October 2007 – Construction Law

Excessive Withholding Prompts Award of Interest, Attorney’s Fees and Penalties under Pennsylvania’s Prompt Payment Act

Oct 30 2007

Imperial Excavating and Paving, LLC v. Rizzetto Constr. Mgmt., Inc., 935 A.2d 557 (Pa. Super. Ct. 2007)

Pennsylvania’s Prompt Payment Act (the “PPPA”) is intended to protect contractors and subcontractors by providing guidelines for prompt payment on construction projects. Under the PPPA, every subcontractor working on a project subject to the PPPA is entitled to payment, according to the proportion of the subcontract completed, within 14 days of the date when the contractor receives a progress payment on the project. 73 PA.STAT. §507(c). The contractor is, however, entitled to withhold such payment if it has a good faith claim for deficient performance. 73 PA.STAT. §511. If a contractor unreasonably withholds payment to the subcontractor, the contractor can be assessed interest on the payment (73 PA.STAT. §509) plus a penalty of 1percent per month of the amount that was wrongfully withheld. 73 PA.STAT. §512. The amount a contractor may withhold is proper if it “bears a reasonable relation to the value of any claim held in good faith.” See Ruthrauff, Inc. v. Ravin, Inc., 914 A.2d 880 (Pa. Super. Ct. 2006).

The Imperial Excavating case involved the construction of two soccer fields located at a high school. The grading subcontractor completed its work on the project and submitted an application for payment to the contractor. The contractor submitted its own application for payment to the owner for the subcontractor’s work, certifying that the sub’s work was completed in accordance with the contract documents. The owner paid the contractor’s application less retainage, and the contractor paid the subcontractor. Read More

Power of Court to Uphold Arbitral Award on Alternative Grounds

Oct 24 2007

CTI Group Inc. v. Transclear SA (The Mary Nour), 2007 WL 3001775, [2007] EWHC 2340 (Queen’s Bench Div., Commercial Court)

This case arose out of the non-delivery by the sellers of a quantity of cement. The sellers had argued that the contract had been frustrated by the actions of the Mexican cement cartel. The Tribunal held that the contract had been frustrated but, if they were wrong on that, the buyers had a valid claim for damages. The buyers appealed to the English High Court on the main finding of frustration of contract. The appeal succeeded, the High Court finding the wrong legal test for frustration had been applied.
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Court Intervenes Where Arbitrator Held Not to Have Power to Act Effectively

Oct 18 2007

Pacific Maritime (Asia) Ltd. v. Holystone Overseas Ltd., 2007 WL 2944844, [2007] EWHC 2319 (Queen’s Bench Div., Commercial Ct.)

Pacific sold an accommodation vessel to Holystone under an agreement which made special provision for the return of a block of accommodation or its equivalent to Pacific. Under s.44 of the Arbitration Act 1996 (the “Act”), and in advance of commencement of arbitration, Pacific applied for and obtained a freezing order on the grounds of Holystone’s failure to provide a replacement accommodation block. Arbitration then commenced and Holystone applied for the discharge of the freezing order partly on grounds that the arbitrator had jurisdiction to grant the relief Pacific wanted. Read More

Surety May Waive Right to Challenge Claim Against Payment Bond by Failing to Answer Notice of Claim, Even Where Claimant Did Not Submit Proof of Loss or Documentary Support

Oct 15 2007

J.C. Gibson Plastering Co. v. XL Specialty Ins. Co., 521 F. Supp. 2d 1326 (M.D. Fla. 2007)

In this case, a subcontractor gave notice of a payment bond claim to a surety using a 14-page letter that set forth the factual and legal bases for the claim. The subcontractor moved for summary judgment against the surety arguing that the surety waived its right to challenge the subcontractor’s claim because the surety failed to answer that notice of claim within 45 days, as required under the bond. The surety argued in response that the subcontractor’s notice of claim was insufficient because the subcontractor disregarded the surety’s requests for: (i) a “proof of loss,” and (ii) documentary support for the claim. The surety also argued that, to the extent the court may consider the subcontractor’s notice sufficient, the surety’s requests for additional information satisfied the answer requirement under the bond because the requests indicated that the surety disputed the claim.
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Contractor, But Not Owners of Contractor, Protected Under Maine’s Insurance Guaranty Association Act

Oct 07 2007

Belanger v. N. Am. Specialty Ins. Co., 504 F. 3d 147 (1st Cir. 2007)

In this case, North American Specialty Insurance Company, a surety, brought a suit against its principal contractor, Seacoast Crane Company and Seacoast’s owners (the “Belangers”) to recover monies paid out under a performance bond. NAS had issued the performance bond on behalf of Seacoast to build a corporate headquarters project for DCC Development Corporation. In the suit, initiated in the United States District Court for the District of Maine, NAS asserted claims for indemnification, breach of contract and specific performance based on a judgment that was entered against NAS and Seacoast, and against the Belangers for breach of contract in connection with the DCC project. Read More

Undermining Competitive Bidding Process through Collusion Violates Massachusetts Consumer Protection Act

Oct 04 2007

Prof’l Servs. Group v. Town of Rockland, 515 F. Supp. 2d 179 (D. Mass. 2007)

In this case, the Federal District Court for the District of Massachusetts issued a decision concerning the subversion of the public procurement process by a bidder. The defendant-contractor colluded with a public official of the plaintiff-town to ensure that it would be the only bidder and would thereby receive the bid at an artificially high price. The court held that this collusion violated the Massachusetts Consumer Protection Act (M.G.L. c. 93A), and that the town was entitled to double damages pursuant to that that statute because the contractor’s violations were knowing and willful. The contractor attempted to escape liability by arguing that the employee who was responsible for the bidding and collusion was a rogue employee. The court rejected this argument and found that the contractor’s employee was acting within the scope of his employment and therefore the contractor was liable by the doctrine of respondeat superior. Read More

Archive:October 2007