Under Construction – August 2024

Welcome to the summer edition of Snell & Wilmer’s Under Construction newsletter. As summer continues to stretch out our sun-filled days, the construction industry is in full swing, with projects rising under clear skies.

In this newsletter, we explore a variety of topics related to current construction trends and legal news that may be relevant and helpful to you and your business. We have curated a selection of articles that include discussion of state-specific issues concerning mechanics’ liens in Texas, Colorado, and Idaho. In Washington, we explore the state’s addition of change order protections to contractors, subcontractors, and suppliers on public and private projects. We round out the summer edition with key residential construction contract considerations for homeowners hiring a contractor.

The Snell & Wilmer construction group is pleased to have welcomed Tara Martens Miller to the team. Tara serves clients from our Boise and Salt Lake City offices, and offers over 25 years of experience in guiding clients through a wide range of business, construction, real estate, and employment disputes and transactions. With a deep understanding of commercial real estate and construction transactions, Tara is a skilled litigator, adept at handling complex business disputes in both state and federal courts and has a proven track record in alternative dispute resolution.

For our clients and friends in Phoenix, Arizona, we would like to invite you to attend our upcoming construction law seminar, “Strategies for Delay and Disruption Claims in Construction,” where my fellow partner Ed Hermes and I will discuss legal considerations for navigating, pursuing, and defending against delay and disruption claims arising out of construction projects. Lunch will be provided, and we hope you’ll consider joining us if in the area. To RSVP, please visit here.

We hope you will find our newsletter informative and enlightening. Please let us know if we can address a specific construction issue in a future newsletter. We hope 2024 remains profitable, busy, and safe for you, your company, and your family!

Best Regards,

Jim Sienicki, Editor

By Conor G. Bateman

A mechanic’s lien filing creates an immediate cloud on title causing substantial impacts to owners of real property and other parties to a construction contract. Frequently, owners or prime contractors may be required to quickly discharge a mechanic’s lien from real property for a variety of reasons – to allow interim funding from the owner’s lender, to allow the owner to close a real estate transaction or refinance, or to process payments to prime contractors and subcontractors.

Parties seeking to quickly address a mechanic’s lien have several options under Texas law. Section 53.160 of the Texas Property Code permits any party objecting to a mechanic’s lien to file a “summary motion” to remove the lien if the lien fails to meet the strict statutory requirements to perfect a mechanic’s lien. However, this “summary” procedure still requires a formal court filing and court costs, and requires several weeks or months to obtain a hearing regarding the alleged invalid lien. Subchapter I in Sections 53.201 through 53.2011 of the Texas Property Code permits an original contractor with a written contract with the property owner to file a bond for the benefit of claimants. If a valid bond is filed pursuant to this Subchapter, a lien claimant may not file suit against the owner’s real property and must proceed against the bond. However, the costs associated with this bond may be cost prohibitive depending on the original contractor and project.

These options notwithstanding, the most expedient option to address a mechanic’s lien is frequently through the filing of a surety bond to indemnify against the lien, otherwise known as “bonding around the lien.” Subchapter H in Sections 53.171-53.175 of the Texas Property Code addresses this procedure in detail. This option is typically preferred by property owners and contactors because it saves the time and money associated with the “summary motion” procedure and because the bond costs in Subchapter I can be cost prohibitive for original contractors.

Critically, the Texas Property Code expressly provides that a “purchaser, insurer of title, or lender may rely on and is absolutely protected by the record of the bond and the notice to the same extent as if the lien claimant had filed a release of the lien in the real property records.” TEX. PROP. CODE § 53.174 (b).

Bonding around a lien in Texas requires strict compliance with the following procedures:

Bonding around a mechanic’s lien can be an expedient method to address liens but only if claimants strictly comply with these procedures. Starting the process early and monitoring the clerk’s notice preparation are critical. Once completed properly, owners, lenders, and other parties to the project can be assured that they are protected by the bond to the same extend as if a release had been filed. [Back to TOC]

By Laurie R. Hager

Many construction contracts require the contractor to obtain a signed change order before performing work that deviates from the original contract scope. But in practice, contractors are often faced with the dilemma of waiting to obtain a signed change order from the owner or upstream contractor for requested additional or changed work, which may delay the project or its work, or pressing on with such work without a formal change order in order to avoid causing project delay, or delay to its work. Many contractors opt for the latter option, and then run the risk of not getting paid for the extra or changed work, because of a contract provision requiring signed change orders before proceeding with such work.

Washington’s public contracting code, at Revised Code of Washington (RCW) 39.04.360, already provided some protections to contractors in that situation on public projects. In March 2024, Washington Governor Jay Inslee signed SSB 6192, which amends RCW 39.04.360. As of June 6, 2024, the protections under RCW 39.04.360 were expanded to subcontractors and suppliers for public projects, as well as to contractors, subcontractors, and suppliers for certain private projects. The new law does not apply to single-family homes or other private residential projects of 12 units or less.

This law mitigates the dilemma created when an owner authorizes additional work, but delays signing the formal change order for such work. Under this new law, upon request by a contractor, an owner must issue a change order for undisputed, authorized additional work within 30 days after satisfactory completion of such work. If the change order is not timely issued, interest accrues on the undisputed, satisfactory work at the rate of one percent per month beginning 30 days after the satisfactory completion of the work.

Contractors also have change order obligations to their lower-tier subcontractors or suppliers. Within 10 days of receipt of an approved change order (from owner or upper-tier contractor), the contractor (or subcontractor) must then issue a change order(s) to its lower-tier subcontractors that performed the changed work. If the upper-tier contractor fails to issue a change order within the timelines required, the upper-tier contractor becomes responsible for a proportionate share of the interest accrual at one percent per month beginning 10 days after receipt of an upstream-approved change order.

An aggrieved party may bring a lawsuit for violations to this law, including for the “dollar amount” (i.e., cost) of the satisfactory work, the one percent per month interest, plus for an award of reasonable attorneys’ fees and costs under the statute. The law, however, does not grant contractors, subcontractors, or suppliers any rights against a party with whom they don’t have a written contract.

While beneficial to contractors and suppliers, the new law has several notable ambiguities that could lead to disputes. The new law does not cover change orders that are disputed. Moreover, the law does not explain what constitutes work “in dispute” which does not require a timely change order under the statute. Also, the law does not explain how to determine the “dollar amount” (i.e., cost) of the change order work. Thus, for contracts going forward, parties may want to consider whether to include provisions that define what constitutes work “in dispute” and that address how to determine the “dollar amount” of a change order, to cover these issues not addressed by this statute. Additionally, the law does not state whether it applies to existing contracts that were entered into prior to June 6, 2024. Given this uncertainty, and to minimize possible downside risk, owners and contractors may consider implementing the procedures under this new law on any pending projects going forward, regardless of whether the contract was in place prior to June 6, 2024. [Back to TOC]

By Tara Martens Miller

Idaho Code Title 45, Chapter 5 sets forth Idaho law applicable to liens of mechanics and materialmen. The statute and common law application of the provisions demonstrate Idaho’s public policy favoring the protection of contractors, materials suppliers, and certain professional service providers with regard to improvement of real property. Specifically covered are contractors, subcontractors, materialmen, licensed surveyors, and professional engineers. Idaho mechanic and materialmen lien statutes permit immediate lien rights to secure payment for work and services performed, and are liberally construed in favor of those to whom the lien is granted. Parkwest Homes, LLC v. Barnson, 149 Idaho 603, 238 P.3d 203 (2010). To create a valid lien, the lien claimant must substantially comply with the statutory requirements.

Every person performing labor upon or furnishing materials to be used in the construction of any building or any other structure, or who otherwise improves any land, and who is legally authorized to perform such work, has a lien upon the building, structure, or land for the work or labor done subject to compliance with the procedures set forth in the Idaho Code §§ 45-501. The lien has priority over and is preferred to any lien, mortgage or other encumbrance, which may have attached subsequent to the time when the improvement or structure was commenced, work done, equipment, materials or fixtures were rented or leased, or materials or professional services were commenced to be furnished. In most circumstances, the claimant’s priority will relate back to the date the claimant commenced work or supplied materials to the property or project.

Lien Procedures and Requirements

The claim of lien must be filed within 90 days after the completion of the labor or services or furnishing of materials. Idaho authority defines “completion” to mean “substantial completion” of the claimant’s work , and trivial work done or materials furnished after contract has been substantially completed will not extend the time in which a lien can be filed.” Baker v,. Boren, 129 Idaho 885, 895, 934 P.2d 951, 961 (1997). Idaho authority defines “completion” to mean “substantial completion” of the claimant’s work, and trivial work done, or materials furnished after contract has been substantially completed will not extend the time in which a lien can be filed.” Baker v,. Boren, 129 Idaho 885, 895, 934 P.2d 951, 961 (1997). The claim of lien must be filed in the records of the county recorder for the county in which such property is situated. An untimely or improperly recorded lien is invalid.

The claim of lien shall include the following:

Duration of Lien

The duration of the lien is six months following recording of the lien unless proceedings are commenced within the six month period to foreclose the lien. In addition, if the lien claimant agrees to an extension of credit or accepts partial payment from the owner, and an endorsement is made and recorded on the lien, the lien duration is extended for another six months.

Procedure for Release of Lien by the Posting of a Bond

In the event a lien has expired, is untimely or otherwise invalid, and the claimant refuses to record a release, an owner may bring a cause of action to strike or quash the lien from the record, usually via a declaratory judgment action.

If an owner of real property subject to a valid claim of lien is unable to secure the release of the lien of record through negotiation with the claimant, the owner may post a surety bond. To secure a release of a lien by posting a security bond, the debtor of the lien claimant must obtain a surety bond executed by such debtor from a corporation authorized to transact surety business in the state of Idaho, in substantial conformance with the statutory form. The surety bond must be in the amount of one and a half times the sum of the claim of lien.

Once a bond has been issued, a Petition for Release is filed in the District Court of the county where the property is located and must include the requisite allegations set forth in Idaho Code § 45-520. The petitioner must obtain an order from the Court setting forth the time and date of the hearing on the petition, which time and date must be at least five days after the date of the order and not more than 10 days after the date of the order. A copy of the petition and the order must be served on the lien claimant at least two days before the hearing date. At the hearing, the Court shall enter its order releasing the lien upon the petitioner’s filing in open court the original bond and introducing into evidence a receipt for payment of the premium. The order will refer to the property which is the subject of the lien and the lien by instrument number and will recite that the lien is released of record for all purposes to the same extent as if released of record by the lien claimant. Upon entry of the order, the lien is released of record in its entirety and for all purposes and the real property that was subject to the lien is released from the encumbrances of the lien. The claimant may then bring an action against the claimant’s debtor and the surety for amount due to the claimant, costs and attorney fees, as well as the cost of preparing and filing the lien claim and interest. In addition, the claimant is entitled to a priority of hearing upon the service of a demand for 30-day setting.

Lien Foreclosure Action

The District Court in the applicable county has jurisdiction of all actions brought for foreclosure. The foreclosure action is equitable in nature and separate from a cause of action for breach of the underlying contract. If a lien is foreclosed and a judgment is entered in favor of the lien claimant, the judgment lien shall be valid for 10 years from the final judgment date. In addition, if a lien claimant successfully forecloses on a lien, it is entitled to an award of the costs and reasonable attorney fees associated with the recording of the claim of lien, together with the foreclosure action.

Careful attention to substantial compliance with Idaho Code Title 45, Chapter 5 is essential. This article identifies a number of considerations that clients may want to address with their attorney. This article is not all inclusive or substantively complete. Contractors, professionals, owners and others may want to timely consult with counsel on all lien matters. [Back to TOC]

By Megan Carrasco and Creighton Dixon

Hiring a contractor can be both stressful and expensive for any homeowner. Frequently, a difficult hurdle for any homeowner is the first one: finding a contractor willing to do the job. This means that once the homeowner finds a contractor willing to do the job, the homeowner may be reluctant to ask for a contract or additional details in order to not slow down the process or because the transaction appears simple on its face. Moreover, the homeowner may trust the contractor to perform its craft and may not feel comfortable insisting on protections for themselves.

But, the truth is that contractors are generally used to paperwork: they apply for permits, hire subcontractors, draft lien waivers, file mechanic’s liens, and renew their license. This means asking for a contract or some extra paperwork would be anticipated by a credible contractor.

Common issues with residential projects include:

One way to address many of these issues is ensuring you have a contract in place for all work. Clarity before the work starts benefits everyone. It sets out expectations so that when problems arise there is no confusion. Therefore, before hiring a residential contractor, you may want to consider all or some of the following:

Just because a business is an LLC or corporation or has the word “contractor” in its name, does not mean that they are a licensed contractor. So, the first step is to ask for the license number and confirm the status of the license with the appropriate agency. For example, Arizona contractors’ license information can be found here: https://azroc.my.site.com/AZRoc/s/contractor-search.

Be clear about what is and what is not expected of your contractor. For example, while “deck remodel” may seem intuitive based on prior conversations with the contractor, disputes can later arise about what “deck remodel” incorporated. Instead, it may be helpful to itemize the key components of the deck remodel. For example: (1) tear down old deck, (2) remove old decking, (3) pour concrete foundation for new deck, (4) build new deck made of [specify type of decking material], and (5) paint or stain deck. If there are drawings or specifications available, you may want to consider including them as an exhibit.

There are many different ways to price a construction project. Some jobs are cost of the work plus a fee, meaning you will be billed for the cost of materials, labor, and other items to perform the work, and then separately for the contractor’s profit and overhead. Pin down what costs are included in the costs of the work. For example, costs incurred to replace defective work probably should not be included in the cost of the work. Other jobs are “lump sum,” and the price will only change pursuant to a written change order if additional or a revised scope of work is performed. Certainty at the outset minimizes disputes later on.

As a homeowner, be aware of your obligation to promptly pay the contractor. Both sides should agree to a payment schedule and how detailed the request for payment needs be.

Nearly every project sees something change during construction. Consider how to document such changes. Typically, owners and contractors document alterations to the scope (e.g., size of the deck), schedule (e.g., when the deck will be ready), or price (e.g., how much the deck material costs) in a written “change order” signed by the owner and contractor. Again, outlining how to address changes before the project starts may make things easier down the road.

Agree with the contractor on when it will have all of the work done and when it will have completed specific portions of the work (e.g., the framing). You may want to consider including in your contract a specific day or deadline for the project to be complete. Also consider including reasons why that deadline may be extended (e.g., key material is unavailable).

Finally, determine how disputes should be resolved. It is easier to decide how to resolve a dispute before those disputes occur. For example, you may want to include a requirement that the parties hire a professional mediator to try and negotiate the dispute before filing a lawsuit. Mediation can be appropriate and helpful for both parties, especially when the attorneys’ fees to litigate the dispute would dwarf the amount in dispute.

Conclusion

This list is not exhaustive. Instead, it is illustrative of typical issues that cause frustration for everyone involved. Some contractors will have standard forms including some or all of these terms along with additional terms like the owner’s responsibility throughout construction, termination clauses, insurance requirements, and others. But if you have any questions about your specific project, you may want to consider discussing the issue with an attorney before you sign your contract. [Back to TOC]

By Laurie Choi, Amanda McKinlay, and James Snow

A mechanics’ lien affords unpaid contractors, subcontractors, laborers, and/or material suppliers a security interest in the property’s real estate and title. A blanket lien is a type of mechanics’ lien that covers more than one unit, building, or property which contracted for labor, materials, or services. When properly filed, a blanket lien is valid in Colorado. Issues arise, however, when blanket liens are improperly applied to all units, buildings, or tracts of land in a single community or subdivision when less than all units, buildings, or tracts of land contracted for said labor, materials, or services. Under those circumstances, a blanket lien would likely be deemed invalid in Colorado as there is no statutory authority to place a lien upon property other than that property upon which the services were rendered or for which the fixtures were supplied.

The right to a mechanics’ lien is based in statute. Independent Trust Corp. v. Stan Miller, Inc., 796 P.2d 483, 487 (Colo.1990). Colorado’s General Mechanics’ Lien Act provides, in relevant part, as follows:

…[a]ll persons of every class performing labor upon … any building, … or any other structure or improvement on land, including adjacent curb, gutter, and sidewalk … shall have a lien upon the property upon which they have … bestowed labor or for which they have furnished materials … machinery or other fixtures, whether at the instance of the owner, or of any other person acting by his authority or under him, as agent, contractor, or otherwise…

C.R.S. §38-22-101(1).

Where there are several buildings, structures, or other improvements for which labor and materials were provided under a single contract, Colorado permits the filing of separate lien claims in proportion to the value of the labor and materials furnished for the particular structure or improvement. C.R.S. §38-22-103. Conversely, Colorado also permits, under certain circumstances, a single lien claim against all such buildings, structures, or other improvements (together with the ground upon which they are situated), if the cost or value of the labor or materials cannot be readily and definitely apportioned; and in that case, all of the improvements are deemed one improvement, and the land on which they are situated, one tract of land. C.R.S. §38-22-103(4). The latter is often referred to as a “blanket lien”. Compass Bank v. Brickman Grp., Ltd., 107 P.3d 955, 958 (Colo. 2005). This section, however, does not exempt such “blanket liens” from compliance with the statutory provisions upon which the right to the existence of a mechanic’s lien depends. Hill Dev. Corp. v. Cordova, 714 P.2d 926, 927 (Colo. App. 1986).

While the statute is to be liberally construed as to its remedial portion; it will be strictly construed in determining the question whether the right to a lien exists. Schmidt Const. Co. v. Fast, 776 P.2d 1175, 1176 (Colo. App. 1989). The plain language of the statute authorizes a lien in favor of the laborers or materialmen “upon the property upon which they have … bestowed labor or for which they have furnished materials or … machinery or other fixtures….” Id. Notably, it does not authorize a lien upon property other than that upon which the services were rendered or for which the fixtures were supplied. Id.

Accordingly, where there are multiple tracts of land in a single community or subdivision but only a portion of those tracts entered into contracts for the performance of labor or rendering of services, the filing of a mechanics’ lien — including a blanket lien — against any tract that did not enter into such a contract for labor or services would likely be deemed invalid pursuant to the express language of the Mechanics’ Lien Act and would run afoul of public policy. Schmidt Const., 776 P.2d at 1176; C.R.S. §38-22-101(1). Instead, the more appropriate action to preserve the lien claim would be to file individual mechanics’ liens or, where apportionment is not readily available, a blanket lien filed against only those tracts which contracted for the performance of labor or rendering of services.

Contractors and property owners in Colorado have recourse against improperly filed mechanics liens, including blanket liens, under the Mechanics’ Lien Act and may want to consult with their construction attorney if they believe a mechanics’ lien has been improperly filed against their property. [Back to TOC]