Coronavirus and Construction Contracts

Is Your Construction Contract COVID-19 Proof?

Information provided by McAlpine PC

Are you an owner, general contractor, or subcontractor currently performing your obligations pursuant to a construction contract? Are you drafting, negotiating, or preparing to enter into a construction contract in the near future?

If you answered yes to either of the above questions, it is imperative that you review or consider incorporating a force majeure clause into your contract.

Even before the World Health Organization declared COVID-19 (“Coronavirus”) a global pandemic on March 11, 2020, construction projects across the country were being impacted due to China, the world’s largest producer of steel and other goods, being at the epicenter of the outbreak. Now, as the federal government and private employers begin implementing protective measures to prevent the spread of COVID-19, construction projects will most certainly be impacted even more by the virus.

As such, if you are in the construction industry it is essential that you review your current or future contracts for a force majeure clause and the applicable notice requirements. A standard provision in many contracts, a force majeure clause, relieves both parties of their contractual obligations upon the occurrence of a specifically defined event that is unforeseeable at the time of contracting or is out of a parties’ control, making performance impossible or impracticable. The force majeure clause may also include specific time-sensitive notice requirements that should be strictly adhered to.

In Michigan, force majeure clauses are narrowly construed; meaning that a clause “will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.” Kyocera Corp. v. Hemlock Semiconductor, LLC, 313 Mich. App. 437, 447, 886 N.W.2d 445, 451 (2015). Thus, in regard to COVID-19, a contract’s force majeure clause is most likely applicable if it contains the term “pandemic,” “disease,” or “viral outbreak.”

However, merely because a force majeure clause might be applicable does not mean a party can immediately stop preforming his or her contractual obligations. In order to invoke a force majeure clause, a contracting party must not have of been the cause of the delaying event or failed to prevent it by exercising prudence, due diligence, and care. See Erickson v. Dart Oil & Gas Corp., 189 Mich. App. 679, 688, 474 N.W.2d 150, 155 (1991); Cordoba v. City of Detroit, No. 221391, 2001 WL 1009308, at 3 (Mich. Ct. App. Sept. 4, 2001). According to Michigan common law, “a party’s failure to explore or utilize available options to overcome the delaying condition can constitute lack of due diligence.” Id. If you are in the construction industry and your work is being negatively impacted by COVID-19 or have questions or concerns regarding your contract, please feel free to contact McAlpine PC at (248)373-3700.

COVID19

McAlpine PC is a nationally-known law firm concentrating in construction law and litigation in Michigan and throughout the United States. It has received some of the largest jury verdicts and arbitration awards in the country. The firm’s founder, Mark L. McAlpine, is recognized as one of the best construction litigators in the country by a wide variety of lawyer peer review publications. The firm’s lawyers regularly counsel clients on matters of contract formation and administration, claims litigation, insurance, environmental and real estate issues faced by owners, contractors and subcontractors. Visit our website at www.mcalpinepc.com or call us at (248) 373-3700 for more information about the firm.

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Michigan Construction Lien Law

Construction Liens

How to Protect Your Right to Payment

CAMTEC Lien Law

Michigan provides to contractors, subcontractors, suppliers and laborers a remedy for payment beyond their customer and beyond their contract. This remedy is called a Construction Lien. In order to have the remedy of a Construction Lien, the land must be privately owned (i.e. hotel, office building, restaurant, manufacturing plant) as opposed to land owned by a city, township, village, state, county, public school or college. The privately-owned land must be in Michigan1. The Construction Lien is recorded against the land of the private owner. The contractor, subcontractors, suppliers, and laborers must be able to prove that they performed an improvement2 to the owner’s land.

To establish a Construction Lien, a party must be one of the following:

  1. Contractor: one who provides an improvement pursuant to a direct contract with the owner or tenant of the land.
  2. Subcontractor: one who provides labor and material to either a contractor or subcontractor.
  3. Supplier: one who only provides or rents material or equipment to a contractor or subcontractor that is used in the improvement to the owner’s land. Suppliers to suppliers have no lien rights.
  4. Laborer: an individual who only performs labor for a contractor or subcontractor.

Before the Owner (or Tenant) begins construction, the Owner must fill out, record3 with the register of deeds for the county where the property being improved is located, and post on the property a document called a Notice of Commencement. The Notice of Commencement will contain the following information that can be used and relied upon by the contractor, subcontractor, supplier or laborer to prepare and record a claim of lien:

  • The legal description of the land
  • The name and address of the general contractor
  • The legal description of the land
  • The name and address of Owner’s Designee

Before starting their work, the contractor, subcontractor, supplier, and laborer should obtain a copy of the recorded Notice of Commencement from their customer or the owner, either informally or by a formal certified mail demand.

To establish a lien, Subcontractors, Suppliers and Laborers must perform 5 steps:

  1. Serve a Notice of Furnishing within 204 days after first labor or material on the General Contractor, and Owners Designee by certified mail (effective upon mailing) or personal delivery.
  2. Prepare a Proof of Service of Notice of Furnishing. This is a notarized statement saying when the Notice of Furnishing was served. Keep and attach to Claim of Lien when recorded.
  3. Record the Claim of Lien in the County Register of Deeds where the Owner’s property is located, within 90 calendar days after last labor or material.
  4. Serve a copy of the recorded Claim of Lien on the Owner’s Designee within 15 days from date of recording by certified mail or personal delivery.
  5. Prepare Proof of Sevice of Claim of Lien. Keep and attach to lawsuit if filed.

To establish a lien, a Contractor must perform only 3 steps5

  1. Record a Claim of Lien in the County Register of Deeds where the Owner’s property is located with 90 calendar days after last labor or material. Before recording Claim, give the Owner a final Sworn Statement.
  2. Serve a copy of the recorded Claim of Lien on the Owner’s Designee within 15 days from date of recording by certified mail or personal delivery.
  3. Prepare Proof of Service of Claim of Lien. Keep and attach to lawsuit if filed.

In all cases, the recorded Claim of Lien has a one-year life span; meaning that a lawsuit to enforce or foreclose the lien must be filed within one year after the date the Claim of Lien is recorded. If no lawsuit is filed within the one year, the lien claim dies. The lawsuit to enforce the lien must have attached the Proof of Service of the Claim of Lien, and a Sworn Statement and must join all other lien and mortgage holders. If successful on the lien claim, the lien claimant can recover reasonable attorney fees and costs.

Resources

The Construction Association of Michigan hosts classes designed to educate member firms about the complexities of lien law and payment bonds.  Click here for upcoming classes.

To purchase a PDF copy of 18 lien law forms, click here.

  1. Each state has its own lien law.
  2. The improvement may be new construction, renovation, remodeling or service work – whether residential, commercial, industrial or office.
  3. The Owner of a residential construction lien (i.e. home) need not record the Notice of Commencement.
  4. Laborers must serve the Notice of Furnishing within 30 days after first work
  5. Contractors do not give a Notice of Furnishing, they receive them.

Note: This summary is not intended to be an all inclusive discussion of Michigan’s construction or mechanic’s lien laws, but does include basic provisions.

Robert S. Broner President Broner Glove and Safety

About the Author

Mr. Burnstein is the dean of construction law in the state of Michigan. He is an expert in Construction Lien Law and Payment Bonds, and teaches classes and workshops at the Construction Association of Michigan and throughout the state on the subjects.

Mr. Burnstein has been recognized by his peers in construction law in Best Lawyers of America from 2010-2020, Michigan Super Lawyers from 2010-2019.

CAM Jobsite Posters Are Updated for April 2019

Are your jobsite posters current? The answer is likely no because the new Michigan Paid Medical Leave Act with its Required Poster just became effective on March 29th. CAM has the new posters in stock!

Get an all-in-one, plastic-laminated, 30″x 60″ jobsite poster that contains seven Federal and eight Michigan posters that are required on all jobsites. CAM Jobsite Posters are available for $45.00. CAM Members pay only $35.00! For purchase information, contact Mary Carabott at (248) 972-1000 or carabott@buildwithCAM.com

 

 

CAM’s Michigan Construction Payment Act Becomes Senate Bill 1121

A Letter from the CAM Chairman of the Board, Mr. Joseph Fontanesi:

Fellow members, within the next few months, representatives of CAM will have the opportunity to make the case in support of CAM’s Michigan Construction Payment Act (MCPA), now known as Senate Bill 1121, before a State Senate subcommittee. CAM’s proposed legislation is intended to become the first prompt pay law for private sector commercial projects in the State of Michigan. Also, if the MCPA becomes law as proposed, it will eliminate the unfair industry practice known as retention or retainage.

Currently, Michigan is one of only a handful of states that does not have a prompt payment act for the private sector construction industry. Additionally, every state in the country, including Michigan, has prompt pay legislation on the books for public sector work. Who has not traveled to major metropolitan cities like Chicago, New York, Dallas, Atlanta or Seattle and marveled at all of the cranes at work and thought, “What If?” All of these great cities are located in states with legislation on the books guaranteeing prompt payment on both public and private projects.

Our country’s free market system compels Michigan to compete against other states for business. In order to successfully convince employers to establish and grow their businesses in the Great Lakes State, we need to be either a low-cost producer or provide added value. In truth, on many occasions, a state needs to do both to lure employers. Whether it’s the cost of money associated with a line of credit or the lost opportunity cost of not deploying money efficiently, the cost of money is a real cost. The leaders of states that have enacted private sector prompt pay legislation recognize the importance of a healthy construction industry and what it can do for their individual state’s overall economy today and into the future.

For a state to have a healthy construction industry, the money must flow in a timely and efficient manner. Unfortunately, in today’s private sector construction industry, intentional and unreasonable delays in paying for work, materials and services that have been accepted as being completed satisfactory are becoming more prevalent. In fact, delays in excess of 120 days are not uncommon. The Michigan Construction Payment Act will put an end to this unscrupulous practice. Key provisions of the MCPA include:

  • Owners must prove their ability to pay;
  • Owners are required to pay for acceptable work within 30 days;
  • Contractors and subcontractors must pay their tiers within 7 days of receiving payment;
  • An interest penalty clause is included for wrongfully withholding payment;
  • Contractual retainage/retention provisions are prohibited;
  • Withholding of payment without penalty for work unsatisfactorily completed is permitted;
  • Contract provisions requiring the contractor to assume the risk of non-payment are void and unenforceable.

Consequently, we are asking everyone for their support in addressing and rectifying this very critical problem plaguing our industry. For starters, we need you to write to and/or call your local legislators and ask them to support Senate Bill 1121. Timing is of the essence! Click this link for a customizable letter that you can send to your local State Senators and Representatives: Senate Bill 1121 Letter to the Legislators .

See who your Senators and Representatives are at this link: buildwithcam.com/government-contacts. Tell them today that you support Senate Bill 1121, CAM’s Michigan Construction Payment Act!

Thank you for your support of this paramount issue.

Sincerely,

Joseph Fontanesi

2018 CAM Chairman of the Board

Fontanesi & Kann Co./Architectural Building Components, Inc.