GRSM's Construction Group is pleased to publish the latest issue of our Construction Law Update, a quarterly take on trends of interest to design professionals, contractors, and developers throughout the country.
| INSIDE THIS ISSUE |
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Washington Substantially Increases the Contractor Registration Bond Requirements
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GRSM Announces Launch of Construction Receivable Recovery Practice Group
| I. Washington Substantially Increases the Contractor Registration Bond Requirements |
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By Bill Hughbanks |
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Beginning on July 1, 2024, all general and specialty contractors in Washington are required to obtain and carry a much larger surety bond in order to be a licensed and registered contractors. These types of surety bonds, commonly referred to as registration bonds, are intended to provide a level of protection for consumers and allow them a secure avenue of recovery in the event they file a lawsuit against a contractor. Since 2001, when the original law went into effect, general contractors were only required to carry a registration bond $12,000 and specialty contractors were only required to carry a registration bond of $6,000. Now, all general contractors must now carry a registration bond of at least $30,000 and all specialty contractors (i.e., single trade contractors like flooring or siding contractors) must carry a registration bond of at least $15,000. RCW 18.27.040. The reason for the change is that for years, consumers have complained that the registration bonds in Washington were far too low to afford any real protection. It does not take much for a contractor to cause significant damage to a project and the cost to repair such damage can easily eclipses the $12,000 or $6,000 bonds that were previously required. Moreover, only residential consumers are entitled to recover the full amount of a contractor’s registration bond. RCW 18.27.040(5). That means if you are a commercial building owner and suffered damages due to a breach of contract by a contractor, you may only be entitled to recover $6,000 or $3,000, depending on the classification of contractor you hired (general vs. specialty). The Washington legislature finally took notice of these issues and increased registration bond amounts. However, the Washington legislature did not include a statutory mechanism for the bond amounts to increase in subsequent years. As a result, this means the new registration bond amounts will likely remain the same for many years to come. |
| II. Second-Tier Subcontractors in Washington May Enforce a Lien for Labor without First Sending a Pre-Lien Notice |
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By Bill Hughbanks |
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Recently the Washington Supreme Court issued a decision holding that second-tier subcontractors may record and foreclose on a mechanic’s lien, even when that second-tier subcontractor did not provide the project owner with a pre-lien notice. In Velazquez Framing, LLC v. Cascadia Homes, Inc., 2 Wn.3d 552 (2024), the court was tasked with interpreting RCW 60.04.031, which addresses who must provide a pre-lien notice on a construction project and what lien rights that notice does, and does not, preserve. Under Washington law, all contractors who do not contract directly with the owner or directly with the owner’s common law agent (i.e., the general contractor) must provide a pre-lien notice to the owner to preserve its lien rights. RCW 60.04.031. In common practice, this means that general contractors and first-tier subcontractors are not required to provide a pre-lien notice. However, all others on the project who furnish “professional services, materials or equipment” must provide a pre-lien notice to the owner to preserve their right to record a lien for the value of such services if they are not paid. In Velazquez, the plaintiff was a second-tier subcontractor who provided both labor and construction materials to a project. However, the plaintiff never sent a pre-lien notice to the owner. The plaintiff was not paid anything, so it filed a lien to for its labor and material costs and subsequently filed a lawsuit to foreclose on the lien. The trial court, relying on RCW 60.04.021, dismissed the entire lien foreclosure claim because the plaintiff did not send a pre-lien notice to the owner. The plaintiff appealed. On appeal, the appellate court reversed as to the lien foreclosure claim seeking recovery of the amounts owed for labor. In its opinion, the appellate court clarified that any contractor may file a lien for “[…] furnishing labor, professional services, materials or equipment” provided to a construction project. RCW 60.04.031. However, for contractors who do not contract directly with the owner or general contractor (i.e., second-tier subcontractors), a pre-lien notice is a prerequisite only when the lien seeks to recover for the furnishing “professional services¹, materials or equipment”. RCW 60.04.021. The appellate court noted that the term “labor” does not appear anywhere in RCW 60.04.021 and therefore a pre-lien notice is not required before a second-tier subcontractor can file a lien seeking the recovery of money owed for its labor. As a result, the appellate court in Velazquez ruled the plaintiff’s lien for recovery of money owed for its labor is enforceable, despite not providing a pre-lien notice. However, the plaintiff’s lien for the value of materials it supplied to the project was properly dismissed by the trial court. _______________________________________________________________ ¹ “Professional services” is a defined term under this statutory scheme and applies to such tasks as surveying, architecture and engineering related work. Likewise, the term “labor” is defined simply as the exertion of the powers of body or mind performed at the site for compensation. RCW 60.04.011(7) & (13). |
| III. GRSM Announces Launch of Construction Receivable Recovery Practice Group |
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Gordon Rees Scully Mansukhani is pleased to announce the formation of its Construction Receivable Recovery practice group. The team is national and multidisciplinary in scope and uniquely equipped to help clients navigate the complexities of construction receivables while ensuring timely and effective recovery. The group features the expertise of 14 dedicated attorneys and the support of the firm's vast network of attorneys in all 50 states. Partner Quinn Murphy leads the Construction Receivable Recovery practice group. He brings over 20 years of legal and trial experience to the group, which focuses on business, construction, and commercial litigation. Murphy has represented contractors, subcontractors, manufacturers, and real estate developers in litigation throughout the United States. He is a trial lawyer with significant trial experience in state and federal court. The Construction Receivable Recovery Team was created to address our clients' concern that multi-state collection could not be efficiently pursued in today's legal environment. From start to finish, our program was designed to minimize bad debt write-off and eliminate the need for a virtual rolodex of local attorneys throughout the United States. We approach non-payment collection from the perspective of a business owner, and your net recovery will reflect that difference. To read a full, expanded version of this announcement, please click here. To learn more about the Construction Receivable Recovery practice group, please click here. |
| IV. Recent Successes |
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GRSM Team Obtains Defense Verdict for Civil Engineering Client GRSM’s Adam Linton and John Palmeri secured a verdict in favor of their client, a civil engineer, following a two and a half week jury trial in Broomfield, Colorado. The case related to a high end, active adult residential community with 519 individual homes, a recreational community center, and acres of common element areas throughout the project. The homeowners association sued the developer/builder alleging a number of design and construction defects. The developer/builder sued a number of its sub-consultants for contractual indemnity. GRSM represented the civil engineer on the project. The jury returned a verdict against the developer/builder, but awarded a fraction of the plaintiff association’s alleged damages. The jury also returned a verdict in favor of GRSM’s client on the developer/builder’s indemnity claim. GRSM has filed a motion for attorney fees under the prevailing party provision in their client’s contract with the developer/builder. _______________________________________________________________ GRSM Team Obtains Complete Dismissal of Negligence and Contractual Claims Against Site Improvement Contractor. Partner Michael V. Slivjak and Associate Deanne J. Lowden successfully moved for summary judgment on all claims against their client. This site improvement contractor had installed parking lots, Belgian block curbing, and sidewalks at a large, mixed-use project in Ocean County, New Jersey. To read a full, expanded version of this result, click here. |
| V. GRSM Construction Attorneys Making Headlines |
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Associate Sergio Ruiz is our newest Florida Bar Board Certified attorney in Construction Law, a distinction held by less than 1% of Florida attorneys. Established by the Florida Supreme Court, board certification requires lawyers to pass comprehensive examination and undergo a rigorous peer-review process that assesses competence in a specialty field. Sergio works out of our Miami office and focuses in complex construction litigation, assisting contractors, owners, developers, architects, and engineers. ____________________________________________________ Gordon Rees Scully Mansukhani Partners John Hopwood, J. Patrick Norris, and Laura Paton were panelists at the 2024 CLM Construction Conference on September 18–20 in Huntington Beach, California. On September 19, Hopwood participated in a four-person panel titled "Don't Get Left in the Dust: When and Where AI Should Be Used in Construction Claims." The panel discussed how AI is being applied in the insurance industry, focusing on enhancing data management and construction claims processing from a practical standpoint, while also exploring the appropriate and inappropriate uses of these tools and touching on their potential impact on New York Labor Law claims concerning fraud, safety equipment, and other factors. On September 19, Norris participated in a four-person panel titled "Running Up that (Persimmon) Hill: Elevated Claims Handling Perspectives Through the Lens of South Carolina's Watershed Portrait Homes Decision." The panel discussed legal and coverage implications of the recent Persimmon Hill/Portrait Homes construction defect decision by the South Carolina Court of Appeals, covering topics like duty to defend, handling additional insured tenders, bad faith claims handling, and allocation of continuous loss across policies. On September 20, Paton participated in a five-person panel titled "Jeopardy: Best Practices in Construction Defect Claims Edition." Covering historical failures, recent case law, and everyday defects, this session offered practical insights for navigating construction defect claims, catering to both novices and seasoned professionals, and equipping them with confidence and creativity to tackle challenges. |
| VI. GRSM Construction Law Blog |
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The GRSM Construction Law Blog continues to post new content addressing topical issues affecting the construction industry throughout the country. From analysis of new court decisions, discussions of timely legislation, and commentary on real-world, project-specific issues, GRSM’s Construction Law Blog provides insight on the issues that affect the construction industry now. We invite you to visit the blog at www.grconstructionlawblog.com and see for yourself what we are up to. If you like what you see, do not hesitate to subscribe under the “Stay Connected” tab on the right side of the blog. There you can choose how you would like to be informed of new content (Twitter, LinkedIn, email, etc.). If you have any questions about the blog or would like to discuss further any of its content, please do not hesitate to contact us. |
| VII. About GRSM's Construction Group |
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GRSM's Construction Group consists of more than 220 lawyers in offices nationwide and is currely ranked No. 4 out of the Top 50 Construction Law Firms in the Nation, by Construction Executive. GRSM's construction attorneys focus their practice on the comprehensive range of legal service required by all participants in the construction industry – architects, engineers, design professionals, design joint ventures, owners, developers, property managers, general contractors, subcontractors, material suppliers, product manufacturers, lenders, investors, state agencies, municipalities, and other affiliated consultants and service providers. We serve clients who design, develop, or build all types of structures, including commercial buildings, single and multifamily residential projects, industrial facilities, universities, hospitals, museums, observatories, amusement parks, hotels, shopping centers, high-rise urban complexes, jails, airports, bridges, dams, and power plants. We also have been involved in projects for tunnels, freeways, light rail, railway stations, marinas, telecom systems, and earth-retention systems. Our experience includes private, public, and P3 construction projects. If you have questions about this issue of the Construction Law Update or our nationwide construction practice, click here to visit our practice group page or contact partner Dan Evans. Daniel E. Evans |