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Law Changes: Lien Waivers and Retainage Notices

January 3, 2012 By Leave a Comment

In addition to the new indemnification laws that we discussed during the last blog post, there are other laws and bills that were passed that greatly affect the construction industry.  One of them is HB 1456 the other is HB 1390 you can find the full text of the new laws here: TX HB 1456 and TX HB 1390.

HB 1456 Goes into effect January 1st and pertains to Lien waivers.  You may recall it was just a few months ago I went over some of the pit falls of lien waivers in the blog post Lien Releases: Look Before You Leap.  Well HB 1456 changes how lien releases/waivers are handled.  It provides standard forms for conditional and unconditional lien waivers.  It also fixes something that has plagued the building industry, trying to force sub-contractors to sign an unconditional waiver before payment has been made in full for the invoice or work in question.

Here is the text from the law that fixes that issue:

“A person may not require a claimant or potential claimant
to execute an unconditional waiver and release for a progress
payment or final payment amount unless the claimant or potential
claimant received payment in that amount in good and sufficient
funds.”

One other item the new law provides are conditional and unconditional waiver forms that must be substantially complied withto be valid.

The law that arose from  HB 1390 pertains to how retainage notices were to be handled since September 1, 2011.  Back in 2009 (view it here: retainage claims) I wrote about when Retainage notices are due.  HB 1390 now allows the notices to be given at the end of the project instead of requiring the contractors and/or subcontractors to give Retainage Notices at the beginning of the project.  This is important because I very rarely saw the retainage notices being timely sent, if at all.

I am VERY excited about the changes in these laws.  These go so far in protecting the Texas Contractors and takes care of many of these issues that have come up in my legal practice almost daily in the past few years.  Again, the lawmakers have gone a long way to strengthen some of the loopholes that have been used time and time again by the unsavory.

Filed Under: Construction Law, Lien Waiver, Retainage

Beware of the Changes in the Contractual Indemnification Laws in Texas

November 14, 2011 By Leave a Comment

On January 1, 2012, a new law will go into effect that is known as the Anti-indemnification Bill (HB 2093).  This will affect most construction contracts that are currently being used.

Currently, most contracts that the General Contractor requires sub-contractors to sign have an indemnification clause that limits the GC’s own liability and holds it squarely in the hands of the sub-contractor.  The great news is that those parts of any contract signed after January 1, 2012 will be void (with a few exceptions of course).

Here is a more thorough breakdown of how this law will change the way contracts need to be written:

  • A GC can no longer require a subcontractor to indemnify the GC of their own sole or partial negligence.  Indemnity clauses violating this prohibition will be void and unenforceable.
  • Unless you enter into a “Joint Defense Agreement” after a claim has been asserted, a GC’s contract can no longer require a subcontractor to defend the GC from claims based on the GC’s own negligence.
  • Additional Insured endorsements to a subcontractor’s liability insurance policy that purport to provide coverage for the GC’s sole or partial negligence, so long as the claim arises from the Subcontractor’s work, are also no longer enforceable.  It is very likely that ISO specific Additional Insured endorsement forms will be prepared to cover this in Texas (but see below).
  • NOTE:  These restrictions on indemnification (both with regard to claims and defense of claims) and on Additional Insured endorsements do NOT apply to on-the-job employee personal injury claims.  Accordingly, a GC can still make a Subcontractor defend and indemnify the GC for the Subcontractor’s own sole or partial negligence for a personal injury claim by an employee of the GC (or even other subcontractors of the GC).   This means that the current broad form intermediate or additional insured endorsements will still be enforceable in situations where personal injuries occur on the job in Texas.

The good news is that, so far, it looks like the lawmakers got it right this time.  They finally put some laws in place to give equal bargaining power to general contractors and subcontractors.  If you are a General Contractor and you are depending on these provisions to protect yourself, as of January 1st, you need to think again.  And as for Subcontractors, you no longer have to sign contracts with these provisions in them.

Filed Under: Construction Law

Lien Releases: Look Before You Leap – Part 2

August 2, 2011 By Leave a Comment

Last time I started to talk about the pitfalls that may arise from not reading lien releases more carefully. You can read it here: Lien Release – Part 1. This time I continue to expand on more issues that might arise from lien releases.

Prohibiting yourself from collecting on additional work performed was one of the concerns raised in the Addicks case disussed last time due to a release or waiver with broad language. Another concern can be other disputes that you may have regarding a project. For example, I represented a client who contracted to remove stone veneer from an apartment complex and install new stone veneer. Problems arose and my client was terminated from the project and believed that he was entitled to breach of contract damages including lost profits. However, in an effort to mitigate his damages, he sold the stone and installation materials to the subsequent contractor that was hired to perform such work. At the end of the job, the owner requested that the subsequent contractor obtain a waiver for final payment from my client and provided the subsequent contractor with the waiver. The waiver was presented to my client as simply a waiver of liens in exchange for final payment for the material my client had provided to the subsequent contractor. However, after reading the waiver closely, my client realized that such waiver stated that he was agreeing to release any and all claims that he had against the owner and the property. Such waiver may have barred my client’s claims for lost profits against the owner. It is likely that the owner intended to sneak this waiver by my client to protect itself from the claims which it expected my client to file.

It is also important to consider whether the waiver or release is conditional or unconditional. A conditional waiver or release means the waiver or release is conditioned upon some additional requirement being met before the waiver or release is effective to waive or release a contractor’s rights. Typically, the “condition” in a conditional release is payment. For instance, the waiver from the Addicks case, quoted above, is a conditional release because it states, “This waiver constitutes a representation by [Contractor] that the payment referenced above, once received, constitutes full and complete payment…”. The document does not constitute a representation of full payment until payment is received. This is an important distinction. An unconditional release does not contain a condition and, therefore, is effective upon execution. If a contractor were to execute an unconditional release with a payment application and then never receive payment (or the payment bounced), the contractor may be stopped from later trying to collect on the payment because he unconditionally released his or her rights. Another scenario in which an unconditional release can create problems is when additional work, not contemplated by the original contract, has not been billed or paid. However, this can also be a problem with a conditional lien as discussed above.

It is extremely important that you understand any waivers or releases that you execute. Make sure that that you understand exactly what is being waived or released. The best rule of thumb is that if there is any work which has been performed or goods which have been provided which are not a part of a particular payment, make sure that you specify in writing on the same document (and on each and every waiver that you subsequently sign) that the waiver or release does not cover such goods or services. If you are in doubt, consult an attorney regarding the language of the waiver or release. The short time that it takes to discuss the waiver or release may pale in comparison to the costs of claims you may inadvertently waive or release.

Filed Under: Construction Law Tagged With: ,

Lien Releases: Look Before You Leap – Part 1

June 30, 2011 By Leave a Comment

In the construction industry, acknowledging payment for goods and services is common. Such acknowledgments come in many forms. They may be referred to as a waiver of lien, release of lien, or they may refer to a release or waiver of claims. They may be conditional or unconditional. They may be partial or final. Many contractors sign them in exchange for payment without really taking the time to read or understand the language contained in such documents. This can be a costly mistake. Be wary of what you are agreeing to in signing any type of waiver or release.

Pay attention to what it is that you are waiving or releasing. Some waivers or releases state that you are only waiving or releasing your right to claim a lien or file a bond to the extent that you are being paid a certain amount in connection with such release or waiver. This is what many contractors assume they are agreeing to in executing a release or waiver in connection with payment. However, some language in waivers or releases go further. They may specify that you are waiving or releasing any and all claims for payment for work performed or goods provided through a certain date. Some final releases go even farther by specifying that you are waiving or releasing any and all claims of every kind against the owner, the project, the property and other contractors. Note the differences between what is being released and/or waived.

These releases can be become a problem when the person making the payment and the person signing the waiver have different ideas about what is being paid and one of the parties isn’t paying attention to the specific language in the waiver or release. As an example, consider Addicks Services, Inc. v. GGP-Bridgeland, L.P., 596 F.3d 286 (5th Cir. 2010). In such case, the contractor found after starting the project, that numerous issues arose including requests for additional work, delays due to inclement weather, and site accessibility problems. In accordance with the contract for the project, the contractor made written requests for information regarding the work, extensions of time, and change orders. However, while the requests were pending, the contractor submitted applications for payment and with such payments executed waivers for each payment received which stated:

This waiver constitutes a representation by [Contractor] that the payment referenced above, once received, constitutes full and complete payment for all work performed, and all costs or expenses incurred (including by not limited to costs for supervision, field office overhead, home office overhead, interest on capital, profit, and general conditions costs) relative to the work or improvements at the Project as of the date of this waiver, except payment of retainage. [Contractor] specifically waives, quitclaims and releases any claim for damages due to delay, hindrance,

 

Despite the blank space for exclusions, the contractor merely signed the waivers in exchange for payment without identifying any of the pending change orders. After the project ended the contractor sued the owner for payment of additional unpaid costs. The court found the unambiguous language of the waiver barred not only the contractor’s right to lien the project, but also the contractor’s right to sue for breach of contract!!

Here is Part 2: Lien Releases: Look Before You Leap – Part 2

Filed Under: Construction Law Tagged With: ,

CHANGE ORDERS – The Good, The Bad, and The Ugly – Part 2

June 13, 2011 By Leave a Comment
So last time, we answered some of the most common questions we hear regarding the change order process.  This week, I want to concentrate on various cases that have come down in Texas that relate to construction change orders and specifically discuss how these cases affect you the contractor.  If you read nothing else in the article at least skip down to the last question and answer for practical advice. 

Ok, I didn’t get a written change order and now the owner is disputing payment for the work, what should I do?
While obtaining written change orders prior to performing change order work is always the best practice, should a contractor perform change orders without a written change order, there is still an opportunity to collect on such change orders in some circumstances.  In Buxani v. Nussbaum, the owner and contractor entered into a construction contract which stated, “Any alteration or deviation from above specifications involving extra costs will be executed only upon written change orders, and will become an extra charge over and above the estimate.”   The evidence in such case showed that the owner of the project ordered the extra work orally and that the owner accepted such extra work.   When the contractor sued the owners for the unpaid amounts, the owners counter-sued for breach of the original contract requiring change orders to be in writing.   Does this factual scenario sound familiar?  I know you’ve all been there.  It might make you feel better to know that the trial court found that an oral contract existed for the goods and services which were not contemplated by the written contract.  The owner argued that mutual assent (a requirement for a contract, whether oral or written) could not be implied when an express contract covering the subject matter already existed.   In response the court stated, “The Buxanis, however, fail to take into account the differences between their written contracts and the oral agreement.  The extra items and services were above and beyond what was included in their written contract with Nussbaum.”   The appellate court held that the parties entered into an additional oral agreement that did not breach the original contract.

Will a promissory note to pay out the change orders protect me from the Owners’ later denying payment?
Another consideration in attempting to enforce a change order which was not executed in writing can be whether the owner later ratifies an oral agreement regarding a change order.  ”A ratification rests upon a person’s assent to a prior act or an act of another.”   Such ratification can be expressed or it can be implied from one’s conduct.   “Ratification of a contract occurs when a party recognizes the validity of the contract by acting under the contract, performing under the contract, or affirmatively acknowledging the contract.”  A party cannot withdraw the ratification and avoid the agreement, once the agreement has been ratified.   Also, when a party’s actions are inconstant with an intent to avoid an agreement, such actions have the effect of ratifying the agreement.   The Court used this reasoning to hold that an owner could ratify an oral request, acceptance and promise to pay for such services, by later confirming its promise to pay or by partially paying for such services.  When faced with this situation, it is advisable that Contractors who are owed money by an Owner, obtain verification, in writing, in the form of a promissory note so that the evidence does not come down solely to a he said she said situation.

My contract requires change orders to be in writing, however, I complied with a request from the owner for an on-the-job change without getting prior written approval.  Can the owner’s now deny paying me by arguing that I can’t enforce our agreement because it was not in writing?
Another consideration in attempting to collect on a change order which was not approved in writing prior to the performance of such change order is whether a contractual provision requiring written change orders was waived by the owner. “Waiver, the voluntary relinquishment of a known right, is sometimes spoken of as intentional conduct inconsistent with assertion of a known right.”   “Silence or inaction, for so long a period of time as to show an intention to yield the known right, is enough to prove waiver.”

In Travis-Williamson County Water Control and Imp. Dist. v. Page, the construction contract at issue specified that no claim for extra work would be allowed unless ordered in writing.   The evidence in the case showed that the owner of the project ordered the extra work orally and that the owner accepted such extra work.   The court held that such evidence constituted waiver as a matter of law.   By orally requesting, accepting and promising to pay for goods and services from a contractor, which were not contemplated by the written contract on the project, without requiring that such additional agreements be reduced to writing, an owner can be considered to have engaged in voluntary and intentional actions which were inconsistent with an assertion of a contractual provision that requires written change orders.

Courts throughout Texas have held that a change order provisions in construction contracts can be waived: Generally, a provision in a construction contract providing that any alterations or deviations must be executed in writing is binding, and there can be no recovery unless the writing requirement is met. State v. Martin Bros., 138 Tex. 505, 160 S.W.2d 58 (1942); D. H. Overmyer Co. v. Harbison, 453 S.W.2d 368 (Tex.Civ.App. El Paso 1970, no writ); Stave v. F & C Engineering Company, 438 S.W.2d 647 (Tex.Civ.App. Houston (14th Dist.) 1969, writ ref’d n.r.e.). However, such a provision can be waived by the actions and conduct of the parties. Mood v. Methodist Episcopal Church South, of Cisco, 296 S.W. 506 (Tex.Comm’n App.1927, holding approved); Travis-Williamson County Water C. & I. Dist. v. Page, 358 S.W.2d 158 (Tex.Civ.App. Austin 1962), rev’d in part on other grounds, 367 S.W.2d 307 (Tex.Sup.1963); Housing Authority of City of Dallas v. Hubbell, 325 S.W.2d 880 (Tex.Civ.App. Dallas 1959, writ ref’d n.r.e.).  The court went on to hold that an award of costs of extra goods and services was warranted under the theory that the written change order provision had been waived and that recovery was proper under the theory of quantum meruit.

Are there any practical hints you can provide me to help me collect monies owed on my change orders?
Despite the fact that a contractor may be able to collect on change orders which were not executed in writing prior to the performance of such change orders, there are some things that contractors should consider in such circumstances.  When a contractor performed a change without a prior written change order, the contractor should invoice such changes as soon as possible.  A contractor should not wait until the end of a project to request payment for a change order.  Moreover, when a change order is performed without a change order, it is also important for the contractor to carefully examine any lien releases which it executes pursuant to a payment on the project.  If the contractor is asked to sign a lien release which states that the contractor has been fully paid up to a particular date, the contractor must not sign such lien release unless the payments include all change orders performed as of the date indicated in the release, as well a contractual work, or the lien release specifically excludes change orders.

Filed Under: Construction Law Tagged With: ,
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