U.S. Supreme Court to Review 6th Circuit Case, will decide if False Claims Act covers Subcontractors

The following story was reported by FederalTimes.Com. Thanks to Jerry Walz at PubKLaw for the lead on this story.

By Elise Castelli

October 30, 2007

The [United States] Supreme Court has agreed to hear a case that will decide whether the government can collect penalties from subcontractors who commit fraud under a government contract.

General Motors, Rolls-Royce and two smaller companies want the Supreme Court to reverse a 6th U.S. Circuit Court of Appeals ruling that found they can be held financially responsible for allegedly misleading shipyards about the staff and materials used when they built parts for 50 Navy guided missile destroyers in the 1980s and 1990s.

The other two firms are General Tool Co. and Southern Ohio Fabricators, both of Cincinnati, Ohio. They were subcontractors to Allison Engine Co., a division of Rolls-Royce that GM once owned.

According to Supreme Court documents, the Navy paid for parts that were built by untrained staff using the wrong materials. Even though the firms were paid with tax dollars, the companies argue they’re not subject to the False Claims Act because they billed the shipyards, not the Navy, for the work.

The False Claims Act allows anyone to sue a company committing fraud against the government and collect damages. The government can join the case to recover damages for itself, allowing the whistleblower to keep some of what was recovered.

The two whistleblowers who brought the lawsuit 13 years ago worked for General Tool Co. The Justice Department later joined the case.

According to an attorney for one of the whistleblowers, James Helmer, the government paid more than $100 million for the faulty parts the subcontractors made. If the Supreme Court overturns the 6th Circuit decision in this case, United States ex rel. Sanders et al. v. Allison Engine Co., et al., the justices are “saying there is no remedy against subcontractors ... under the False Claims Act,” Helmer said. “That would be a terrible result because most work [on a government contract] is done by subcontractors.”

The companies’ arguments rest on a 2004 appellate court decision written by Chief Justice John Roberts before he was appointed to the Supreme Court. In the case, United States ex rel. Totten v. Bombardier Corp. known as the Totten Case, Roberts wrote that the whistleblower has to prove the subcontractor actually presented the false claim to the government.

In ruling on this false claims case, the 6th Circuit ruled Totten doesn’t apply here because the contractors were paid in government money, which the False Claims Act is meant to protect.

In a brief to the Supreme Court, the contractors argued upholding the 6th Circuit ruling would make subcontractors open to prosecution under the False Claims Act whenever they do business with a company, college or other institution that receives government funds.

The original article can be found here.

State of Michigan Updates Construction Lien Guide

The State of Michigan Department of Labor and Economic Growth (DLEG) recently updated its "Consumer's Guide to the Michigan Construction Lien Act and The Homeowner Construction Lien Recovery Fund" (Rev'd July, 2007) to reflect recent amendments to the Michigan Construction Lien Act. This publication provides an excellent overview of Michigan's lien law, and includes completed samples of all of the relevant forms. The DLEG website includes other lien resources, including sample forms and links to the full text of the Michigan Construction Lien Act.

Peter Cavanaugh to Speak on November 14, 2007 to MCA Detroit regarding "Prompt Pay" Legislation

Attorney Peter Cavanaugh will speak to the Mechanical Contractors Association (MCA) of Detroit on November 14, 2007 on the subject of Prompt Pay in Michigan: An Overview of Proposed Changes to Michigan Law.

Mr. Cavanaugh will discuss the changes to Michigan law that have been endorsed by AGC of Michigan that would affect payment practices in the construction industry. Among the proposed changes are amendments to the Michigan Retainage Act, the Michigan Builder's Trust Fund Act, the Differing Site Conditions Statute, and the Michigan Public Works Bond Statute. Mr. Cavanaugh will also address recent changes to the Michigan Construction Lien Act.

For more information, contact Cassie at MCA Detroit -- (313) 341-7661 Ext. 205 -- or visit the MCA Detroit's website.

ConsensusDOCS Released, Renewed Effort at a Fair Contract Document

On September 28, 2007, 20 leading construction associations, including AGC united to publish a consensus set of contract documents called ConsensusDOCS.

Why another set of form documents?

There are currently a variety of construction associations that produce standard form construction contracts, including AGC, COAA, EJCDC. However, standard contracts published by one association are perceived as ultimately favoring that association’s membership. This is a criticism that is frequently lodged against AIA contract forms. There is also a growing industry frustration that heavily modified standard form documents hardly resemble the original text. Sometimes “supplemental general conditions" are longer than the standard form.

Participants in ConsensusDOCS

• National Association of State Facilities Administrators (NASFA),
• Construction Users Roundtable (CURT),
• Construction Owners Association of America (COAA),
• Associated General Contractors of America (AGC),
• Construction Industry Round Table (CIRT),
• Lean Construction Institute (LCI),
• Associated Specialty Contractors, Inc. (ASC),
• American Subcontractors Association, Inc. (ASA),
• Associated Builders and Contractors (ABC),
• Finishing Contractors Association (FCA)
• Mechanical Contractors Association of America (MCAA),
• Plumbing-Heating-Cooling Contractors—National Association (PHCC),
• National Electrical Contractors Association (NECA),
  
• National Insulation Association (NIA),
• National Subcontractor Alliance (NSA),
• National Roofing Contractors Association (NRCA),
• Painting and Decorating Contractors of America (PDCA),
• Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA),
• National Association of Surety Bond Producers (NASBP),
• Surety & Fidelity Association of America (SFAA), and
• Engineers Joint Contract Documents Committee (EJCDC).*

* Actively participated in the drafting process, but considering endorsement after initial publication.

The Result

ConsensusDOCS includes more than 70 contracts and forms, and address all project delivery methods. Additionally, project specific information and modifications can easily be entered through the DocuBuilder software program.

These best practice documents address cutting edge issues such as electronic communications, and building information modeling (BIM). Initial publication will also include a transformative agreement called Tri-Party Collaborative Agreement, which will encourage lean construction. In a fashion similar to the ConsensusDOCS process, the Tri-Party Agreement will have three parties sign the same contract and create a core team. This type of agreement has been used more commonly in Australia and is also known as alliancing or relational contracting. The project’s core team, which may include key specialty contractors and consultants, will make consensus decisions based upon the best interests of the project.

More Information

For more information, check out www.consensusdocs.org. In addition, AGC of America has background information on their website, including a 22 page commentary of the significant changes to be found in the ConsensusDOCs contracts.

U.S. Bureau of Engraving, Interactive Currency Site

A lawyer who doesn't have a few hobbies would be a boring one indeed. . .

As a kid, I was fascinated by coins, and had a pretty extensive "penny collection" before moving on to baseball cards. I haven't kept it up, but the last several years have seen a significant change in U.S. paper currency. Most of the bills we use every day have received significant face lifts or undergone other changes designed to thwart counterfeiters. Some changes are obvious, and others are not.

The U.S. Bureau of Engraving and Printing has a new interactive website that shows you (and your kids) what is new or special about the new U.S. currency. Check it out -- http://www.moneyfactory.gov/newmoney/

Law Library of Congress, Michigan Legal Links

The Law Library of Congress recently updated its website. The LOC includes the world's largest collection of law books and legal resources. Among its online resources is an excellent Guide to Michigan Legal Resources.

For practitioners, the State Bar of Michigan and the Institute for Continuing Legal Education (ICLE) have collaborated to produce Michigan Law Online, which is a free online primary law research service for all Michigan Bar members in good standing.

The State of Michigan's website also includes a Directory of Michigan Law Libraries, which includes links to the nearly 50 law libraries in the state.

New Bill Would Boost Set Aside for Disabled Veteran Contractors

On September 6, 2007, Sen. John Pappageorge (R. Troy) introduced S.B. 751, which would amend the Management and Budget Act to increase the goal for contract set asides for disabled veterans.

Under the current Act, it is the goal of the Department of Management and Budget (DMB) to award each year at least 3% of its total expenditures for construction, goods, and services to qualified disabled veterans. S.B. 751 would boost that that minimum goal to 5%.

The Michigan Department of Management and Budget (DMB), the largest procuring agency for construction services in Michigan next to the Michigan Department of Transportation (MDOT).

To track the progress of S.B. 751, follow this link.

New Bill Would Bar (Most) Construction Liens Against Residential Property - Why?

On July 27, 2007, a new bill was introduced by Rep. John Stakoe (R. Highland Twp), which would modify the Michigan Construction Lien Act to bar most claims of lien against Residential Structures by subcontractors, suppliers, and laborers, but not contractors.

H.B. 5051 would amend Section 107 of the Construction Lien Act by adding the following subsection:

(7) A Subcontractor, Supplier, or Laborer is not entitled to a Construction Lien on a Residential Structure.

H.B. 5051 also amends other sections in the Construction Lien Act to conform the statute with this basic prohibition.

H.B. 5051, if passed, would represent a significant, negative deviation from the protections afforded subcontractors, suppliers, and laborers by the Construction Lien Act. It is unclear what prompted Rep. Stakoe to introduce this legislation, or why he thinks it would be a good idea.

H.B. 5051 can be read here.

Update (8/28/07): Based upon discussions with Rep. Stakoe's office earlier today, I now understand that this bill was prompted by an elderly constituent who had a claim of lien recorded against his house by a roofing contractor's subcontractor. Rep. Stakoe's constituent was unable to pay the subcontractor's lien. If the homeowner had already paid the contractor, however, he shouldn't have to pay twice. The remedy to this problem lies with the Homeowner Lien Recovery Fund, not a new piece of legislation.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Section 2 of the Construction Lien Act (PA 497 of 1980), to provide protection when the homeowner, has in good faith, paid their licensed contractor for materials and labor and the contractor failed to compensate materialmen, subcontractors, and/or laborers.

The Michigan Department of Labor & Economic Growth publishes an excellent "Citizen's Guide" to the Construction Lien Act and the Homeowner Lien Recovery Fund that can be found on their website here. The "Citizen's Guide" is updated through PA 28 of 2007, which became effective July 10, 2007 and which was discussed in an earlier post.

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information about the Michigan Construction Lien Act or how H.B. 5051 might affect you or your business, please feel free to contact Peter Cavanaugh.

When Does Professional Services Corporation Act Apply? – Michigan Court of Appeals Casts Doubt On Traditional Thinking

By: Frederick F. Butters, FAIA, JD, Shareholder,
Keranen & Associates, P.C.

On May 31, 2007, the Michigan Court of Appeals issued its final opinion in Miller v Allstate Ins Co, 2007 Mich App LEXIS 1441. In sum, the Court ruled that where a professional services business can be incorporated under the Michigan Professional Services Corporation Act, it must be incorporated under that act. Contrary to the prevailing view, the Michigan Business Corporation Act does not apply to professional service businesses.

Professional Services Corporation and Business Corporation Differences

The principal difference between a corporation organized under the Michigan Business Corporation Act (the “MBCA”) and the Michigan Professional Services Corporation Act (the “MPSCA”) is the licensing of stockholders. Where a business is incorporated under the MBCA, stockholders are not required to be licensed to practice the profession in which the corporation engages. By contrast, where a business is incorporated under the MPSCA, every stockholder must hold a valid Michigan license to practice the profession in which the corporation engages.

The Traditional Thinking

Historically, only those corporations formed by medical professionals to practice endeavors regulated by the Health Code and those regulated by the Supreme Court (Attorneys), were believed to be subject to the MPSCA. Soon after the formation of the MPSCA, the Michigan Attorney General reaffirmed the belief that Architects, Engineers and Land Surveyors were not required to comply with it. In an advisory opinion, he summarized: Stockholders in corporations which perform architectural, engineering or land surveying services do not have to be registered or licensed in such professions under section 1 of architects, engineers and surveyors registration act, provided the corporation is not organized under professional service corporation act. Op Atty Gen, June 26, 1968, No. 4627.

Therefore, according to the Attorney General, though an Architect, Engineer or Land Surveyor could elect to incorporate under the MPSCA, they were not required to do so. Since the MPSCA created a more restrictive structure in terms of stock ownership, most Design Professionals opted to incorporate under the MBCA. The traditional thinking was born.

The Miller v Allstate Decision

In Miller, the underlying Plaintiff was injured in an automobile accident and sought physical therapy treatment under the Michigan No-fault Act. The Defendant insurance company argued that the corporation which actually provided treatment was not incorporated under the MSPCA. Therefore, the Insurance Company argued that it was not required to pay for the treatment due to the provider’s improper corporate status, since the treatment was not “lawfully rendered” such that it qualified for payment under the Michigan No-fault Act.

In its opinion, the Court examined the language of the MBCA which provides: “A corporation may be formed under this act for any lawful purpose, except to engage in a business for which a corporation may be formed under any other statute of this state unless that statute permits formation under this act.” It is apparent that a physical therapist could incorporate under the MPSCA. Since there is no provision in the MPSCA that permits incorporation under the MBCA, the Court concluded that the therapist must incorporate under the auspices of the MPSCA. The physical therapist was therefore improperly incorporated under the MBCA.

Application to the Design Professional

The MSPCA sets out those professions to which it applies, in its definition section. That section provides; “Professional service means a type of personal service to the public that requires as a condition precedent to the rendering of the service the obtaining of a license or other legal authorization. Professional service includes, but is not limited to, services rendered by . . . architects, professional engineers, land surveyors . . .” There can be no doubt that the MPSCA applies to the design professional.

As there is no language permitting the design professional to incorporate under the MBCA, the Miller approach requires the design professional to incorporate under the MPSCA, and only the MPSCA. Under Miller, incorporating under the MBCA would be improper. Although the June 26, 1968 Attorney General’s opinion would suggest otherwise, AG opinions are advisory only and have no binding effect. As that opinion is now at odds with the express ruling in Miller, it has no further meaning or effect.

Effect of the Miller v Allstate Decision

Since Miller is an interpretation of law, it would be given full retroactive effect unless the Court included language in the opinion that provides otherwise. The Miller decision contains no language limiting its effect. Full retroactive effect must therefore be presumed.

It is apparent that, from this point forward, all new design professional businesses must incorporate under the MPSCA. In addition, given retroactive effect, the Miller decision means that all design professional businesses that were incorporated any time after the MPSCA took effect on March 28, 1963, which were not incorporated under the MPSCA, may see their structure called into question. Since all of the stock of a business incorporated under the MPSCA must be held by persons licensed to practice the profession in which the corporation engages, that would also mean that all design professional firms incorporated on or after March 28, 1963 should review not only their corporate structure but the manner in which their stock is held to ensure compliance with the law.

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information on how the Miller decision might affect your business, please feel free to call one of our attorneys: Thomas M. Keranen, PE, Frederick F. Butters, FAIA, Gary D. Quesada, Hon. Aff. AIA., Raymond J. O’Dea, Jeffery M. Gallant, Peter J. Cavanaugh, or Michael S. Burink.

MDOT Resolves Low Bid Tie With Coin Toss

The Michigan Infrastructure & Transportation Association (MITA) reported this story in its July 27th Weekly Review Newsletter:

For what is believed to be only the second time in its history, [the Michigan Department of Transportation] MDOT experienced a low bid tie on a project bid in the July 6th letting. Exercising its authority and discretion under the applicable state statutes, administrative rules, and federal regulations, MDOT, with concurrence from the participating federal agency, resolved the low bid tie with a “flip of a coin”.

Soon after the coin toss the note “low bid won by coin toss” was added to the project bid summary in the “As Checked” letting results report on the MDOT website.

"Disappointed Bidder" Rule Proves Fatal (Again) in DWSD Bid Protest

On July 10, 2007, for the second time in less than 6 months, the U.S. District Court for the Eastern District of Michigan has dismissed a bid protest of a DWSD contract on grounds that the low bidder lacked legal standing to challenge the award. As he did earlier this year, Judge John Feikens made short work of the contractor's claims:

Plaintiffs do not have standing to bring this matter before this Court. Plaintiffs argue that they are Detroit taxpayers and DWSD fee-paying customers and as such have standing to legally challenge the DWSD award in this matter, regardless of whether they have bid on the PC-755 contract or not. I previously wrote that retail water customers of DWSD or rate payers do not have standing to join in disputes involving the awarding of public contracts.

* * *

Allowing Plaintiffs to have standing in this matter would essentially permit any individual in the region to become a party to any case regarding a contract awarded by DWSD, and would have the further consequence of allowing any disappointed bidder to circumvent the disappointed bidder doctrine merely because they also are retail customers of the DWSD.

Walbridge Aldinger Co. v. City of Detroit, 495 F. Supp. 2d 642, 645 ( E.D. Mich. 2007)

Construction Lien Act Modified, S.B. 487 Enacted

On June 28, 2007, Michigan's Governor approved S.B. 487, which amends Sections 110 and 115 of the Michigan Construction Lien Act. The new statute, PA 28 of 2007, is effective July 10, 2007

Background

Currently, parties involved in a construction project must provide various notices, statements, and claims of liens. Procedures can vary depending on whether the project is for commercial property or residential. PA 28 of 2007 amends the Construction Lien Act to restrict the applicability of certain provisions to residential properties; specifically, provisions regarding a sworn statement provided by a contractor or subcontractor about an improvement to a structure and to a waiver of lien.

PA 28 of 2007 will do the following:

• In a warning to an owner or lessee required to be included in a sworn statement, specify that the owner or lessee of the property shall not – rather than may not – rely on the sworn statement to avoid the claim of a subcontractor, supplier, or laborer who had provided a notice of furnishing to the designee or to the owner or lessee if the designee was not named or had died. (A sworn statement is a notarized document that lists every subcontractor, supplier, and laborer who provided labor and materials for the project. A subcontractor or supplier must provide a notice of furnishing after furnishing the first labor or material; a laborer must provide one when wages are due but not paid. The document must be given to the owner, lessee, or designee, and the contractor.)

• Restrict – to a construction project involving an improvement to a residential structure – the requirement that an owner or lessee provide notice of receipt of a sworn statement to each subcontractor, supplier, and laborer providing a notice of furnishing or named in the sworn statement. Upon request, the owner, lessee, or designee would have to give a copy of the sworn statement to each subcontractor, supplier, or laborer who was entitled to notice under these provisions.

• Restrict – to an improvement provided to a residential structure – the requirement that an owner, lessee, or designee not rely on a full or partial unconditional or conditional waiver of lien provided by a person other than the lien claimant named in the waiver if the lien claimant had filed, or was excused from filing, a notice of furnishing unless the owner, lessee, or designee had first verified the authenticity of the lien waiver with the lien claimant. The language contained in the form for the various waivers (partial and full unconditional waivers, as well as partial and full conditional waivers) would be modified to reflect this change.

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information about the Michigan Construction Lien Act or how PA 28 of 2007 might affect you or your business, please feel free to contact Peter Cavanaugh.

Residential Builders Exempt from Michigan Consumer Protection Act, Michigan Supreme Court Rules

A residential home builder is exempt from the Michigan Consumer Protection Act under MCL 445.904(1)(a) because the general transaction of residential home building, including contracting to perform such a transaction, is "specifically authorized" by the Michigan Occupational Code, MCL 339.101 et seq. This was the recent ruling of the Michigan Supreme Court in Liss v Lewiston-Richards, Inc, 478 Mich 203; 732 NW2d 514 (Mich Sup Ct, June 6, 2007).

In reaching its decision, the Supreme Court overruled two earlier decisions of the Michigan Court of Appeals -- Forton v Laszar, 239 Mich App 711, 609 NW2d 850 (2000), and Hartman & Eichhorn Bldg Co, Inc v Dailey, 266 Mich App 545, 701 NW2d 749 (2005) -- which had permitted homeowners to sue home builders under the Michigan Consumer Protection Act.

The full text of Liss v Lewiston-Richards, Inc can be found here.

Comment: The Michigan Consumer Protection Act was used to pursue claims against residential builders because it provided a statutory basis to recovery attorney fees. As a practical matter, the Liss decision will make it more difficult for homeowners to pursue claims against their builders. At common law, under the "American Rule," every party pays their own attorney fees. Unless the parties agree by contract that the prevailing party can recover their attorney fees (rare in contracts for residential construction), the only other way to recover attorney fees is by statute.

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information about the Liss decision or how it might affect you or your business, please contact Peter Cavanaugh.

Peter Cavanaugh to Speak June 12, 2007 at MACPA Litigation and Business Valuation Conference

Peter J. Cavanaugh will be a Speaker at the MACPA's June 12, 2007 "Litigation and Business Valuation Conference" at the VisTaTech Center at Schoolcraft College in Livonia, Michigan. Mr. Cavanaugh and Jim Schmid, CPA, CFE, ABV (Grant Thornton, LLP) will speak about "Unraveling the Research Potential of the Web."

Mr. Cavanaugh's portion of the presentation will focus on using the U.S. Court's PACER database to research federal court filings, and using Justia.com, and iGoogle to track new case filings.

Gary Quesada to Speak at MSPE / ACECM 2007 Annual Conference

Gary D. Quesada, Hon. Aff. AIA, J.D., will be speaking as a Member of the PCIA Risk Management Panel Discussion at the MSPE/ACECM 2007 Annual Conference on June 9, 2007 at Boyne Mountain Grand Lodge. The focus of this Conference is "Re-Engineering Michigan's Economy."


Mr. Quesada is a Shareholder with Thomas M. Keranen & Associates, P.C. His practice is concentrated on business and construction law matters, including litigation and arbitration of contract, construction defect and property disputes, construction lien and surety bond claims, construction-related copyright, and disputes involving architects, engineers and environmental professionals.

Implied Obligations in Michigan Construction Contracts

The May, 2007 Michigan Bar Journal includes an article by William F. Frey entitled "Obligations Implied in Michigan Construction Contracts." Mr. Frey provides a brief overview of Michigan law in the following areas:

• Owner's Implied Warranty of Plans and Specifications (Spearin Doctrine)
• Owner's Duty to Share all Material Information
• Owner's Duty to Provide Access / Duty to Coordinate / Duty Not to Interfere
• Contractor's Implied Warranty of Fitness for a Particular Purpose of "Habitability"
• Contractor's Implied Warranty of Workmanship

Wm. Frey, Obligations Implied in Michigan Construction Contracts, 86 Mich BJ 36 (2007). A PDF version of this article can be found here. 

New Bill Would Create Michigan False Claims Act (H.B. 4773)

On May 16, 2007, a new bill was introduced in the Michigan House (H.B. 4773), which would create the Michigan False Claims Act. On first read, it appears that the drafters of H.B. 4773 borrowed heavily from the Federal False Claims Act (31 USC 3729, et seq).

H.B. 4773 was likely introduced in response to passage of the Deficit Reduction Act of 2005, which President Bush signed into law on February 8, 2006. The DRA includes an incentive for states to enact mini-False Claims Act statutes. Under the incentive, states with a false claims statute may receive an additional 10% of any funds recovered under the statute.

H.B. 4773 can be read here.

For more information about the Deficit Reduction Act, and the incentive for states to enact False Claims Acts, read here.

Update: H.B. 4733 was referred to second reading on February 12, 2008. Legislative Analysis of the Bill can found found here.

New Bill Would Modify Recently Amended Construction Lien Act (S.B. 487)

On May 9, 2007, Senators Garcia and Basham introduced a new bill in the Michigan Senate (S.B. 487), which would limit to residential construction the changes made to Sections 110 (lien waivers) and 115 (sworn statements) of the Construction Lien Act by the passage of PA 572 of 2006.

S.B. 487 can be read here.

Background -- Rationale for Change

PA 572 of 2006, and a companion statute passed at the same time, PA 497 of 2006, were aimed at shoring up the Michigan Homeowner Lien Recovery Fund, and preventing fraud in the residential construction market. PA 572 adds several requirements that on their face appear to add a significant administrative burden on contractors who operate outside of the residential construction market.

First, PA 572 amends Section 110 of the Act to require that sworn statements include the address and telephone number for any listed subcontractor, supplier or laborer listed. Not a significant change. However, PA 572 further requires that the owner, lessee or designee notify persons listed on a sworn statement (advising them that they are so listed) and provide them with copies of the sworn statement, within 10 business days, if so requested.

“(6) On receipt of a sworn statement, the owner, lessee, or designee shall give notice of its receipt, either in writing, by telephone, or personally, to each subcontractor, supplier, and laborer who has provided a notice of furnishing under section 109 or, if a notice of furnishing is excused under section 108 or 108a, to each subcontractor, supplier, and laborer named in the sworn statement. If a subcontractor, supplier, or laborer who has provided a notice of furnishing or who is named in the sworn statement makes a request, the owner, lessee or designee shall provide the requester a copy of the sworn statement within 10 business days after receiving the request.” [MCL 570.1110(6)]

In addition, PA 572 adds a requirement to Section 115 that lien waivers be authenticated:

“(7) Subject to subsection (8), an owner, lessee, or designee shall not rely on a full or partial unconditional or conditional waiver of lien provided by a person other than the lien claimant named in the waiver if the lien claimant has either filed a notice of furnishing under section 109 or is excused from filing a notice of furnishing under section 108 or 108a unless the owner, lessee, or designee has first verified the authenticity of lien waiver with the lien claimant either in writing, by telephone, or personally.” [MCL 570.1115(7)]

S.B 487 would clarify the changes made by PA 572, and limit its application to residential construction, as it was originally intended.

Michigan Public Works Bond Statute -- Strict Compliance with Notice Requirements Upheld

Michigan's Public Works Bond Statute (MCL 129.201, et seq) requires strict compliance with the first (30 day) and last (90 day) notice requirements.

In contrast to the substantial compliance standard applied to notice under Michigan's lien statute, a claimant who does not have a contract with the principal contractor must closely follow the statutory notice requirements of the Michigan Public Works Bond Statute, which require serving a written notice of furnishing within 30 days of first work on the principal contractor, and a second written notice within 90 days of last work on the principal contractor and the "governmental unit" (ie., public agency contracting for the improvement). See, MCL 129.207.

On April 17, 2007, the Michigan Court of Appeals reiterated the rule of strict construction for public bond claims, and appears to have applied it even in the case of a non-statutory bond.

In National Waterworks, Inc v International Fidelity & Surety, Ltd., 275 Mich App 256; 739 NW2d 121 (2007) [slip opinion], the Court of Appeals upheld summary disposition of the Plaintiff's payment bond claim where it failed to satisfy the notice requirements set forth in the bond. The bond in question did not require a first notice of furnishing, but did require written notice within 90 days of last work.

The Plaintiff in the case served written notice of furnishing on October 8, 2004, 6 weeks before completing its last work on November 18, 2004. The bond also required a second notice within 30 days of serving the first notice. The Plaintiff served a second notice on February 11, 2005.

Although Plaintiff appears to have complied with the second notice requirement, the Court of Appeals rejected the argument that the first notice, served before completion of the work, substantially complied with the terms of the payment. The Court of Appeals relied upon its 1982 decision in Square D Environmental Corp v Aero Mechanical, Inc, 119 Mich App 740; 326 NW2d 629 (1982), which had presented a similar set of facts and a similar rejection of substantial compliance.

Commentary: This case underscores the importance of paying close attention to the notice requirements of the Public Works Bond Statute, and the particular notice requirements which might be included in a non-statutory bond.

For more information about National Waterworks, or any other payment bond or notice issues you might have, please contact Peter Cavanaugh. Each case is different.

Construction Liens: E. R. Zeiler -- Supreme Court Declines Review

On March 26, 2007, the Michigan Supreme Court DENIED the surety's Application for Leave to Appeal, which leaves standing the Court of Appeals decision reported here on May 28, 2006.

Updated case citation:

E. R. Zeiler Excavating, Inc. v Valenti Trobec & Chandler, Inc., 270 Mich App 639; 717 NW2d 370 (2006), lv app denied, 477 Mich1055; 728 N.W.2d 433, 2007 Mich. LEXIS 548 (Mich. 2007).