Category: Construction Law

Letters of Intent in Construction Project Negotiations–Pt 1

McBrayer NEW logo 1-10-13

Anyone who works in the construction industry knows how important it is for everybody to have the same understanding about the terms of a project, including the materials needed, deadlines to be met, and the procedure for resolving disputes. Without a reasonable degree of certainty about these things, there is always the risk that something will go wrong and that money will be lost.

Before all of the details for a construction project are hammered out in a contract, though, there is the negotiation process. Oftentimes, parties begin to take action and invest in a project before a formal contract has been reached. One tool that is sometimes used to prevent financial loss before a contract has been reached is a letter of intent.

A letter of intent is a document that provides a general statement of an agreement that has yet to be finalized. Letters of intent are not contracts, though they may still be enforced in court, at least as to some provisions. Exactly how a letter of intent is treated by a court when disputes arise is not an easy question to answer, partly because the law differs from state to state and partly because it depends on the intention of the parties with respect to the letter of intent, whether they intended to be bound by the letter.

In determining whether parties intended to be bound by a letter of intent, courts don’t simply take parties’€™ word for it. Rather, they consider the specific language of the agreement and other signs that speak to each party’s intent. This can sometimes include actions taken by the parties after the letter of intent is signed.

In our next post, we wi€™ll continue this discussion on letters of intent and how they should be approached in the negotiation process.

ARTICLE BY

Business and Corporate Law Practice Group

OF

McBrayer, McGinnis, Leslie and Kirkland, PLLC

What You Need To Know: Boston and Cambridge Energy Use Disclosure Ordinances

logo

On July 28, 2014, Cambridge, Massachusetts enacted an energy use disclosure ordinance, joining Boston and several other cities.  The Cambridge ordinance is similar to its Boston counterpart, but contains several differences.  Property owners in each municipality should be familiar with these ordinances.

1.  Properties Covered By Each Ordinance

Cambridge:

  • Municipal buildings of 10,000 square feet or larger;
  • Non-residential buildings of 25,000 square feet or larger; and
  • Multi-family residential buildings with 50 or more units.

Boston:

  • City buildings (those the City owns or for which the City regularly pays energy bills);
  • Non-residential buildings (those located on a parcel of land with one or more buildings of at least 35,000 square feet and of which 50% or more is used for non-residential purposes, and which are not City buildings); and
  • Residential buildings (i) (a parcel with one or more buildings with 35 or more dwelling units that comprise more than 50% of the building, excluding parking, or (ii) any parcel with one or more buildings of at least 35,000 square feet and that is not a City building or a non-residential building, or (iii) any grouping of residential buildings designated by the Commission as an appropriate reporting unit).

2.  Obligations of Owners and Tenants of Covered Properties

Both ordinances broadly defined “Owner” to include owners of record or a designated agent, and net lessees for a term of at least forty-nine years.

Cambridge:

No later than May 1st of each year, all covered properties must disclose energy consumed by such property during the prior year, together with other information required by an EPA Benchmarking Tool:  (i) address; (ii) primary use type; (iii) gross floor area; (iv) energy use intensity; (v) weather normalized source energy use intensity; (vi) annual greenhouse gas emissions; (vii) water use; (viii) energy performance score; and (ix) compliance or noncompliance with ordinance.

Tenants (those who lease, occupy, or hold possession) of a covered property must comply with an owner’s request for information within thirty days or risk a fine.

Boston:

No later than May 15th of each year, owner of each covered non-city building shall accurately report previous calendar year’s energy, water use, and any other building characteristics necessary to evaluate absolute and relative energy use intensity of each building through Energy Star Portfolio Manager.

Owners must request information from tenants separately metered by utility companies in January for the previous year, and tenant must report information to owner no later than end of February, though a tenant’s failure to respond does not relieve an owner’s duty to report.

Enforcement and Penalties

Cambridge:

Failure to comply with the ordinance or misrepresentation of any material fact may result in a written warning on the first violation, and a fine of up to $300 per day for any subsequent violation.

Boston:

The Air Pollution Control Commission may issue written notice of violation, including specific delinquencies, to those failing to comply, giving thirty days within which an owner may cure the violation or request a hearing.  The Commission also may seek injunctive relief requiring an owner or non-residential tenant to comply with the ordinance.

Boston provides a sliding scale fine schedule for failure to comply with a notice of violation, depending on the type of property, which ranges from $35 per violation up to $200 per violation.  Each day of noncompliance is a separate violation, but owners or non-residential tenants may not be liable for a fine of more than $3,000 per calendar year per building or tenancy.

Both cities are actively developing programs to address climate change and adaptation.  Property owners should monitor these efforts as well as similar initiatives by federal and state agencies.

ARTICLE BY

Jennifer L. Ioli
OF
Sherin and Lodgen LLP

Recent Changes to the Law of Private Construction Contracts – Your Government is Here to Help You Again – Massachusetts

As part of the end-of-session rush at the Massachusetts General Court this summer, significant changes were made to Massachusetts law governing private construction contracts at the urging of general contractor and subcontractor industry groups. Members of the development and lending community were largely taken unaware as the bill moved forward, and unsuccessfully attempted in the later stages of the process to modify or defeat the legislation. Consequently, developers, lenders, contractors, sub-contractors, design professionals and attorneys need to be aware of substantial changes (and many unanswered questions) created by the new statute in the areas of withholding and release of retainage, defining substantial completion, and preparation of punchlists.

Key highlights of Chapter 276 of the Acts of 2014, to be codified at M.G.L. c. 149, sec. 29F:

  • Applicability: All contracts on projects on which the prime contract (a) is entered into after November 6, 2014, and (b) has a contract price of $3 million or more, except projects of 1 to 4 dwelling units.

  • Withholding of Retainage:  Caps retainage to be withheld from progress payments at 5% (long-standing practice has been to retain 10% of each progress payment, with reduced (or no) withholding of further retainage after the project achieves some level (typically 50%) of completion).

  • New Definition of “substantial completion”: “The stage in the progress of the project when the work… is sufficiently complete in accordance with the contract for construction so that the project owner may occupy or utilize the work for its intended use…”  Parties may divide a project into phases and apply the statutory scheme applicable to “substantial completion” separately to each designated project phase.

Process for determining substantial completion:

  • Within 14 days after achieving substantial completion, the prime contractor submits a notice of substantial completion to the owner (form provided in the statute) with contractor’s determination of the date of substantial completion.

  • Within 14 days after receiving this notice, the owner must accept or reject it and return it to the contractor.  If the owner does neither, the notice is deemed accepted and the date of substantial completion determined by the contractor is binding.

  • If the owner rejects the notice, it must notify the prime contractor within this 14-day period, including the “factual and contractual basis for the rejection”, which must be certified as made in good faith.  The dispute is then governed by the contractual dispute resolution provisions, which the contractor must commence within 7 days of its receipt of the owner’s rejection notice.

Punchlist:

  • Within 14 days after the date of substantial completion is established (either through the notice process described above or the applicable dispute resolution proceeding), the owner must submit to the prime contractor a list (certified as made in good faith) of (a) all defective or incomplete work and (b) all outstanding deliverables required under the prime contract.

  • Within 7 days after the prime contractor’s receipt of that list, it must submit a similar list (certified as made in good faith) of all defective or incomplete work and outstanding required deliverables to each sub from whom it is withholding retainage.

Release of Retainage:

  • Applications for release of retainage can be submitted starting 60 days after the date of substantial completion (unless the contract provides for earlier submission), and each application must be accompanied by a list (certified as made in good faith) identifying the defective or incomplete work and deliverables on that party’s punchlist which have been completed, repaired and delivered.

  • Contract must permit applications for release of retainage at least monthly.

  • Retainage (other than that withheld in accordance with the new statute) must be released within 30 days of submission of the application for release, with an additional 7 days added for each tier of subcontractor.

Withholding Release of Retainage:

  • Only the following amounts can be withheld from retainage in response to an application for its release:

    • For incomplete, incorrect or missing deliverables, either (a) the value of the deliverables as mutually agreed to by the contracting parties, or (b) if no value has been agreed to, the reasonable value of the deliverables (not to exceed 2.5% of the total adjusted contract price of the party seeking release of retainage);

    • 150% of the reasonable cost to complete or correct incomplete or defective work; and

    • Reasonable value of any claims, costs, expenses and, where permitted under the contract of the party seeking release of retainage, attorneys’ fees.

  • No retainage can be withheld unless the withholding party provides to the party seeking the retainage, before the date payment is due, a notice (certified as made in good faith) (i) identifying the defective or incomplete work and the incomplete, incorrect or missing deliverables, (ii) the “factual and contractual basis” for any claims, and (iii) the value attributable to each item of incomplete or defective work, deliverable, and claim.

  • Multiple sequential applications for release of retainage are permitted as work is completed or corrected/deliverables are delivered/claims are resolved.

  • Unless the owner has declared the prime contractor in default under its contract, the owner cannot withhold retainage owed by the contractor to a subcontractor except for withholding based on a default by that sub.

  • Rejection of an application for release of retainage is subject to contractual dispute resolution procedures.  Contract provisions requiring a party to wait more than 30 days after rejection of an application for release of retainage before being permitted to commence dispute resolution procedures are void and unenforceable.

Additional Provisions:

  • All communications provided for in the new statute may be made electronically.

  • Section 29F(l) provides that any provision in a contract “which purports to waive, limit or subvert this section or redefine or expand the conditions for achievement of substantial completion for payment of retainage, shall be void and unenforceable.”

The new statute creates major areas of uncertainty for all parties on private construction projects, including:

  • How far an owner can go in adding requirements for deliverables, issuance of permanent C of Os, completion of commissioning, etc. as conditions to achieving “substantial completion”, in light of the new statutory definition of that term and the limitations imposed by Section 29F(l);

  • How an owner can mobilize its design professionals, its lender’s construction inspector, and its own construction team to respond to the prime contractor’s notice of substantial completion in the detailed manner required by the statute within the very short (but required) 14-day period;

  • How disputes over whether substantial completion has been achieved can be resolved through contractual dispute resolution procedures without jeopardizing project delivery deadlines;

  • What constitutes the “factual and contractual basis” required for various actions by the owner; and

  • How lenders will respond to the mandatory reduction in retainage to 5% (some are already saying that they will require an additional 5% in equity from the owner to make up the 10% retainage traditionally withheld by owners).

Although the consequences (intended or otherwise) of this new statute for the real estate lending, development and construction industries in Massachusetts remain to be seen over the coming months and years, they are likely to include:

  • Owners requiring retainage to be withheld on components of the contract price that previously may not have been subject to retainage (e.g., contractor’s fee, general conditions); exercising much greater control over a contractor’s use of contingency funds; requiring bonds from prime contractors and subs more regularly; and policing variations from the project schedule and/or the contract documents more strictly earlier in the project; and

  • Owners being much more selective in the choice of prime contractors and subs, tending towards repeat relationships, leading to greater consolidation within the industry and raising the barriers to entry by new companies.

There is already discussion underway about efforts to amend, limit or repeal this statute, so this will be something to watch for in 2015.

© 2014 SHERIN AND LODGEN LLP
ARTICLE BY

Peter Friedenberg
OF
Sherin and Lodgen LLP

Miami Building Permits: Use of Phased Permits on the Rise

Bilzin_logo300 dpi

As cranes tower over Miami in the post-recession development upswing, developers are once again using phased permits to expedite construction while awaiting approval for building permits. Section 105.13 of the Florida Building Code authorizes the issuance and use of phased permits throughout the state at the discretion of building officials. Developers in Miami and Miami Beach are actively using this option. In the cities of Miami and Miami Beach, approval from the Department of Environmental Resources Management as well as an agreement/verification from Water and Sewer is now needed to receive a phased permit. This is a new element that was not originally required. Applicants should be prepared to provide this documentation as part of their phased permit application.

cranes Given the fact that the phased permit is a permit that is issued pending (not in lieu of) an official building permit, the holder of the phased permit proceeds at his or her own risk when beginning construction upon receipt of the phased permit. Thus, applicants are required to execute a Hold Harmless letter/form reflecting that they understand the risk and relieve the municipality of all liability resulting from or in connection with the phased permit. Applications proceed with the understanding that it is possible that in order to receive the official building permit, portions or all of the construction that has been completed under the phased permit would need to be modified or removed. Applicants must cautiously weigh the risks when deciding to begin major construction using a phased permit.

As development rebounds in South Florida, the use of phased permitting is allowing projects to stay on course and meet proposed construction deadlines. By allowing construction to proceed via phased permits, developers do not have to be handicapped by the delays that may arise from complicated and bureaucratic permitting processes and can sooner capitalize on the market demand for their projects.

Read more about the procedures for phased permits in the City of Miami and the phased permits in the City of Miami Beach.

ARTICLE BY

Wendy Francois
Javier F. Avino
A. Vicky Garcia-Toledo
 
OF
Bilzin Sumberg Baena Price & Axelrod LLP

Economic Impact of Homebuilding and Remodeling

Bilzin_logo300 dpi

Blocked streets, noisy construction and unwelcome trash can be just a few of the inconveniences that come along with a neighbor’s new home construction or home remodeling. However, a report released in early May by the National Association of Homebuilders (NAHB) confirms that for the overall good of the nation’s economy, some of these inconveniences may be worth the hassle.

Residential home building is back, and it’s helping the economy in a big way

The NAHB’s report calculated the approximate number of jobs that are created and how much tax revenue is generated relative to the different types of residential construction projects. It found that the construction of an average single-family home creates approximately 2.97 jobs and generates approximately $111,000 in taxes per home. Not having quite as significant of an impact, but still highly beneficial to the economy, are rental apartment construction projects, which create roughly 1.13 jobs per unit and generate approximately $42,000 in taxes per unit. In generating these statistics, the NAHB defined a “job” as work that can keep one worker employed for an entire year based on an average number of hours worked per week in the homebuilding industry.

homesA robust homebuilding market has wide-reaching benefits. In addition to the workers in a variety of construction and remodeling industries, including lumber, concrete and HVAC, other beneficiaries include workers that transport homebuilding materials and products, as well as those in the service sectors, such as architects, engineers, real estate agents, lawyers and accountants.

This latest report is the first update to the NAHB’s National Impact of Home Building estimates since 2008. Interestingly, the statistics related to tax revenue and jobs-per-housing-unit are roughly equal to what they were in the 2008 report, but the NAHB article indicates that that is likely due to inflation, changes in housing preferences and the use of somewhat revised metrics in determining these estimates.

Study: Diluted Bitumen Poses No Greater Risk of Release from Pipelines than Conventional Crude Oil

Barnes & Thornburg

A new study released June 25, 2013, has found that diluted bitumen – a thick blend of Canadian crude oil derived from oil sands, a/k/a “dilbit” – presents no heightened risks of transport through pipelines in comparison to other types of crude oil. The study, conducted by the National Academy of Sciences (NAS) and sponsored by the Pipeline and Hazardous Materials Safety Administration (PHMSA), comes in the wake of a Congressional mandate to study whether the pipeline transportation of dilbit carries an increased risk of release (no doubt relative to consideration of the Keystone XL Pipeline project).

Opponents of pipeline transmission of dilbit have claimed that dilbit is more corrosive to pipelines than conventional crude oil and is therefore more prone to cause a pipeline failure and oil release. However, the new NAS study “did not find any causes of pipeline failure unique to the transportation of diluted bitumen” nor did it “find evidence of chemical or physical properties of diluted bitumen that are outside the range of other crude oils or any other aspect of its transportation by transmission pipeline that would make diluted bitumen more likely than other crude oils to cause releases.” Specifically, the NAS study’s three key findings are:

  1. Diluted bitumen does not have unique or extreme properties that make it more likely than other crude oils to cause internal damage to transmission pipelines from corrosion or erosion.
  2. Diluted bitumen does not have properties that make it more likely than other crude oils to cause damage to transmission pipelines from external corrosion and cracking or from mechanical forces.
  3. Pipeline operations and maintenance practices are the same for shipments of diluted bitumen as for shipments of other crude oils.

Committee for a Study of Pipeline Transportation of Diluted Bitumen, et. al., “TRB Special Report 311: Effects of Diluted Bitumen on Crude Oil Transmission Pipelines” (2013).

The study’s release comes on the heels of a petition to initiate rulemaking by a coalition of environmental groups urging the PHMSA and EPA to enact a host of sweeping pipeline regulations for dilbit. The Petition of Appalachian Mountain Club, et al., filed with the PHMSA and EPA on March 26, 2013, argued that dilbit should be regulated differently than other crude oils because it is more volatile and corrosive than conventional crude. The environmental groups urged the agencies to adopt regulations that would create significant economic and operational burdens on dilbit pipeline operators.

The study seemingly supports pipeline operators’ interests in the face of the Appalachian Mountain Club petition. For instance, many of the proposals are premised on the assumption that dilbit is more corrosive than conventional crude oil. Such proposals include the imposition of stricter safety standards, more burdensome reporting requirements, and rigorous pre-operation reviews unique to pipelines carrying dilbit. Also, the petition proposed a moratorium on expanding any transportation of dilbit until such regulations were imposed. Now, with credible scientific evidence pointing to no increased risk of pipeline releases associated with dilbit, these proposals likely face an uphill battle.

Additionally, the study comes at a crucial time for supporters of the proposed Keystone XL Pipeline, as the federal government is expected to make a decision on the project’s next phase as early as this summer. The Obama Administration has delayed approval of the project over those same concerns that dilbit is inherently more corrosive than conventional crudes, among other reasons. The study will strengthen Keystone advocates’ arguments that the 1,700-mile pipeline will be advantageous for the economy while posing no greater risk of release than a conventional crude oil pipeline.

However, some questions remain. Environmental groups are quick to point out that the study did not examine the potential differences in the environmental impact of a release involving dilbit compared to the release of conventional crude. Instead, the study only concerned a dilbit pipeline’s probability of failure, not the environmental consequences associated with a dilbit release. A finding that dilbit presents heightened environmental risks if released could reignite the push to regulate dilbit more aggressively, although PHMSA has not commissioned a study of dilbit’s environmental risks at this time. Still, for pipeline operators, the study provides strong support that dilbit pipelines do not require distinct regulatory scrutiny and can be protected by industry-standard integrity management programs.

Article By:

of

Bridge to Prosperity: New Bridge Between U.S. and Canada Approved

Varnum LLP

Michigan farmers are among legions of organizations expressing gratitude now that a new bridge between the U.S. and Canada has been approved by the Obama Administration, setting the stage for a sharp increase in trade between Michigan and Canada.

The presidential permit awarded by the State Department April 12 clears the way for construction to begin in Michigan on the New International Trade Crossing Bridge.  The new span  will “serve the national interest,” the State Department said in granting the permit.

Michigan is Canada’s largest trade partner, with trade in 2011 exceeding $70 billion. That’s nearly 11.7 percent of the total U.S. trade with Canada. More than 8,000 trucks currently cross the Detroit-Windsor border daily.

Called “Michigan’s Bridge to the Future,”  the New International Trade Crossing Bridge will be built near the existing Ambassador Bridge that links Detroit with Windsor. Michigan voters in November overwhelmingly rejected a ballot proposal spearheaded by Ambassador Bridge owner Matty Moroun to require voter approval for any bridge built between the U.S. and Canada.

Under a deal struck last year between Michigan Gov. Rick Snyder and Canadian Prime Minister Stephen Harper,  Canada will pay for the bridge, with construction costs repaid by Canada through tolls.  Snyder said in a statement the crossing will create jobs and get Michigan-made products to market quicker.”

From the standpoint of Michigan agriculture, this additional transportation capacity is vital to streamline and expand our access to markets in Canada,” Michigan Farm Bureau Legislative Counsel Matt Smego said in prepared remarks.

Construction has already started on the Canadian side. Michigan Gov. Snyder said he hopes for groundbreaking on the Detroit side within the next two to three years. Construction is expected to take seven years.

The city of Windsor, meanwhile,  on May 28 asked Michigan officials for more information regarding the Michigan Department of Transportation’s recommendation to open the existing Ambassador Bridge to trucks carrying hazardous materials for the first time in its 83-year history. The recommendation excludes the transportation of explosives.

Article By:

of

The 15th Annual ABA National Institute on the Gaming Law Minefield Feb 24-25 LasVegas

The 2011 Gaming Law Minefield program is specifically designed to provide in-depth coverage and discussion of the cutting-edge legal, regulatory, and ethical issues confronting both commercial and Native American gaming. Attorneys, compliance officers, Native American leaders, regulators, and legislators will all provide invaluable insights into current trends, opportunities and obstacles in the gaming industry. The program’s subject matter includes new gaming technology, increased IRS CTR and SAR compliance audit activity, Internet gaming, Native American gaming, breaking hot topics in the gaming industry, latest developments in dealing with problem gamblers, and a two-hour CLE-certified ethics program.

The Gaming Law Minefield program constitutes one of the most comprehensive, state-of-the-law gaming programs available. Program attendees have consistently rated the program as a valuable educational experience that provides participants with the opportunity to meet and talk with a wide variety of gaming law experts and leading state and Native American regulators.

Early Bird Registration ends January 24th. For More Information:  Click Here:

The 15th Annual ABA National Institute on the Gaming Law Minefield Feb 24-25 LasVegas

The 2011 Gaming Law Minefield program is specifically designed to provide in-depth coverage and discussion of the cutting-edge legal, regulatory, and ethical issues confronting both commercial and Native American gaming. Attorneys, compliance officers, Native American leaders, regulators, and legislators will all provide invaluable insights into current trends, opportunities and obstacles in the gaming industry. The program’s subject matter includes new gaming technology, increased IRS CTR and SAR compliance audit activity, Internet gaming, Native American gaming, breaking hot topics in the gaming industry, latest developments in dealing with problem gamblers, and a two-hour CLE-certified ethics program.

The Gaming Law Minefield program constitutes one of the most comprehensive, state-of-the-law gaming programs available. Program attendees have consistently rated the program as a valuable educational experience that provides participants with the opportunity to meet and talk with a wide variety of gaming law experts and leading state and Native American regulators.

Early Bird Registration ends January 24th. For More Information:  Click Here:

The 15th Annual ABA National Institute on the Gaming Law Minefield Feb 24-25 LasVegas

The 2011 Gaming Law Minefield program is specifically designed to provide in-depth coverage and discussion of the cutting-edge legal, regulatory, and ethical issues confronting both commercial and Native American gaming. Attorneys, compliance officers, Native American leaders, regulators, and legislators will all provide invaluable insights into current trends, opportunities and obstacles in the gaming industry. The program’s subject matter includes new gaming technology, increased IRS CTR and SAR compliance audit activity, Internet gaming, Native American gaming, breaking hot topics in the gaming industry, latest developments in dealing with problem gamblers, and a two-hour CLE-certified ethics program.

The Gaming Law Minefield program constitutes one of the most comprehensive, state-of-the-law gaming programs available. Program attendees have consistently rated the program as a valuable educational experience that provides participants with the opportunity to meet and talk with a wide variety of gaming law experts and leading state and Native American regulators.

Early Bird Registration ends January 24th. For More Information:  Click Here: