administration, Office of Apprenticeship Training, Employer and Labor Services, or with a State Apprenticeship Agency recognized by the Office, or if a person is employed in his or her first 90 days of probationary employment as an apprentice in such an apprenticeship program, who is not individually registered in the program, but who has been certified by the Office of Apprenticeship Training, Employer and Labor Services or a State Apprenticeship Agency (where appropriate) to be eligible for probationary employment as an apprentice. The allowable ratio of apprentices to journeymen on the job site in any craft classification shall not be greater than the ratio permitted to the contractor as to the entire work force under the registered program. Any worker listed on a payroll at an apprentice wage rate, who is not registered or otherwise employed as stated above, shall be paid not less than the applicable wage rate on the wage determination for the classification of work actually performed
Several trade contractors who worked on the Book Cadillac Hotel project last year got caught in this trap and were forced to pay journeymen wages to employees they thought were  “apprentices” but who turned out not to be part of a bona fide registered apprenticeship program. I recently learned of another contractor working a HUD project that encountered the same problem.

The Solution(?): Sorry, but there is no easy solution to this problem. The Detroit Public Schools is aggressively promoting inclusion of Detroit businesses and employment of Detroit residents in its school construction program. The DPS also wants to extend employment opportunities to students and other young people who are not part of a registered apprenticeship program. This is a laudable goal, but it may come at a significant cost.

Contractors who plan on bidding under the DPS School Construction Program would appear to have two choices:  (1) add money to their bids and plan on paying journeyman wages to students (pre-apprentices, assistants), which will inflate the cost of construction, or (2) risk paying back wages and other penalties when the matter is flagged during an audit of their certified payroll records. There is little doubt that DPS will be watching this element of the program. During a presentation to the AGC of Michigan on April 22, 2010, Kevin White (DPS Director of Procurement for Capital Improvements) outlined at least three layers of scrutiny that contractors will face. 

If you have questions, or would like a copy of the PLA, please contact Peter Cavanaugh at pcavanaugh@cqlawfirm.com or call him at (248) 543-8320.  

Update: The U.S. Department of Labor Wage and Hour Division has a web page (here) devoted to the application of federal labor standards to ARRA funded projects. 

Further Update: On or about April 30, 2010, the DPS issued Addendum No. 6  to the Martin Luther King Senior High School  bid package, which will be the first project bid on May 12, 2010. Addendum No. 6 finally provided bidders with the  form of agreement and terms and conditions that DPS will be using for all of  its design-build contracts under the $500.5 million bond program. DPS terms and conditions recite, almost verbatim, the Davis-Bacon language quoted above (29 CFR 5.5(a)(4)). DPS also requires that the design-build (prime)  contractor incorporate these labor standards into all their subcontracts. 

Friday, February 19, 2010

New Bills Would Abolish Michigan Homeowner Construction Lien Recovery Fund

Just a few months ago, we reported that the Michigan Homeowner Construction Lien Recovery Fund was almost out of money and had no means to replenish its depleted coffers without action by the Michigan Legislature. I expected something to happen, but not this.

On February 17, 2010, Rep. Richard Hammel (D. Mt. Morris Twp) and Rep. Fred Durhal  (D. Detroit) introduced a series of connected (tie-barred) bills -- H.B 5830, H.B. 5831, H.B. 5832, H.B. 5833, H.B. 5834, and H.B. 5835 -- that would abolish the Lien Fund and delete references to the Fund from a variety of related states, but not fix the broken funding mechanism.
  •  H.B. 5830 would repeal Sections 201 to 207, 303, and 304 of the Construction Lien Act (MCL 570.1201 to 1207, 1303, and 1304), which established the Homeowner Construction Lien Recovery Fund, and related administration and funding.
  • H.B. 5831 would strike references to the Lien Fund from the Electrical Administrative Act (MCL 338.883b, et seq), which governs licensing of electrical contractors.
  • H.B. 5832 would strike references to the Lien Fund from the Forbes Mechanical Contractors Act (MCL 338.976, et seq), which governs licensing of mechanical contractors.
  • H.B. 5833 would remove references to the Lien Fund from the  State Plumbing Act (MCL 338.3531, et seq), which governs licensing of plumbing contractors.
  • H.B. 5834 would amend the Michigan Occupational Code (MCL 339.2404, et seq), to remove references to the Lien Fund, including removal of enforcement provisions for residential builders who fail to pay a lien claim that resulted in payment from the Lien Fund. While the Bill does not significantly affect the remaining enforcement provisions , but removing the Lien Fund significantly weakens enforcement of complaints against residential builders who don't pay their subcontractors and suppliers resulting in residential liens. The complaint procedure against residential builders is a notoriously slow and ultimately unsatisfactory process.
  • H.B. 5835 would amend the Michigan penal code (MCL 777.15b) to reflect repeal of the Michigan Homeowner Construction Lien Recovery Fund.
I'll update this posting as soon as I can determine the rationale for these bills, but I think that homeowners are the ultimate losers if this bill becomes law.

Update: The Detroit Legal News picked up on this story in its March 15, 2010 issue (here).  Apparently, the Michigan Association of Home Builders and the State of Michigan DELEG are behind this legislation. And a lack of political will to confront the problem (money) is the driving factor:
“The problem with the fund is that it is supported by fees that builders pay but those fees are at the same level they were 30 years ago,” said [Rep. Richard] Hammel [D-Mt. Morris Twp]. “No one wants the fees raised and if we keep them at the level they are, we can’t possibly pay for the fund with inflation.”



Wednesday, January 27, 2010

AGC of Michigan Contruction Law, Upcoming Seminars

In addition to its upcoming Construction Law Webinar Series, AGC of Michigan is presenting its annual Professional Development Day on March 5, 2010 at the VisTaTech Center in Livonia. There will be 7 sessions divided into two tracks.  For more information or to sign-up and attend contact the AGC of Michigan at (517) 371-1550, or click here:   

Track 1: Becoming Incident and Injury Free
> Session I: Transform Your Safety Culture
> Session II: Safe Start
> Building a Winning Team

Track 2: Sell Yourself-Sell Your Company
> Session I: Successful Projects through Effective Project Controls (*)
> Session II: Failure or Success/How Do You Define Success?
> Session III: It's Not What I Say - It's What I Do
> Session IV: Social Networking - the Newest Tool in Your Toolbox

(*) Peter Cavanaugh, Cavanaugh & Quesada, PLC will be speaking on the legal aspects of project management topic, together with Joe Vanden Bossche, Navigant Consulting.