Construction Law – Rea & Associates: Commercial Construction Litigation

A Guide to Contractor Claims Under New Jersey’s Prompt Payment Act

Jeffrey Rea — Fri, 04 Mar 2016 21:40:28 +0000

In 2006, New Jersey enacted the “Prompt Payment Act,” codified at N.J.S.A. 2A:30A-1, et seq. (the “PPA”). The PPA establishes timelines for payment of invoices or requisitions submitted by both private and public entities for a wide variety of construction-related contractors and vendors. The PPA applies to construction contracts entered into by any local governmental units (e.g. municipalities, school boards, counties, fire districts, etc.).

The primary purpose of the PPA is to ensure that contractors submitting bills for completed work are paid on a timely, established schedule, and if a contractor is not so paid through no failure of its own or due to circumstances outside of its control, the PPA allows contractors to receive interest on the outstanding balance due and, if litigation becomes necessary to enforce the provisions of the PPA, for the contractor to receive its costs and counsel fees associated therewith.

The PPA applies to contracts for above and below ground “improvements” to real property and structures.

The law defines the term “structure” to mean any part of a building and other improvements to real property. The law defines the term “improve” to mean the following:

… to build, alter, repair of demolish any structure upon, connected with, on or beneath the surface of any real property;
To excavate, clear, grade, fill or landscape any real property;
To construct driveways and private roadways on real property;
To furnish construction related materials, including trees and shrubbery, for any of the above purposes;
… or to perform any labor upon a structure, including any design, professional or skilled services furnished by an architect, engineer, land surveyor or landscape architect licensed or registered pursuant to the laws of this State.

This is an expansive definition and includes all improvements to real property.

Real property is defined as “real estate” – which includes publicly owned property – including traditional infrastructure such as roads, bridges, underground utilities, rights-of-way, and easements.

With respect to local governmental units, the PPA covers contracts with general or “prime contractors.”

While this term may have specific meaning for certain kinds of construction contracts under the Local Public and Public School Contracts Laws, for Prompt Payment purposes, it means any contractor that has contracted directly with a local unit for construction of improvements. The PPA provides for separate identification of “prime” contractors from any subcontractors working for the prime contractor. Subcontractors also have their own rights to timely payment under the PPA. The PPA utilizes the terms “prime contractor” and “contractor” interchangeably within its provisions.

If you/your company has submitted an application for payment to or otherwise invoiced a public entity or private sector property owner or a general/prime contractor for completed construction work and more than thirty (30) days have elapsed without the owner or prime/general contractor raising a written objection to the application/invoice, you/your company may be entitled to relief under the PPA which, in many cases, may result in the owner or general/prime contractor remitting the required payment merely by receipt of a formal demand letter from legal counsel.

Please contact New Jersey/New York-area lawyer, Jeffrey J. Rea, Esq. of Rea & Associates, LLC at (732) 943-2570, Ext 1, or jrea@rea-lawfirm.com for an initial consultation concerning your/your company’s particular matter at no charge.

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Requests for Equitable Adjustment and Impact Claims: A Contractor’s Rights to Recover Under Either Mechanism

Jeffrey Rea — Fri, 12 Feb 2016 01:30:08 +0000

Most participants in the construction industry generally understand that a Request for Equitable Adjustment (“REA”) or an “Impact Claim” are similar mechanisms by which a contractor seeks to obtain additional compensation for inefficient labor or other costs more commonly known as “extended general conditions” which are otherwise not available pursuant to a lump sum or other fixed-price construction contract. The REA is normally presented under specific circumstances and usually in accordance with express provisions within a construction contract with a public entity, such as a municipal, state or, in many cases, a federal governmental authority. Indeed, REAs are referenced within numerous sections of the Federal Acquisition Regulations (“FAR”), which governs the performance and administration of nearly all contracts entered into by the federal government.

Conversely, an Impact Claim is a device not necessarily provided for in a contract but can be utilized by contractors on almost any type of construction project, from modest residential renovations to multi-million dollar commercial developments involving both private and public entities. An Impact Claim (which is, for all practical purposes, merely another term for the REA), arises when, during the course of a project, there is a certain magnitude of owner-generated modifications to the original contracted for scope of work, unforeseen field conditions and/or other types of project delays beyond the contractor’s control which simply were not, or could not reasonably have been, contemplated at the time the original contract was entered into.

Therefore, the contractor who seeks additional compensation under its contract as a result of unforeseen substantially adverse impacts to the contractor’s performance on a particular project (such as extended general conditions costs, inefficiencies of labor productivity resulting from having to perform work “out of sequence” or otherwise due to unforeseen circumstances or conditions on the project beyond the contractor’s control), must first understand what risks for such impact(s) it may have assumed pursuant to its contract with the Owner.

Defining a Request for Equitable Adjustment

Firstly, an REA has been generally defined as follows:

A Request for Equitable Adjustment, in government contracting, is a request normally initiated by the contractor for a price adjustment pursuant to a changes clause within the body of the contract. The REA seeks generally to compensate the contractor’s expense incurred due to actions of the government or, in the case of an REA initiated by the public authority, to compensate the government reductions in the contracted for scope of work. An REA generally includes an allowance for profit. Indeed change clauses that provide for adjustments, excluding profit, are not considered “equitable adjustments”, but rather a more generic form of change order or other conventional contract modification.

As set forth in Ralph L. Jones, Co. v. United States, 33 Fed. Cl. 327, 331-332 (Fed. Cl. 1995):

“the ultimate goal of an equitable adjustment is to do equity; to achieve equity, the government contractor seeking an equitable adjustment bears the essential burden of establishing the fundamental facts of liability, causation, and resultant injury. It must show that the increased costs arose from work which was materially different from that contemplated by the parties. The increased costs must be the direct and necessary result of the changes. An equitable adjustment is determined by whether the work was foreseeable based on the information before the contractor at the time of the contract. ‘Foreseeability’ in this instance refers to work that reasonably could be anticipated based on the contemplation of the parties. The question is whether the work would be a foreseeable consequence of those matters the parties ‘considered with continued attention, regarded thoughtfully, or viewed . . . as provable or as an . . . intention’”

Furthermore, while REAs are most often utilized by contractors on projects with the federal government, REAs are also recognized as appropriate vehicles for contractors to seek additional compensation for cost impacts due to project delays or other unforeseen conditions which occurred during the course of public improvement projects, unless the particular contract specifically prohibits the submission of an REA. One example of an unforeseen condition which may justify an REA is the project owner’s issuance of a substantial number of COs which, in the aggregate, constitute a term of art known as a “cardinal change” to the overall scope of work originally contemplated in the parties’ contract.

Seeking a Request for Equitable Adjustment

A contractor seeking an REA from a New York governmental authority by reason of numerous COs issued by a governmental authority pursuant to a public improvement contract was addressed in Perini Corp v. City of New York, 18 F. Supp. 2d 287 (S.D.N.Y. 1998). Although the Court in Perini ultimately demised the contractor’s REA on the basis of having not complied with strict notice requirements to pursue the REA pursuant to the terms of the underlying contract between the parties, Perini and other legal authorities cited to by Perini court stand for the general principle that an REA can be pursued by a contractor to obtain additional compensation for the issuance by the public project owner of a substantial number (or substantial monetary magnitude) of change orders and/or other unforeseen circumstances which constitute a “cardinal change” to the nature of the scope of work initially contemplated by the parties under the contract. In such an instance, the REA is a mechanism to achieve “equity” for the contractor where the contract provisions itself fails to provide an equitable result, as justice requires.

The road map to successfully prosecute on “Impact Claim” under New York law is generally presented by the New York Court of Appeals decision in Corrino-Civetta Construction Corp. v. City of New York, et al., 67 N.Y. 2d 297, 502 N.Y.S. 2d 681 (1986). Corrino-Civetta, despite being decided 30 years ago, is essentially the standard by which an Impact Claim may be pursued on a project located in New York (unless the governing contract provides for its terms to be governed by the laws of a different state). To summarize, the Court of Appeals in Corrino-Civetta held that, even where a contract contains a “no damages for delay” clause, a contractor may nevertheless recover on an “Impact Claim” if the project delays or other circumstances upon which the claim are based were not “reasonably forseeable” at the time the original contract was entered into. To be frank, this is a high threshold for the contractor to meet, and, in many instances, the contractor may have negotiated away its rights to pursue an Impact Claim by entering into one or more change orders during the course of the project which, in essence, release the Owner from such a claim in consideration for the additional monies and/or time extension granted to the Contractor within such change order(s). Nevertheless, Impact Claims remain a viable vehicle to equitably adjust a contractor’s compensation when it has suffered substantial financial harm in performing a project as a result of one or more events or other circumstances which could not have been reasonably contemplated to take place during the course of the project when the original contract was entered into. In addition, Impact Claims appear to be better received and upheld, at least in part, if the parties’ contractual disputes are submitted to binding arbitration, which occurs quite often in the construction industry.

If you or your company has been adversely impacted by unforeseen conditions or circumstances beyond your/your company’s control on a public or private construction project and want to know if the submission of an REA and/or “Impact Claim” is available for your particular situation, please feel free to contact Jeffrey J. Rea, Esq. at (212) 557-5050, Ext 1 or jrea@rea-lawfirm.com to schedule a consultation.

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What a Contractor Needs to Know Before Filing a Construction Lien Claim in New Jersey

Jeffrey Rea — Mon, 30 Nov 2015 03:09:27 +0000

Whether you or your company operates as a general contractor or a specialty trade contractor in New Jersey, the New Jersey Construction Lien Law provides contractors with the ability to file a lien against privately held real property upon which they have furnished labor, material, services or equipment in connection with improvements to that property.

The proper preparation and timely filing of a Construction Lien Claim, in many cases, affords the contractor a relatively inexpensive but highly effective mechanism to receive payment for the improvements it provided (whether from the property owner or from a general contractor with whom the liening contractor has a written agreement), as opposed to a much more time consuming and costly court proceeding or arbitration.

However, there are certain requirements that must be complied with before a Construction Lien Claim can be filed and enforced pursuant to the New Jersey Construction Lien Law.

There are also additional requirements which must be met in order to file a Construction Lien Claim against residential properties (such as single family homes, townhouse or condominium complexes, etc.). If all of the requirements are not met, the Construction Lien Claim is deemed defective and unenforceable. Even worse, if a defective Construction Lien Claim has been filed and the liening contractor does not immediately discharge the lien upon being notified of the defect by the party whose interests are aggrieved by the lien, the liening contractor can be held liable for all costs incurred by the aggrieved party to discharge the lien, including attorney’s fees.

Requirements for filing a Construction Lien Claim in NJ

Commercial Projects

1 Must be filed within ninety (90) calendar days of last date of labor, material, service or equipment furnished by liening contractor.

Residential Projects

1 A Notice of Unpaid Balance (NUB) must be filed within 60 calendar days of last date of labor, material, service or equipment furnished by liening contractor. If NUB is upheld by mandatory arbitration process, a construction lien claim can then be filed within 120 calendar days from last date of work, material, services or equipment was furnished.

2 The amount claimed by liening contractor must be due pursuant to a written contract or any amendments to the contract, by way of change orders, authorizing the liening contractor to perform the scope of work upon which the lien is based.

2 The amount claimed due by liening contractor must be pursuant to a written contract signed by the owner of the property against which the lien is filed. Any amendments to the contract upon which the lien is based must also be in writing and signed by the property owner.

3 The liening contractor must either be in contract with the property owner or be a first or second tier subcontractor or supplier to the general contractor.

3 Same as for commercial properties.

4 The lien cannot include an amount of monies for any labor, material, services or equipment which has yet to be furnished and also cannot include lost profits or other consequential damages such as overhead costs associated with project delays.

4 Same as commercial liens. In addition, the lien cannot seek recovery of any monies which the liening contractor is not otherwise entitled to be paid under the parties’ contract at the time the lien is filed, such as monies which are only due after the contractor’s work has passed inspection by the local construction official.

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5 The liening contractor must have a currently valid home improvement contractor registration or, in the case of new construction, the appropriate license required by the State of New Jersey.

If you have additional questions to help you discern your options and determine your course of action, please do not hesitate to contact us to schedule an initial consultation.

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