Tag: Massachusetts

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

Paid Sick Leave: Connecticut Tweaks and Newark Speaks

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The Connecticut Paid Sick Leave Law has been tweaked in three respects: (1) to allow employers to determine the 50-employee applicability threshold in the same manner as under the state’s Family and Medical Leave Act, i.e., by determining whether the employer has at least 50 employees on its payroll for the week containing October 1; (2) to allow accrual of paid sick leave hours on any annual basis, not just a calendar year, and (3) to add one additional job title—radiologic technologists—to the list of “service worker” titles that are eligible for paid sick leave. The law adopting the tweaks— An Act Creating Parity between Paid Sick Leave Benefits and Other Employer-Provided Benefits (Public Act 14-128)—is effective January 1, 2015.

Newark, N,J. whose  Paid Sick Leave Ordinance became effective on June 21, 2014, has issued FAQs about the ordinance. There are 24 FAQs–a dozen directed to employers and a dozen directed to employees. The FAQs address a myriad of questions on topics such as employee eligibility, accrual of paid sick leave, employer notice obligations, appropriate uses of paid sick leave and the law’s integration with collective bargaining agreements.

Also on the paid sick leave issue, the Massachusetts Secretary of State announced last week that voters in November will be asked whether to approve a mandatory earned sick time law. If the issue passes, Massachusetts would become the second state and ninth jurisdiction to adopt a paid sick time law.

Article By:

Michael J. Soltis
Of:
Jackson Lewis P.C.

Price Comparison Advertising – Massachusetts Law

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Retailers doing business in Massachusetts should ensure that their price comparison advertising complies with Massachusetts law, particularly 940 C.M.R. § 6.05 (Section 6.05). Otherwise, they may face a civil enforcement action by the Massachusetts Office of the Attorney General (MA AGO), a putative class action brought by a consumer under the Massachusetts Consumer Protection Act – Chapter 93A, or even a civil action brought by a competitor alleging unfair and deceptive trade practices.

What is price comparison advertising?

As defined in Section 6.05, price comparison advertising “is a form of advertising used in the sale of products whereby current prices are compared with the seller’s former or future prices, the prices of other sellers, or other stated values to demonstrate price reductions or cost savings.” According to the regulation, which was promulgated by the MA AGO, (1) “price comparisons based on false, arbitrary or inflated prices or values deceive or mislead the public” and (2) “[a]buse also occurs when sellers fail to disclose material information which is important to enable consumers to understand the price comparison.” To protect against this alleged deception and abuse, Section 6.05 regulates price comparison advertising.

Which practices does Section 6.05 deem unfair or deceptive?

Section 6.05 is divided into various sections (as more fully described below) that provide retailers with guidance concerning what the MA AGO deems to be unlawful. Violations of Section 6.05 may be enforced by the MA AGO in a civil enforcement action as well as by consumers, who may seek to assert claims individually and on behalf of all those “similarly situated” under Chapter 93A.  Massachusetts law even supports civil actions brought by competitors harmed by unlawful advertising practices.

Specifically, Section 6.05 provides that the following are unfair or deceptive acts:

  • Unidentified Price Comparisons. Sellers cannot state or imply that they are offering any product savings by making a direct or indirect price comparison, unless they “clearly and conspicuously”1   describe the basis for the comparison; provided, however, that sellers may claim a savings or make such a comparison (without disclosing the basis) if they are making a comparison to their own “former price” (as determined by Section 6.05(3)).
  • Comparison to Seller’s Own Former Prices. Sellers cannot compare their current price with their own former price for any product, unless such former price is a “bona fide, actual price” that they had offered “openly and in good faith for a reasonably substantial period of time in the recent past” to the public.2
  • Introductory Offers and Future Price Comparisons. Sellers cannot make an introductory offer or compare their current product price with a future product price unless (i) the future price takes effect immediately after the sale and not later than 60 calendar days after “the dissemination date of the introductory offer or price comparison” and (ii) following the effective date of the future price, the product is offered “openly and in good faith” at that price for at least equal to  the period of time offered at the introductory price, but not less than 14 days (except for certain circumstances).3
  • Use of “Sale” Terminology. Sellers cannot use the words “priced for sale,” “on sale,” “sale,” “selling out,” “clearance,” “reduced,” “liquidation,” “must sell,” “must be sacrificed,” “now only $X,” or other terms which state or imply a price savings unless certain specific factors listed in Section 6.05 are met.4
  • Use of “List Price” or Similar Comparisons. Sellers cannot compare their current product price with a “list price,” “manufacturer’s suggested retail price” or similar term, unless the list or manufacturer’s suggested retail price is the price charged for the advertised product by a reasonable number of sellers in the seller’s trade area as of a particular “measurement date” determined by Section 6.05.5
  • Comparison to Other Seller’s Price for Identical Product. Sellers cannot compare their price with another seller’s price for an identical product, unless the stated higher comparative price is at or below the price at which the identical product is being offered in the seller’s trade area as of the “measurement date” or other specifically identified period under certain circumstances.6
  • Comparison to Seller’s Own or Other Seller’s Price for Comparable Product. Sellers cannot compare their price with their own price or another seller’s price for a comparable product unless the comparable product is being offered for sale as of the “measurement date,” or other specifically identified period, at the stated higher comparative price, unless certain factors are met.7
  • Price Comparisons on Price Tickets or Labels. Sellers cannot imprint or attach any ticket or label to a product that contains a fictitious or inflated price which is capable of being used by sellers as a basis for offering fictitious price reductions.8
  • Range of Savings or Price Reduction Claims. Sellers cannot state or imply that any products are being offered for sale at a range of prices or at a range of percentage or fractional discounts unless various factors are met.9
  • Use of Terms “Wholesale” or “At Cost.” Sellers cannot state or imply that any product is being offered at or near a “wholesale” price or “at cost” (or words of similar meaning) unless the price is, in fact, either at or below the price paid by the seller at wholesale, or, in the case of a service, the seller’s cost for the service excluding overhead and profit.
  • Use of Terms “Two for the Price of One” or “Buy One – Get One Free.” Sellers cannot state or imply that products are being offered at the usual price of a smaller number of the same or a different product unless (i) they clearly and conspicuously disclose all material sale conditions being imposed; (ii) the price advertised as the usual price for the smaller number of products is their own “former price”; and (iii) the products are of substantially the same quality, grade, material and craftsmanship as the seller offered prior to the advertisement.
  • Use of Term “If Purchased Separately.”  Sellers cannot make any price comparison based on the difference between the price of a system, set or group of products and the price of the products “if purchased separately” (or words of similar meaning) unless: (i) a reasonable number of sellers in the trade area are currently offering the products as separate items at or above the stated separate purchase price as of the “measurement date”; or (ii) they have actually sold or offered the products for sale as separate items at the stated separate purchase price.
  • Prices for Parts or Units of Sets or Systems. Sellers cannot advertise a price for any product that normally sells as part of a pair, system, or set without clearly and conspicuously disclosing that the price stated is the price per item or unit only, and not the price for the pair, system or set.
  • Gifts. Sellers cannot state or imply that any product is being offered for free or at a reduced price (“a gift”) in conjunction with the purchase of another product unless various factors are met.10
  • Use of Disclaimers. Sellers cannot use a price comparison that is prohibited even if the advertisement contains disclaimers or explanatory language.
  • Are there any other requirements11  that sellers should consider when assessing their price comparison advertising?
  • Record Keeping Requirements. Sellers must maintain records for a period of six months after the last dissemination of subject advertisements and provide those records to the MA AGO, upon request, to substantiate the propriety of such advertisements.12
  • Deceptive Pricing Generally, Examples, and Loss Leaders. Although not contained within Section 6.05 itself, the MA AGO has adopted a more general regulation dealing with “Deceptive Pricing” set forth in 940 C.M.R. § 3.13(2).13  This subsection describes generally what the MA AGO deems deceptive and provides some examples. In addition, related § 3.13(3) prohibits sellers from selling or offering for sale so-called “loss leaders” to induce a buyer to make a purchase of a product sold only in combination with other merchandise on which the seller recovers such loss.
Article By:

Michael E. Pastore
James P. Ponsetto
David G. Thomas
Of:
Greenberg Traurig, LLP

1 “Clearly and conspicuously” means that “the material representation being disclosed is of such size, color, contrast or audibility and is so presented as to be readily noticed and understood by a reasonable person to whom it is being disclosed.” Section 6.01 provides guidelines for determining if disclosures are proper. 

2 Section 6.05(3) lists various factors that are considered when determining whether a “former price” is a “bona fide, actual price.” Section 6.05(4) provides certain safe harbors for comparison prices.  A complete list of factors and a description of the safe harbors are contained in 940 C.M.R. §§ 6.05(3)(a) and 6.05(4), which are available at  http://www.mass.gov/ago/government-resources/ags-regulations/940-cmr-600.html  (MA AGO’s Website). 

3 These circumstances and exceptions for certain offers limited to certain consumers who are deemed “first time purchasers” as defined in the regulation are contained in 940 C.M.R. § 6.05(5), which is available at  the MA AGO’s Website. Also, Section 6.05(5) contains separate requirements for health clubs. 

4 These factors are contained in 940 C.M.R. § 6.05(6), which is available at the MA AGO’s Website. 

5 Section 6.05(7) contains separate requirements for manufacturers or franchisors. Also, the “measurement date” is defined in Section 6.01. 

6 These requirements are contained in 940 C.M.R. § 6.05(8), which is available at the MA AGO’s Website. 

7 These factors are contained in 940 C.M.R. § 6.05(9), which is available at the MA AGO’s Website. 

8 There are certain exceptions for prices that are pre-ticketed by manufacturers or other sellers, as contained in 940 C.M.R. § 6.05(10), which is available at the MA AGO’s Website. 

9 These factors are contained in 940 C.M.R. § 6.05(11), which is available at the MA AGO’s Website. 

10 These factors are contained in 940 C.M.R. § 6.05(16), which is available at the MA AGO’s Website. 

11 This advisory does not contain an all-inclusive list of the MA AGO’s advertising regulations and requirements. Sellers, among other things, should be aware of additional requirements set forth in 940 C.M.R. § 3.00 (General Regulations) and 940 C.M.R. § 6.00 (Retail Advertising). 

12 940 C.M.R. § 6.14 contains specific and detailed record retention requirements for price comparison advertising, which is available at the MA AGO’s Website. 

13 This more general regulation is available at http://www.mass.gov/ago/government-resources/ags-regulations/940-cmr-3-00/940-cmr-300.html. 

Massachusetts' Highest Court Upholds State's Endangered Species Regulations

 

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In a long-awaited ruling, the Massachusetts Supreme Judicial Court affirmed the legality of the “priority habitat” regulations created by the Division of Fisheries and Wildlife (DFW) of the Massachusetts Department of Environmental Protection under the Massachusetts Endangered Species Act (MESA). In Pepin v. Division of Fisheries and Wildlife, SJC No. 11332 (February 18, 2014), the petitioners challenged the DFW’s establishment of “priority habitat” regulations “for which MESA makes make no express provision.”

MESA does expressly authorize DFW to designate certain areas as “significant habitats” of endangered or threatened species.  Land designated a “significant habitat,” entitles an owner to (i) advance written notice that the land is being considered for designation as a significant habitat, (ii) a public hearing before any decision on the proposed designation is made, and (iii) an opportunity to appeal and seek compensation under the “takings” clause of the U.S. Constitution. Arguably to avoid paying just compensation, the DFW has never designated land “significant habitat.”

Instead, the DFW promulgated regulations establishing a second type of protected habitat  denoted “priority habitat,” to protect species that are either endangered or threatened, or that fall into a third category of “species of special concern.” Delineations are “based on the best scientific evidence available.” A sixty-day public comment period follows the reevaluation of the priority habitat map every four years and a final map is posted on the DFW’s web site.  The DFW reviews projects in a “priority habitat” on a case-by-case basis to determine whether it would result in either (i) a “no” take, (ii) a “conditional” no take, or (iii) a take. Even if DFW finds the project would be a “conditional” no take or a “take,” the project may proceed under DFW-imposed conditions or a “conservation and management permit.”

Here, the petitioners’ property consists of two building lots, totaling approximately 36 acres. In 2006, the property was delineated a priority habitat for a species of special concern (eastern box turtle). Challenging the validity of the “priority habitat” regulations, the petitioners maintained that MESA’s creation of the “significant habitat” designation with critical procedural protections meant that all landowners were entitled to the same protections whenever property development is restricted under MESA.  Citing the broad authority granted by MESA, the Court rejected this view and instead found that that statute “extends to the formulation of the priority habitat concept as a means of implementing MESA’s prohibition on takes.”  The Court refused to “substitute [its] judgment as to the need for a regulation, or the propriety of the means chosen to implement the statutory goals, for that of the agency, …[where] the regulation … [was] rationally related to those goals.”  The petitioners could not overcome the presumption of validity accorded “duly promulgated regulations of an administrative agency….”

The Court also ruled that in deciding the petitioners’ challenge to the application of the priority habitat mapping guidelines to their property, a Division of Administrative Law Appeals (DALA) magistrate judge properly ruled in favor of the DFW even without a hearing because the petitioners failed to meet their burden of demonstrating that the DFW improperly delineated their property as priority habitat.

Article By:

Brian C. Levey
Marc J. Goldstein
 
Of:
Beveridge & Diamond PC