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.   

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.

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)

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. 

(Hat-tip: Courthouse News Service). 

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). 

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.

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. 

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).

Michigan Bill Would Allow Private Investments in Public Projects

Crain's Detroit Business reports today that legislation has been introduced in the Michigan legislature that would encourage private investors to fund public transportation infrastructure.

House Bill 5461 would create the Private Investment Infrastructure Funding Act, under which municipalities could enter into collaborative relationships with other public entities to develop public facilities and could, among other things, solicit private sector investment for the financing of public facilities through a bid process.  Generally speaking, "public facilities" means transportation-related projects, including public transportation-related infrastructure, as well as other similar public infrastructure improvements.  The term "municipality" would apply to cities, villages, and townships. 

The concept, called private investment infrastructure funding, or PIIF, was first proposed by the Oakland County Business Roundtable and is being discussed as lawmakers, local officials and business look at ways to help with Michigan's transportation-funding straits.

Update:  A December 23, 2009 Editorial in the the Detroit Free Press (here) endorses the idea of private funding for public infrastructure projects.  On January 27, 2010, it was reported (here, and here) that the Michigan Department of Transportation (MDOT) is seeking design, build, finance and operate proposals for the Detroit River International  Crossing (DRIC) project in southwest Detroit.  Click here for a copy of the RFP. 

Further Update (June 2, 2010): H.B. 5461 has gone nowhere since it was introduced, however, legislation to enable the 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. 

New Bill Would Allow Construction Liens on Public Property

On January 29, 2009, Sen. Dennis Olshove (D. Warren) introduced S.B. 140, which would allow construction liens to be recorded against government (public) property.

Specifically, S.B. 140 would amend Section 107 of the Construction Lien Act (MCL 570.1107) by adding a new Subsection (7):

(7) Real property owned or leased by a government entity or as to which a government entity contracts for an improvement is subject to a construction lien under this Act to the same extent as other real property.

That a constructions lien may not attach to public property is a well established principal under Michigan law. S.B 140 would be a significant departure from long-established precedent. See e.g., Kammer Asphalt v East China Twp, 443 Mich 176, 181, n. 10 (1993). ("materialmen and contractors may not obtain a mechanics' lien on a public building") (citing Knapp v Swaney, 56 Mich 345, 347; 23 NW 162 (1885) ("Public property cannot be the subject of a [Builders'] lien unless the statute shall expressly so provide; it is by implication excepted from lien statutes, as much as from general tax laws, and for the same reasons.") and Ford v State Bd of Ed, 166 Mich 658, 660; 132 NW 467 (1911) ("These creditors have no lien upon this public building.").

To track the progress of S.B. 140, click here.

Implementation of E-Verify Rule Delayed

Federal Computer Week reported on January 12, 2009 that -

"Enforcement of a new rule that requires federal contractors to use the Homeland Security Department’s E-Verify system to check employees' work eligibility has been postponed until Feb. 20, the U.S. Chamber of Commerce announced.

"DHS is delaying implementation from the original Jan. 15 starting date to Feb. 20 as a result of negotiations associated with a lawsuit filed by the chamber and other business groups, the chamber said in a Jan. 9 news release.

"Under President George W. Bush’s executive order, use of E-Verify was to be made mandatory for approximately 168,000 federal contractors beginning Jan. 15. The E-Verify regulation pertains to federal contracts of more than $100,000 and subcontracts of more than $3,000. A coalition of business groups led by the chamber is suing to keep E-Verify from being imposed on contractors."

Click here for the rest of the story. The lawsuit filed by the U.S. Chamber of Commerce was reported in an earlier post.

Statute of Limitations Bill Passed by House Judiciary Committee

On November 12, 2008, Senate Bill 865, which would revise the statute of limitations for bringing an action against an architect, professional engineer, land surveyor or construction contractor, was unanimously approved by the House Judiciary Committee. Gary Quesada testified before the Committee on behalf of AIA of Michigan, and was joined by ACEC/Michigan Executive Director Ron Brenke, and Ken Lawless, Vice President of Clark Construction and AGC of Michigan Board member, who also testified before the committee in support of the measure.

S.B. 865 was passed out of the Senate in February. This bill was discussed in an earlier post.

For more information about this issue, contact Gary Quesada at Cavanaugh & Quesada, PLC, 306 South Washington, Suite 216, Royal Oak, MI 48067, Tel: (248) 543-8320.

New Bill Would Create "Commercial Real Estate Broker's Lien Act"

On May 14, 2008, Sen. Randy Richardville (R. Monroe) introduced S.B. 1313, which would create the "Commercial Real Estate Broker's Lien Act". The bill was reported out of committee on October 2, 2008.

The bill would do all of the following:

• Specify circumstances under which a commercial real estate broker's lien would attach to commercial real estate.
  

• Require a claim of lien to be recorded before conveyance unless the broker's commission was due in installments and at least one was due after conveyance.

• Provide for the recording and attachment of a lien in the case of a lease agreement, a broker's acting as a buyer's agent, or a commission owed on a purchase option.

• Specify information that would have to be included in a claim of lien.

• Provide that a prior-recorded lien or mortgage would have priority over a commercial real estate broker's lien.

• Require the establishment of an escrow account if a lien recorded under the proposed Act would prevent a closing transaction.

• Authorize a person claiming a commercial real estate broker's lien to bring an action to enforce it in circuit court.

• Allow an owner of commercial real estate to serve on a lien holder a demand to enforce the lien or answer a claim; and provide that the lien would be extinguished if the lien holder did not respond within 30 days.

• Specify that a lien under the Act would be available only to a licensed real estate broker.

A commercial real estate broker's lien would attach to commercial real estate in favor of a real estate broker if all of the following circumstances existed:

• The real estate broker had a written commission agreement.

• The broker was entitled to a commission under that agreement.

• The broker recorded a claim of lien before the actual conveyance of the commercial real estate.

To track the progress of S.B. 1313, click here. 

Update: S.B. 1313 died, but a similar bill was introduced on May 27, 2009, S.B. 610, that would also create a lien statute for commercial real estate brokers.  

On October 5, 2010, S.B. 610 was signed into law by Governor Granholm as PA 201 of 2010. The new law is effective immediately.

Materials Deduction Bill Signed by Governor Granholm, Public Act 177 of 2008

On July 9, 2008, Governor Granholm signed into law S.B. 1217 [Public Act 177 of 2008]. As discussed in an earlier post, this new law provides that construction companies can deduct materials purchased for specific construction projects from calculation of their gross receipts taxes. The deduction is retroactive to January 1, 2008.

New Law Passed to Boost Set Asides for Disabled Veteran Contractors

On May 21, 2008, Michigan's Governor Granholm signed S.B. 751 into law as PA 133 of 2008. The new law takes effect immediately. As noted in an earlier post, the new law amends the Management and Budget Act to increase the goal for contract set asides for disabled veterans from 3% to 5%.

Material Deductions Bill Voted Out of House Tax Policy Committee

AGC of Michigan reports in its May 14, 2008 Midweek Briefing that H.B. 6031, the House version of S.B. 1217, was voted out of committee following testimony by AGC Member, Patrick Cebelak, Controller for Granger Construction.

As noted in an earlier post, S.B. 1217 is designed to correct problems with the Michigan Business Tax as it affects construction contractors.

H.B. 6031 would amend the Michigan Business Tax (MBT) Act to amend the definition of "purchases from other firms" as it applies to general building contractors, heavy construction contractors, and construction special trade contractors that do not qualify for a small business credit under Section 417. For those companies, the definition would apply to "any construction materials or supplies directly purchased by the firm for a construction project." These purchases would, then, not be counted in the gross receipts tax base.

Bill to Amend Michigan Business Tax Approved by Senate

On April 22, 2008, the Senate approved S.B. 1217 on a roll call vote of 250-38. The bill now goes to the House Committee on Tax Policy.

As noted in an earlier post, S.B. 1217 is designed to correct problems with the Michigan Business Tax as it affects construction contractors.

Bill to Amend Michigan Business Tax for Construction Firms Inches Forward

On April 17, 2008, a bill to fix the Michigan Business Tax for construction contractors moved closer to passing the Michigan Senate. S. B. 1217 was placed on order of third reading with substitute S-1.

S.B. 1217 would amend Section 113(6)(e) of the Michigan Business Tax (MBT) Act (MCL 208.1113) to include in the definition of "purchases from other firms", for certain builders and contractors, direct material costs for a construction project under a contract specific to that project.

The MBT currently imposes a modified gross receipts tax on every contractor with nexus in the State. The tax is imposed on the modified gross receipts tax base, after allocation or apportionment to the State at a rate of 0.8%. The tax base is a taxpayer's gross receipts less purchases from other firms before apportionment.
The definition of "purchases from other firms" includes payments to subcontractors for a construction project under a contract specific to that project. Under the bill, "purchases from other firms" would also include direct material costs for a construction project under a contract specific to that project. "Direct material costs" would mean the amounts paid for materials that are deductible on the taxpayer's Federal income tax return as purchases under the cost of goods sold.

To track the progress of S.B. 1217, you can follow the bill on the Michigan Legislature's website here, or contact Bart Carrigan or Damian Hill with AGC of Michigan, who are following S.B. 1217 closely on behalf of the construction community.

Statute of Limitations Bill Passes the Senate

On Thursday February 14, 2008, Senate Bill 865 came up for vote in the Michigan Senate. When it became apparent that a last minute effort to tie the bill to Senate Bill 445 (which would reverse recent Michigan Supreme Court decisions concerning the threshold standard for bringing suit under the Michigan no-fault insurance act) would fail, the backers of that effort withdrew and SB 865 proceeded to a vote. The bill passed with 31 votes in favor, 7 against. It now heads to the Michigan House.

Sponsored by Senator Alan Sanborn, SB 865 reverses the Michigan Supreme Court decision in Ostroth v. Warren Recengy GP Limited Partnership. The Ostroth decision upset nearly 15 years of settled jurisprudence, and had the effect of extending the statute of limitations for most claims against design professionals and construction contractors from 2 or 3 years to 6 years.

The governing statue of limitations for claims against design professionals and construction contractors is found at MCLA 600.5805. Simply put, a statute of limitations provides a time window within which a claim that has accrued must be brought, or it becomes time barred. In addition, a statute of repose is found at 600.5839(1). By contrast, pursuant to a statute of repose, if a claim has not accrued after a specified period of time, it can never accrue. Together, the two statutes create an outside limit for claims against design professionals and construction contractors.

The Court of Appeals in Witherspoon v. Guilford read those sections harmoniously such that the end result gave meaning to both statutes. The traditional statutory scheme set out in MCLA 600.5805 governed, but in no instance could the claim window run past that time specified in MCLA 600.5839(1).

That state of harmony reigned until the Ostroth decision in July of 2004. In the Ostroth case, the Court concluded that the 6 year period set out in MCLA 600.5839(1) was a period of both limitations and repose, and that controlled all claims to the exclusion of MCLA 600.5805. The net effect was a substantial increase in the statutory time limits. Since most claims accrued at completion of the construction or shortly after, the 2 or 3 year periods set out in MCLA 600.5805 usually controlled their disposition. The 6 year period of MCLA 600.5839(1) represented a marked departure from and increase in those time limits.

As yet, the effect of Ostroth has not manifested in the form of higher insurance rates. However, as we move into the extended claims period it permits, reasonable expectations suggest that will begin to occur. SB 865 would effectively reverse Ostroth and restore the statutory balance the Witherspoon court struck. As such, SB 865 is not a reduction in the statutory limitations period, but is instead simply a return to settled law pre-Ostroth.

With bi-partisan support in the Senate, SB 865 will hopefully receive favorable treatment as it moves into the House such that design professionals and construction contractors will see a return to the pre-Ostroh law, and the reasonable statutory time frames it reflects.

For more information about this issue , contact Frederick F. Butters at Keranen & Associates, P.C., 6895 Telegraph Road, Bloomfield Hills, Michigan 48301, Tel: (248) 647-9653.

Michigan Legislature Enacts "Owner Built Residence Transfer Act"

On Februray 13, 2008, the Michigan Legislature enacted SB 0577. The "Owner Built Residence Transfer Act" (PA 6 of 2008) is designed to protect homeowners who buy homes from unlicensed builders. The Act takes effect in 180 days.

Rationale

Michigan law contains various provisions requiring a residential builder to be licensed, but this requirement does not aply to someone who is building their own home. Article 24 of the Occupational Code, however, permits an unlicensed property owner to act as a residential builder when building a home for their own use and occupancy. The exception has led to abuses by unlicensed builders, who build several homes per year "for their own use" and decide the sell them as soon as the house is completed. Effectively, such persons are acting as (unlicensed) residential builders.

Provisions

The Owner Built Residence Transfer Act --

• requires that an "owner-builder" who intends, at the onset of construction, to live in a "residential structure" either to live in it or place it for sale if he or she is unable to live there;
  
• allows an owner-builder to sell only one owner-built residence per year;
  
• prohibits an owner-builder who lives in a new residential structure from selling it or transferring ownership for at least 120 days;
  
• requires an owner-builder, when offering a residential structure, to supply a notice that the structure was built by an owner-builder who was not a licensed builder;
  
• specifies that an owner-builder who fails to comply with the disclosure requirements is liable for repair costs and the buyer's temporary shelter costs;
  
• allows the buyer of an owner-builder residential structure to bring an action within 18 month for damages resulting from a violation of the disclosure requirements.

The Act includes the following definitions:

• "Owner-builder" means an individual who is not a licensed residential builder and who builds, or acts as a general contractor for the construction of a residential structure in which that person, or a member of his or her family, actually resides or intends to occupy for his or her own use upon the issuance of an occupancy permit.
• "Residential structure" means premises used or intended to be used for a residence purpose and related facilities appurtenant to the premises used or intended to be used as a adjunct of residential occupancy.

For more information about this issue, contact Peter Cavanaugh at Keranen & Associates, P.C., 6895 Telegraph Road, Bloomfield Hills, Michigan 48301, Tel: (248) 647-9653.