Category Archives: construction law

“But They Breached First”… Why You May Still Be Obligated To Peform

It is not uncommon for a general contractor or subcontractor to stop working on a project when they are not paid for work previously performed and invoiced. However, professionals in this situation should be careful to make sure their contract does not have any provision that forbids them from stopping their work.  They should also make sure that they are in compliance with the Texas Property Code.

According to Sec. 28.009 of the Texas Property Code:

(a)  If an owner fails to pay the contractor the undisputed amount within the time limits provided by this chapter, the contractor or any subcontractor may suspend contractually required performance the 10th day after the date the contractor or subcontractor gives the owner and the owner’s lender written notice:

(1)  informing the owner and lender that payment has not been received;  and

(2)  stating the intent of the contractor or subcontractor to suspend performance for nonpayment

The code makes it clear that work can be stopped only after giving notice. Failure to provide this notice could result in a court finding that stopping work resulted in a breach of Contract. Generally speaking, under traditional contract principles if both parties breach a contract, the first party to breach is the party that will be responsible for damages. However, it is critical that the non-breaching party determine whether the initial breach was “material”.

The Texas Supreme Court recently addressed this issue in Bartush v. Cimco, No. 16-0054, 2017 WL 1534053 (Tex. 2017) (April 28, 2017). In that case Bartush hired Cimco to install a new refrigeration system in its manufacturing plant. They system that Cimco installed failed to properly cool. Bartush refused to pay the remaining contract balance alleging that Cimco had breached and the breach excused Bartush’s performance.

At trial, the jury found that both parties breached the contract but that Cimco breached first and awarded Bartush damages for the cost of repairing the system. Cimco appealed and won. The appellate court held Bartush for the contract balance because the court held that Cimco’s breach was not material.

The Texas Supreme Court affirmed the appellate court’s decision that Cimco’s breach was not material. Relying on Mustang Pipeline Co. v. Driver Co., 134 S.W.3d 195 (Tex. 2004), the Court explained that: (i) a contractor’s material breach excuses the owner from making further payments; but (ii) a non-material breach simply gives rise to a claim for damages. The Court stated that “while a party’s nonmaterial breach does not excuse further performance by the other party, neither does the second breach excuse the first.”

In applying the principle above, the Court concluded that although Cimco was the first to breach, the breach was not material and did not excuse Bartush’s obligation to pay the remaining contract balance. The Court also stated that, Bartush’s subsequent breach did not excuse Cimco’s obligation to install a working refrigeration system. Consequently, Cimco’s contract balance should have been offset by Bartush’s repair balance.

Clearly, parties to a contract have a great deal to consider before deciding to forego performing their obligations under a contract. It is best to consult counsel with actual contract litigation experience before refusing to perform. However, if a party has breached and it is too difficult to determine whether the breach is material, it is best to continue to fulfill any contractual obligations so long as the breaching party is not insolvent. This is because the party that fully performs, has clean hands, presents well to a court or jury, and is generally entitled to damages.

Nothing in this article is to be considered legal advice. If you have questions or need representation concerning a construction matter, please call 832-930-0529 or email us at info@stephenspllc.com

You’d Better Get Both

Often times in residential projects both general contractors and subcontractors find themselves in situations where they believe it is best for them to file a lien. Unfortunately, many of these liens are invalid due to the fact that the builder is unaware that the property is the owner’s homestead.

The fact that the property is considered homestead property does not automatically invalidate the builder’s lien. However, the builder’s ignorance to the homestead status makes it very unlikely that the builder complied with Sec. 53.254. of the Texas Property Code. Failure to comply with this section of the code invalidates the lien on a homestead.

The critical requirements of the section are enumerated in the statute and include required notices. However, one of the most common ways that builders fail to comply with the statute is that they fail to get a signature from both the husband and the wife in situations where the owners are married.  Many builders believe that one spouse’s commitment to the work binds both spouses and the property.  This is simply not the case. To affix a lien to the property it must be compliant with the code and this means that it must be signed by both spouses.

Given the importance of this step, it is probably best that a builder that regularly handles residential projects, incorporate a signature space on its contract for both spouses and ensure that both are signed before commencing any work

Nothing in this article is to be considered legal advice. If you have questions or need representation concerning a construction matter, please call 832-930-0529 or email us at info@stephenspllc.com

Do Not Pay Invalid Liens To Save Time

“Yea… some guy up and filed a lien out of nowhere. We’re probably just going to pay them and be done with it so that we can move on.”

Unfortunately, I hear this on a weekly basis. In construction, liens are a regular part of doing business. Sometimes, subcontractors file invalid liens on projects and general contractors must try to quickly resolve the lien in order to keep the project moving. Another scenario where a lien can be a headache is when it is preventing the sale of a property. These reasons and countless others result in contractors over paying for liens or paying to resolve invalid liens.

For the most part, the contractors’ reasons for paying invalid liens can be reduced to two things: time and money. General contractors figure that it costs too much and takes too long to contest a lien. This belief is based on their understanding of a typical litigation process. Undoubtedly, some of them have been through long, drawn-out litigation and believe that a lien contest situation will be the same. Others may not have personally experienced litigation, but have familiarized themselves with the process based on the media.

Of course, these beliefs are not completely false. Sometimes litigation can be a long and expensive process. However, what most contractors may not know is that it doesn’t always have to be. This is especially true when contesting an invalid lien. The Texas Property Code as well as flexible attorneys’ fees structures have greatly reduced the costs associated with lien removal.

Section 53.160 of the Texas Property Code is titled Summary Motion to Remove a Lien. Under this chapter, a contractor can contest  a lien by having their attorney file a verified motion attacking the lien’s validity. The motion can attack the lien on the following grounds:

(1) notice of claim was not furnished to the owner or original contractor as required by Section 53.056, 53.057, 53.058, 53.252, or 53.253;

(2) an affidavit claiming a lien failed to comply with Section 53.054 or was not filed as required by Section 53.052;

(3) notice of the filed affidavit was not furnished to the owner or original contractor as required by Section 53.055;

(4) the deadlines for perfecting a lien claim for retainage under this chapter have expired and the owner complied with the requirements of Section 53.101 and paid the retainage and all other funds owed to the original contractor before:

(A) the claimant perfected the lien claim; and

(B) the owner received a notice of the claim as required by this chapter;

(5) all funds subject to the notice of a claim to the owner and a notice regarding the retainage have been deposited in the registry of the court and the owner has no additional liability to the claimant;

(6) when the lien affidavit was filed on homestead property:

(A) no contract was executed or filed as required by Section 53.254;

(B) the affidavit claiming a lien failed to contain the notice as required by Section 53.254; or

(C) the notice of the claim failed to include the statement required by Section 53.254; and

(7) the claimant executed a valid and enforceable waiver or release of the claim or lien claimed in the affidavit.

Using this procedure, your attorney can set the motion for hearing after 21 days. Once the motion is set for hearing the burden is on the person claiming the lien to prove that the required notice and lien affidavit were furnished to the general contractor as is required by the Texas Property Code. The attorney can then argue that the lien is invalid for one of the seven reasons listed above. The statute then states that the court shall make a timely ruling and there is no ability to file an interlocutory appeal.

Essentially, by following this proceeding an attorney may be able to get an invalid lien removed as quickly as 21 – 30 days. Also, because the proceeding is not an actual trial and there is no need for the discovery process, the procedure can be done at a fraction of the cost of regular litigation.  No discovery means there are no depositions, no shuffling documents back and forth, and no hearings forcing the production of critical documents.  These things save contractors money.

In short, this procedure may be less expensive than simply paying for the lien and may not take as long as you think. In the future, when a lien is filed on one of your projects, weigh all the options and if you believe the lien is invalid, talk to your lawyer about this procedure. The more general contractors contest invalid liens, the less likely people are to continue to file them with the belief that they’ll immediately be paid so that the project can move along.

Nothing in this article is to be considered legal advice. If you have questions or need representation concerning a construction matter , please call 832-930-0529 or email us at info@stephensbell.com

Give Us a Break…Literally: Senate Bill Considers Mandatory Breaks for Construction Workers

It’s 2:00 pm on a sunny Friday in Houston, Texas. The temperature is 102 degrees with humidity thick enough to make you question why you elected to spend your summer in the city. You stop at a light downtown and see 20 or more guys in long sleeve shirts working diligently on a construction project. You think to yourself, “My goodness, how can they work out in that heat all day?”

Well, a Texas Senate Panel is considering taking an action that it believes will make those jobs safer for workers. In an effort to prevent illness and deaths from the Texas heat, the panel considered Senate Bill 473 which proposes a requirement that construction companies to give workers mandatory rest breaks. The legislation would require 15-minute rest breaks for every four hours of work on construction sites.

Some cities in Texas have already implemented a similar policy on work sites. In Dallas, construction workers are entitled to a 10-minute break every four hours. Austin is another Texas city that requires breaks. There are also a handful of states that require breaks at construction sites.

The Debate

There is a debate among builders and worker advocates regarding the bill. Builders argue that safety regulations regarding construction work sites should be left to OSHA. OSHA has safety guidelines that are recommended to builders. Builder advocates explain that failure to follow OSHA recommendations can result in fines and is typically strong evidence of negligence in workplace safety litigation which could result in big verdicts against companies. They believe that the threat of litigation and fines are strong enough incentives to push companies to provide a safe work site.  They also believe that the bill could result in over-regulation because the federal government already regulates safety through OSHA and cities could pass similar legislation. Compliance with all three regulations could increase construction costs which would be passed down to the buyer.

Construction worker advocates point out that OSHA does not have a specific heat stress standard. OSHA relies on Section 5(a)(1) of the Occupational Safety and Health Act of 1970 (OSH Act) (also known as the General Duty Clause) to require employers to provide a safe and healthy environment for all workers and recommends that employers, including roofing employers, implement policies to address working during hot weather conditions. OSHA uses a heat index to make suggestions to builders on what to do when the heat reaches certain temperatures. Proponents of the bill argue that companies are not required to follow OSHA’s suggestions and many do not.

Senate Bill 473 would do much more than suggest breaks. Breaks would be mandatory and failure to comply will afford workers a right to file a complaint through the Texas Workforce Commission. The complaints would be investigated and handled by the Commission. Then, the commission could potentially penalize companies through the same process it uses for wage disputes.

There are a number of questions regarding the way this bill would impact the industry. From a legal standpoint one can expect that if passed, the bill will have a significant impact on construction contracts. Specifically, delay and delay damages clauses could be affected. Project timelines could also be impacted.

Nothing in this article is to be considered legal advice. If you have questions or need representation due to nonpayment on a construction project , please call 832-930-0529 or email us at info@stephensbell.com

When Dreams Turn to Nightmares: Why You Should Never Bet The Business On A Single Project

It’s the kind of project a Texas contractor would love to be involved in. There’s a huge plant going up. The project is approved by all required government entities. The state governor endorses it and it appears to be backed by more money than the Dallas Cowboys! What’s not to love right? Well, unfortunately, all that glitters is not always gold and for a number of Texas companies, this dream project became a nightmare.

In 2011, Mossi & Ghisolfi Group, an Italian petrochemical company decided to bring a multibillion dollar plastic plant to Corpus Christi. The project started in 2013 and was supposed to be finished in 2016 but stalled due to non-payment issues. Now, over 40 mechanic’s liens worth more than 100 million dollars have been field on the project and Texas contractors are suffering.

As is the case in many of these situations, contractors cannot make payroll due to the fact that they scaled up their workforce for the project. Some are on the brink of going under due to the situation. For others the lack of cash flows has required them to turn down other work and they are forced to due small jobs to survive.

In looking at these situations, the question that we are typically asked is whether this situation is preventable and the unfortunate answer, is probably not. On a project this large, everything normally checks out during due diligence and contractors feel secure doing the project. Also, because the project is so large, it is unlikely that an owner or General Contractor will be willing to issue a lump sum payment. Progression invoices and payment applications (pay apps) are the standard in these situations.

The only silver lining is that with such a big company, solvency should not be an issue. If the liens are properly perfected and the contractor has good representation, they should eventually be able to collect payment. The challenge for the contractors will be in finding enough liquidity to afford to hire counsel and wait out the litigation.

It is not uncommon in these situations for a large non-paying entity to contest the quality of the work done by the contractor and use this as a reason to reduce the total amount owed. This is also grounds for the lien to be contested and litigated. A typical strategy is to try and drain the cash strapped contractor until it taps out by accepting a fraction of their original invoice in exchange for a lien release.

When this happens, it is important that the contractors stand behind the quality of their work and if necessary foreclose on their liens if they want to be paid in full. This is also why it is good practice for contractors to keep a pool of retained earnings and allocate a portion of the budget to dispute resolution.

Nothing in this article is to be considered legal advice. If you have questions or need representation due to nonpayment on a construction project , please call 832-930-0529 or email us at info@stephensbell.com

The Texas Residential Construction Liability Act and Its Benefits to General Contractors: Part 1

If you’ve been building long enough, you know that every project comes with its challenges. Whether it’s unforeseen additional work requiring a change order or project delays due to material shortages, there is typically a fire to put out. Unfortunately, when it comes to residential construction defects, many challenges progress into full blown disputes that are eventually litigated.

Texas Residential Construction Liability Act

Chapter 27 of the Texas Property code is known as the Texas Residential Construction Law Act (RCLA). The RCLA was enacted in 1989 in response to a growing trend of favorable verdicts for homeowners when pursuing claims against contractors for defects.  The act is applicable to:

  • any action to recover damages or other relief arising from a construction defect, except a claim for personal injury, survival, or wrongful death or for damage to goods; and
  • any subsequent purchaser of a residence who files a claim against a contractor. Prop. Code § 27.002

The act requires the homeowner to take certain procedural steps before pursuing litigation against a contractor. In the past, homeowners have tried to bypass these requirements by alleging that the contractor responsible for the alleged defect is not a “contractor” as is defined by the statute. Fortunately, the act defines a contractor as follows:

any person contracting with an owner for the construction or sale of a new residence constructed by that person or of an alteration of or addition to an existing residence, repair of a new or existing residence, or construction, sale, alteration, addition, or repair of an appurtenance to a new or existing residence. Tex. Prop. Code Ann. §27.001(5)

As you can see, this definition is broad and covers nearly every possible person working on a residential project.

Owners have also tried to circumvent the requirements of the RCLA by alleging that the dispute is not as a result of a construction “defect” as is defined by the statute. However, defect is also defined by the act as:

a matter concerning the design, construction, or repair … of an alteration of or repair … to an existing residence … on which a person has a complaint against a contractor.” Tex. Prop. Code Ann. §27.001(4)

Again, the definition acts as a catch all definition concerning residential construction complaints. Given the broad definitions and applicability, it is very likely that if a contractor is sued by a homeowner concerning a residential project, the action falls under the RCLA. In part 2 of this series you will see why this benefits you as a contractor.

Nothing here is intended to be legal advice nor should it be construed as such. If you have questions or would like to discuss an issue with your company, please call 832-930-0529 or visit http://www.StephensBell.com