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-Davis.  Garden 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. 

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). 

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)

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.

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:

• Contractor Gets a Shot at Proving Architect Improperly Interfered with Bid Award [reporting on the November 2010 Michigan Court of Appeals deicsion in Cedroni Associates, Inc v Tomblinson, Harburn Associates, Mich Ct App No.  287024  (Nov 16, 2010]

• Contractor Holds Airport Authority's Feet to the Fire Despite Absence of Signed Contract [which discusses The Garrison Company v Bishop Int'l Airport decision]

•  Construction Lien Has Priority over Mortgage Regardless of Change in General Contractor and Project Ownership [which details decision in First Community Bank v Mountainaire, LLC, et al., Mich Ct App No. 293005 (Oct 21, 2010)] 

• You Snooze, You Lose - Subcontractor's Lien Invalid Where Warranty Work Did Not Extend Time to Record Lien [reporting on Stock Building Supply, LLC v Parsley Homes of Mazuchet Harbor, LLC, et al., Mich Ct App No. 294098  (Jan 25, 2011)]

• 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.

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

By: Matthew C. Norris, Esq

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.

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.

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.

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."

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.

Update: H.B. 5830 was approved and voted into law on August 23, 2010 as PA 147 of 2010 and given immediate effect.   

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.

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).

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. 

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. 

Cite: 29 CFR 5.5(a)(4)

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. 

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.”

Update: H.B. 5830 was approved and voted into law on August 23, 2010 as PA 147 of 2010 and given immediate effect.  

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.

Michigan Homeowner Construction Lien Recovery Fund Runs out of Money

In a sign of the times, the Michigan Homeowner Construction Lien Recovery Fund is broke, and there is currently no way to replenish its coffers.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Part 2 of the Michigan Construction Lien Act (MCL 570.1101, et seq) 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 funding problem for the Fund stems from PA 497 of 2006,  an amendment to the Michigan Construction Lien Act, which repealed Section 201(2) of the Act effective January 3, 2007. This amendment, reportedly the product of a legislative compromise, 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.

Beginning in 2006 and continuing through July, 2009, the Fund experienced an unprecedented increase in claims. This increase closely mirrored the collapse of the housing market.  The Fund is currently involved in over 250 pending lawsuits involving more than 350 claims against it that total more than $18 million.  In 2009, Judgments against the Fund have averaged $123,800 per month.  By mid-October, there was only $524,000 remaining in Fund coffers.

On October 21, 2009, the Fund sought to consolidate all 250 of the pending lawsuits into one proceeding in Macomb County and proposed a pro rata distribution of the remaining money among all the lien claimants. The result would be pennies on the dollar.  The Fund’s (interpleader) motion was heard by Judge James Biernat, Sr. on November 2, 2009, but denied several weeks later in a written opinion.  

As things stand now, and absent legislative intervention, the Fund has advised that it will run dry within a few months. This will leave unpaid subcontractors and suppliers to fight things out with Homeowners, who  will find themselves stuck in the middle of dispute with their builder and at significant risk of paying twice for  improvements to their home.

For more information, contact Peter Cavanaugh or Gary Quesada, or visit their website -- http://www.michiganconstructionlaw.com/ 

Update: Michigan Lawyer's Weekly recently ran a piece about this issue in its February 1, 2010 edition. The cite, for any lawyers reading this, is 24 Mich. L.W. 265.

Cavanaugh & Quesada, PLC -- New Offices in Royal Oak

Attorneys Peter Cavanaugh and Gary Quesada have moved their  law practice to new and larger offices in Downtown Royal Oak at 1027 S. Washington Ave. Cavanaugh & Quesada, PLC serves the unique legal needs of the design and construction communities.

• Peter's practice is concentrated on business and construction law matters, including litigation, arbitration, and mediation of contract, construction lien and payment bond claims, and disputes involving owners, contractors, subcontractors, and suppliers. Peter also represents clients who specialize in water and wastewater construction projects, especially those projects involving the Detroit Water and Sewerage Department (DWSD).

• Gary's practice is concentrated on representing architects, engineers, owners and contractors in business and construction law matters, including litigation and arbitration of commercial, municipal and residential construction claims, copyright and risk management consultation. Gary also represents clients in the fields of photographic, sculptural, literary and film arts.

To find out how we can help you, please contact either Peter Cavanaugh or Gary Quesada at Cavanaugh & Quesada, PLC, 1027 S. Washington Ave., Suite A, Royal Oak, MI 48067, Tel: (248) 543-8320, Fax: (248) 543-8330 or for more information visit our website -- www.MichiganConstructionLaw.com

AGC of Michigan Announces Construction Law Webinar Series

As a follow-up to its October 30, 2009 seminar, AGC of Michigan has announced a series of lunchtime webinars featuring some of the authors of the recently-updated publication "Contractor's Guide to Michigan Construction Law" (Rev'd 2009).
  

Webinar 1 - January 20, 2010 - 11:30 to 1:00 p.m.

• Bids, Bidders and Bid Protests
  
• The Contract for Construction: Standard Forms and Common Risk Transferring Provisions; 
• Overview of State and Federal Prevailing Wage Law

Webinar 2 - February 10, 2010 - 11:30 to 1:00 p.m.

• Contract Changes / Differing Site Conditions
  
• Defective Plans and Specs
• Delays in Contract Performance
• Concepts in Business Valuation, Potential Financial Statement Impacts and More Accounting, Tax and Financial Issues

Webinar 3 - March 17, 2010 - 11:30 to 1:00 p.m.

• Estate and Business Succession Planning for the Contractor
•  Bankruptcy and the Construction Industry
• Dealing with the Media and Press in Corporate Crisis Situations
  

Click here for more information and to register for one or all of these webinars.