I’m glad you are here and you found this page on construction law. This may be one of the most comprehensive single webpages on the subject of construction law on the internet. The intention is to give a brief overview of the most common construction law issues that a construction lawyer encounters on a regular basis. Use this as a reference point and please reach out if you need more content on a certain subject listed below.
Construction Law is a nuanced area of the law. It is a subset of business and contract law because all construction companies are businesses and contracts are what the parties negotiate and live by during the life of a construction project.
Typically, construction law issues center around a particular project. There are instances where disputes can involve many projects, however, the laws typically apply on a project-by-project basis.
This page is designed to touch on many of the most popular issues that construction lawyers see on a regular basis. Smiley Law Firm is built on construction, this is not only a tag line but construction is the cornerstone of our business. We love working to help construction industry professionals navigate all of the issues, from small job sites to mega-projects.
Construction contracts – negotiating and drafting
There would be very little construction law without construction contracts. Sure there are many instances where there is no written contract, but nearly every project has some type of contractual agreement.
Many times we see issues that have turned into a serious matter because of the lack of a solid contract or the parties did not carefully lay out the framework of the agreement. The contract is the law between the parties. I say this all the time and it does not stick for some reason. Sure we have statutes to guide when contracts are silent or against public policy, but the majority of all construction issues can be resolved by looking to the contract.
The key to contracts is to either have your own contracts drafted for your company or negotiate a contract that is presented to you for signature. All construction contracts can be negotiated and they should be! If they are not, then the drafting party will always have the advantage. Savvy contractors know to negotiate their contracts before signing on to a project.
Basically, there are two ways to classify a project in construction law, either public or private. Public is either state or federal and will be described in more detail below. Where the opposite is private.
A privately owned job is one where either a person or an entity owns the land where the construction project is being built. The reason for the crucial difference in the eyes of a construction lawyer is privately owned land can be sold and public lands cannot be foreclosed.
There is a long history of this classification structure, it goes back all the way to the founding of the United States of America. The key to remember is if a contractor is not paid for a private job, then a lien can be filed and as a last resort, the property can be sold to satisfy the lien. You cannot do this for a public job.
Public projects, as described above, are the opposite of a private job. The public entity must provide a bond as security so parties who bid can ensure there will be money to pay for the work performed.
Public projects also have many other formalities which are designed for transparency in the public bid process. There is a requirement for sworn pay applications and sworn statements of amount due. These safeguards were enacted by legislatures to make sure that the United States Constitution is upheld. Government action has to be fair and apply the same to all.
The element of a bond on a public project also helps to speed up the payment process by allowing for other pressure to be put on non-paying contractors.
The term substantial completion is a buzz term in the construction law world. The reason for the buzz is due to the fact it is often used in the law or contracts but it is rarely defined with certainty.
Many definitions use terms such as “put to its intended use” or a job is substantially complete when it reaches the punch-list phase. Some contracts will define substantial completion and others will not, in my experience most do not. However, the law requires many deadlines to run from the substantial completion date.
The American Institute of Architects (AIA) has a form document for the owner, architect and general contractor to sign and agree when the project reaches substantial completion. Many times the date is agreed upon, other times it is hotly contested.
The substantial completion date can determine when liquidated damages start and can also trigger lien period clocks. Lawyers often debate substantial completion in construction law settings because the actual date of completion can make or break contractors, subcontractors, and suppliers.
Public Bid Process and Bid Protests
The precursor to any public project is the public bid process. If the public bid process is not followed correctly then there is a process called a “bid protest” whereby a bidder can object to the bid process and if the conditions are correct, the bidder can file to have the entire bid thrown out.
The rules for public bid are stringent and need to be followed carefully by the parties issuing the bid. There are many technical issues that can have a bid thrown out. The devil is in the details. Each state has different public bid laws.
Louisiana, Texas, and California all have a different set of rules that need to be followed so that the bidders are treated fairly. Construction lawyers often have sent out a public records request, obtain all of the bid documents and compare the bid process for a specific project to make sure it matches up with the public bid process exactly. One wrong move in the bid process and the bid protest may be successful.
Projects issues and paid for by the United States Federal Government are considered federal projects. The Miller Act, Federal Acquisition Act, Federal Business Opportunities (FedBizOpps), competitive bidding and Department of Labor are just some of the hot topics under construction law for federal projects.
Like state projects and public bid, any federal project over $100,000.00 is required to be set for competitive bidding. The details on federal projects are intense. Having a lawyer well versed in construction law for federal projects is essential if you want to navigate the complex waters of bidding on federal jobs.
The SBA has a website dedicated to government bids and numerous resources to help a business owner with the basics of federal contract opportunities. Review this information carefully and then discuss it with your construction law attorney before moving forward on a federal project.
The rewards can be great when working on federal projects, however, the penalties for non-compliance or violating federal laws are just as severe.
The subject of owner issues typically involves homeowner issues. A home is the most valuable asset that most individuals will own in their lifetime. I believe that “you” are your most valuable asset in life but for tangible assets, many people will not pay more for anything in their lifetime than their home.
People love their homes and they are very protective of this valuable investment. We see many cases where homeowners are upset with their contractor due to delays, cost overruns, change orders, poor workmanship, and many other issues.
In the eyes of a third party construction lawyer, I see both sides of this dispute. Here at Smiley Law Firm, we represent both contractors and homeowners in various instances when that party has been wronged.
We understand that homeowners care deeply about their home. We also understand that contractors are trying to run a business and they often juggle many projects at one time. This contradicts with the homeowner who only cares about the one job, his/her house.
We also have a number of second home, investment home, and commercial property owner, clients. There are specific needs for each type and a good construction lawyer can navigate the issues with care, helping the owner client reach the goal they are trying to obtain from the legal representation.
As always, getting out in front of any possible issue is the key. Trying to work out a deal before the problem becomes a disaster increases the likelihood of success. However, many times we do not become involved until later and the adversarial process is the only means for resolution. Just remember dispute resolution, whether its litigation, arbitration or mediation, is not cheap.
Through the years Smiley Law Firm has had the pleasure of representing a number of developers. We like these clients because these are the people who are out getting their hands dirty trying to make our cities a better place.
Developers take on huge amounts of risk in exchange for a big financial reward. There are a number of issues that need to be planned for early on in the development stages of a project. Land procurement, leasing, city or municipal permitting, hiring contractors and other vendors to perform the work and finally selling or leasing the development to parties to realize the financial gain, are all issues that developers face.
Developers need a number of tools handy to complete the project efficiently, on time and under budget. All developers should factor in legal costs into the project so that they can have trusted counsel to advise along the way.
Here at Smiley Law firm, we help our developer clients reach the finish line.
General Contractors –
Construction projects consist of basic elements, owner/developer, general contractor, subcontractors, building suppliers, vendors, laborers, and equipment rental companies. General contractors are the cornerstone of this entire landscape.
Smiley Law Firm attorneys understand all of the issues and complexities general contractors face on each project.
General contractors get much of the glory when a project ends successfully, however, they also assume much of the risk when the project ends poorly.
General contractors must:
- manage owner and developer expectations,
- manage payment to subcontractors,
- ensure that subcontractors are paying vendors and suppliers,
- manage payment to the general contractor’s vendors, and suppliers,
- secure bonds for the project that are backed up with personal guarantees from the ownership of the general contractor construction company,
- manage delays from subcontractors, suppliers, and the weather,
- complete the job on time and under budget,
- account for and manage the change order process,
- maintain contract compliance with both the owner contract and the subcontractor’s contracts,
- comply with local permitting and political issues for the project, and
- maintain proper insurance and licensing for their company and make sure all of the subcontractors have proper insurance and licensing.
This is not even an exhaustive list!
The general contractor on a project has power in that they can control the schedule of the job and they have control of the money being paid by the owner. With this power comes great risk and potential reward. General contractors need to be wary of all obligations of the role so they can make the job progress effectively and efficiently.
Subcontractors, Tradesmen, and Laborers
This is what I call the “boots on the ground” – subcontractors, tradesmen, and laborers are the companies and/or individuals who perform the actual work on construction projects. They are often the parties who get pushed around on construction projects as well.
Subcontractors, tradesmen, and laborers often have the most to lose on a job and take on most of the risk. Many times the contracts signed by these parties have one-sided provisions, such as indemnity, subrogation, and liquidated damages provisions.
Further, many subcontractors, tradesmen and laborers sign contracts with the general contractors that are one-sided, then they have to sign contracts or purchase orders with the suppliers which can be equally as one-sided.
In many states such as Louisiana, Texas, and California there are laws which protect the rights of these parties, but the need to perform perfectly is still pressing. Here at Smiley Law Firm, we file liens for subcontractors, tradesmen, and laborers all the time so to protect their right to payment when funds dry up at the end of a job.
Supply companies who bring the raw materials to be consumed by the project and incorporated into the building or structure tend to need the services of a construction law attorney more than subcontractors, tradesmen, and laborers.
Material suppliers include but are not limited to, electrical supply, HVAC supply, roofing supply, lumber supply, concrete supply, plumbing supply, paint supply or just about any type of raw material that is used to construct a building or structure.
The law defines these materials as those which come to the job as separate, movable, personal property of the seller, but then they are consumed into the structure and become a component part such that they become a part of the property. They become apart of the immovable or real property such that they cannot be removed without damage to the structure.
This distinction is important. In order for suppliers to have lien rights they need the parts they supply to become apart of the property. Then if a supplier is not paid, they can enforce the lien against the property in order to obtain payment if a dispute occurs.
Many states have rigid notice requirements for material suppliers because most owners and general contractors do not know the supplier even has any rights to secure payment for the project.
Having a good construction law attorney to explain all the rights and necessities of a material supplier is important. The stakes are even higher when materials suppliers operate in multiple states where the laws change from one state to the next.
Some of the most preventable payment issues come when dealing with suppliers securing rights. Many times the suppliers have power but they do not know how to deploy all of the weapons to ensure timely and full payment.
Supply companies typically have great claims if they delivered the parts to the job, but they need to secure those rights by sending pre-lien notices and filing timely liens. We help credit managers, controllers and chief financial officers of supply companies secure rights and privileges on jobs so that they get paid early and often.
Equipment Lessors / Rental Companies
One other specific party to construction job sites and construction law is the equipment lessor or rental company. Often times, general contractors, owners, developers, subcontractors, and laborers cannot afford the expensive equipment needed to construct buildings in today’s modern construction landscape.
Excavators, bulldozers, backhoes, forklifts, skid steers, dump trucks, and other massive construction industry equipment are often times rented by the party using the equipment.
Again, the distinction here is important. The company who owns the equipment but is renting it to the job site professional needs to have privileges in order to secure payment for that job.
Lien and construction law have to make an exception here and allow the rental companies a mechanism to secure payment. A lien is an answer here. However, in most states the notice requirements are intense.
Savvy rental companies stay on top of where the equipment is being used. They have intake and deliver procedures which include inspections and pictures by trained professionals. You think returning a rental car is tough, you should see what contractors have to do when bringing back a huge piece of equipment.
Again, knowing the law, negotiating the contracts, obtaining personal guarantees on the owners of the renting company, sending notices, filing liens, sending demand letters and filing suit to collect on past due amounts are essential to know for a rental company. A rental company with a smart construction law attorney will have all of these policies and procedures laid out for each and every state they deliver equipment.
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