Introducing...

Tucker Arensberg's

RECON Industry Group 

We are pleased to announce that Tucker Arensberg has combined its Real Estate Law and Construction Law Groups to form the RECON Industry Group. By merging these groups, we are able to draw upon the knowledge and skills of attorneys who regularly practice in these areas to obtain maximum results for our clients.

Our experienced and dedicated team of attorneys and paralegals is being led by Ted Brooks and Ken Lee. The combination of the groups into the RECON Industry Group enables us to provide integrated services in the following areas:

• Every aspect of the construction process, from the initial planning of a project though construction and post-construction matters including claims and litigation;

• Zoning, sub-division, building code compliance and enforcement;

• Land development, land use, environmental issues;

• Construction contracting;

• Negotiation, documentation, financing and closing real property transactions;

• Real property taxation and assessment appeals; and

• Suretyship and bonding

Our subsidiary company, Tucker Arensberg Real Estate Service Corporation (TARES), is an agent for several national title insurance companies and performs the full range of title and closing services. Through TARES we consistently deliver prompt and efficient service to meet our clients’ needs in closing and title matters.

Members of the RECON Industry Group can call upon the resources of more than 70 attorneys in the firm in Pittsburgh and Harrisburg to provide clients with a full range of legal services including corporate, bankruptcy and collections, labor and employment, OSHA, workers’ compensation and litigation services.

We will publish RECON News quarterly to keep you informed of current legal developments in the real estate and construction industries. RECON News will provide you with legal updates, practical advice and assist you in the management of your business. We welcome your comments and suggestions for future newsletters.  Please contact us at tbrooks@tuckerlaw.com or klee@tuckerlaw.com.

Thank you for your interest in RECON News.

W. Theodore Brooks

Co-Chair, RECON Industry Group

Kenneth W. Lee

Co-Chair, RECON Industry Group

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91 Days:

When A Receivable Is 30 Days Too Old

By Kenneth W. Lee, Esq.

The construction industry in Pennsylvania is blessed with several unique payment collection procedures.  These include mechanics’ liens, payment bonds (also known as laborer’s and materialman’s bonds), performance bonds, and the two Contractor and Subcontractor Payment Acts.  However, depending upon your company’s status, i.e., contractor, subcontractor or sub-subcontractor, certain actions must be performed in order to preserve your rights or your company may be barred from taking advantage of these unique procedures.  These actions are known as “conditions precedent” and generally involve the proper written notices to the appropriate party.

The courts construe the timely service of these notices very strictly because these notices usually inform a party with whom your company did not have a contract that your company intends to hold that party responsible for the monies owed to your company.  Thus, the notice permits the party upon whom it is served the opportunity to investigate and correct the situation.

Most such notices, whether they be under the Mechanics’ Lien Act, the Federal Miller Act, the Commonwealth Procurement Code, the Public Works Contractors’ Bond Law, or payment bonds for private projects, must be served upon the appropriate party or parties on or before the 90th day from the last date on which your company furnished labor, material or equipment for a project. However, most contractors do not consider a receivable to be a problem until it becomes at least 90 days overdue.  If that is your company’s policy, then by the time the receivable has reached this 90 day age valuable rights have probably been lost.  If the receivable is 90 days old or older, then the chance of collecting the receivable has significantly diminished.  On the other hand, if your company has served the appropriate notice or notices, then the ability to collect the receivable has increased significantly, in many cases as much as 100 percent.

Yet, in deciding to issue these notices there is the natural conflict between “sales” and “collections”.  In other words, your company must decide whether it is willing to potentially adversely affect its relationship with a customer or client, sometimes one which has been a long time customer or client.  Often it is a business judgment decision between getting paid or working for free. If you wait to take action until the 90th day from your last day of work, your company’s costs could increase dramatically because of the work involved by an attorney to investigate the claim, obtain the proper documents, obtain the proper names and addresses, and prepare and serve the appropriate notices.  These 11th hour dashes can be avoided by implementing two simple procedures into your company’s normal course of business.

Precautionary Measures

First, obtain as much information as possible at the time of the subcontract, purchase order or request for equipment.  A customer is usually more willing to provide information at the start of the project when the outlook is optimistic (no on ever goes into a project thinking about a losing proposition) but less likely after your company has performed and the customer will not or cannot pay.  The information is often basic (name of owner, location of project, type of project, person or entity with whom your customer is performing the work, the name of the contractor) and is information typically required for insurance purposes.

Second, revise your company’s collection procedures to consider a receivable problematic when the receivable becomes 61 days old.  This will permit your company to maintain customer relations by permitting informal contact with the customer on a  timely basis and letting the customer know that your company may be forced to issue the appropriate notices to the owner, contractor or your customer’s surety if payment is not made within the next 10 days.  This permits the customer to avoid the embarrassment of other parties being informed of his potential “dead beat” status.  In addition, by contacting your company’s attorney when the receivable becomes 61 days old, savings in attorneys’ fees may result.  At this time the attorney can advise you what needs to be done and guide your company’s personnel in obtaining the requisite information in an organized manner as opposed to the attorney performing the work at the 11th hour.

Public Projects

For example, providing the attorney with the name of the owner should permit the attorney to advise what your company’s potential remedies could be.  If the owner is the Federal Government, the Commonwealth of Pennsylvania, a city, a borough, a county, a township, a school district, an authority or other “political subdivision”, then the remedy will be in the form of a payment bond because the laws of the Commonwealth of Pennsylvania mandate payment bonds on public works projects but preclude the filing of a mechanics’ lien.  If the owner is a person or a non-governmental entity, then there may be mechanics’ lien rights or  rights under a “private” project payment bond.

Even if your company has all of the necessary information, your company’s attorney should still be contacted.  This is because who the owner is and what type of project is involved will determine what statute is applicable and which procedure is required in preparing and serving the notice.  Federal projects are governed by the “Miller Act” while projects or contracts involving the Commonwealth of Pennsylvania or inter-government purchasing agreements (often known as “COGs”) are governed by the Commonwealth Procurement Code.  All other “public contracts” in Pennsylvania fall under the Public Works Contractors’ Bond Law.  Though similar, each of the three statutes has its own unique requirements which, if not met, could jeopardize your company’s rights.  For example, the Commonwealth Procurement Code requires the payment bond notice to be served in person or by REGISTERED mail while the Public Works Contractors’ Bond Law permits the notice to be served in person or by CERTIFIED mail.

Private Projects

With private projects, the situation as to protection of your company’s rights is even more vexing.  First, a title search  must be performed to obtain the proper description of the property upon which the project occurred, to verify the project owner, and to determine whether a No-Lien Agreement has been timely filed and if so, whether it has been properly indexed for mechanics’ lien purposes.  If mechanics’ lien rights appear viable, then the notices as well as the statement of mechanics’ lien claim must conform in all material aspects with the Mechanics’ Lien Act.  The mechanics’ lien claim must be timely filed within four months from the last date on which your company completed its work.  However, if you are a subcontractor, you must issue one or  possibly two notices before the mechanics’ lien is filed depending upon the work performed with the last notice served at least 30 days prior to the filing of the mechanics’ lien claim, i.e., usually within 90 days of your company’s last date of work.

If the project is an “alteration or repair” to an existing structure, then in addition to the notice previously described, your company must serve a preliminary notice upon the owner on or before the last date of work by your company.  If the project is “erection or construction”, i.e., new construction, then the preliminary notice does not have to be served but the notice previously described does.

Many private projects now require payment bonds from the contractor and many contractors on both public and private jobs require payment bonds from subcontractors.  Whereas the Mechanics’ Lien Act only affords protection to contractors and subcontractors, a contractor’s payment bond on public and  private projects will afford protection to subcontractors and sub-subcontractors.  If a subcontractor provides a payment bond, then protection is afforded to sub-subcontractors and to the next tier, sub-sub-subcontractors.

However, payment bonds for private projects come in many forms and are often convoluted.  Some private payment bonds require notice to two of the following: the obligee, the principal or the bonding company, within 90 days of your company’s last date of work.  If the payment bond is given by the contractor, then the contractor is the “principal” and the owner is the “obligee”.  If the payment bond is given by a subcontractor then the subcontractor is usually the “principal” and the contractor the “obligee”.

The most common payment bond form utilized on private projects is the form published by the American Institute of Architects (“AIA”).  The AIA payment bond typically has a three or four step process:

1. Notify the contractor and owner in writing within 90 days of the last date of work;

2.  Wait 30 days for a response from the contractor;

3.  If the contractor responds in the negative or fails to respond within 30 days then notify the surety;

4.  Wait 45 days for a response from the surety; and

5.  File suit if your company is not paid within this 45 day period or the surety responds negatively to the claim.    

One of the major problems with private payment bonds is that the claimant follows the procedures under the statutes for public payment bonds and only notifies the contractor, which, as noted above, can cause the private payment bond rights to be jeopardized.  Complicating this matter is that, unlike a public payment bond statute, there is no procedure to force the owner or contractor to give your company a copy of the payment bond.  If you do not have the payment bond, then a real estate search may need to be performed to discover the owner and contractor, a Dodge Report search may be required to discover the contractor, and every known party associated with the project may need to be served with notices (the proverbial “shotgun” approach) so the appropriate parties are notified. Obviously, this takes time (it is also not an uncommon scenario) and thus, waiting until a receivable is 80, 85, or 88 days old to take action could be detrimental.

Perfecting a payment bond claim or a mechanics’ lien claim boils down to the fundamental proposition of “read the statute, read the bond, read the statute, read the bond, read the statute, read the bond.”  Because these rights are creatures of statutes or of contracts, strict compliance with the statute or contract must occur or rights will be lost.

Kenneth W. Lee, selected by his peers as one of The Best Lawyers in America® 2005-2006 in the Construction Law category, is a Shareholder in the firm’s Harrisburg office and Co-Chair of the RECON Industry Group. For more information on this topic, please contact Ken at 717.234.4121 or via e-mail at klee@tuckerlaw.com.

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Recent Developments

in Mechanics’ Lien Law

Mechanics Lien Law Amended to Eliminate Requirement of

Cross-indexing of Lien Waiver Agreement in

Counties using Computer Indexing

Ordinarily, a waiver of lien agreement executed between the owner and contractor is not binding on subcontractors not having actual notice of the agreement unless the agreement was recorded in the office of the prothonotary of the county in which the real property being improved is located.  The waiver of lien agreement must be indexed in the name of the contractor as plaintiff and owner as defendant and also in the name of the owner as plaintiff and the contractor as defendant.  This cross-indexing requirement has been eliminated for counties in which the prothonotary indexes filings “electronically by means of a computer system or similar system such that the names of the contractor and owner are electronically retrievable regardless of whether the parties are designated as plaintiff or defendant.” 

See 49 Pa. C.S.A. §1402 (b).

Superior Court Reemphazies Necessity of Timely Service

of Notice of Mechanics’ Lien

The requirements of the mechanics’ lien law are strictly construed by the courts.  Attempts to circumvent these requirements by reliance on the doctrine of “substantial compliance” have routinely been struck down by the courts.  This frequently leads to harsh results.  Missing a filing date by even one day has doomed a mechanics’ lien claim.

The mechanics’ lien law requires service of the notice of the filing of the mechanics’ lien on the owner by the sheriff within 30 days of the filing of the notice of mechanics’ lien.  This particular portion of the mechanics’ lien is often troubling because the fulfillment of its mandates depends on the expediency of the respective sheriffs’ departments, many of which are understaffed and overburdened with service responsibilities.   The question is rightly asked – what more can a claimant do but provide the sheriff with the notice?  Should the claimant be punished for the sheriff’s failure to serve the notice in a timely manner?

In Regency Investments, Inc. v. Inlander Limited, 2004 Pa. Super. 274, 855 A.2d 75 (2004), the Superior Court has answered that question against the lien claimant.  In Regency Investments, the lien claimant filed its mechanics’ lien on November 26, 2002 and provided the notice to the sheriff on December 9, 2002.  The sheriff failed to serve the notice before December 26, 2002 (30 days after filing), and the mechanics’ lien was stricken.  The lien claimant argued it substantially complied with the requirements of the statute by providing the notice to the sheriff.  The Superior Court rejected this position.  The court reemphasized that the mechanics’ lien requirements are absolute and the time limits for service are strictly construed.

Christopher A. Coppula is an attorney in the firm’s RECON Industry Group. For more information on this topic, please contact Chris at 412.594.5567 or via e-mail at ccoppula@tuckerlaw.com.

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The Statutory Employer Trap:

General Contractors Beware

Among the many liability pitfalls unsuspecting Pennsylvania contractors face is workers’ compensation liability to non-employees, as a result of a legal concept known as “statutory employer.”  A “statutory employer is a master who is not a contractual or common law [employer,] but [who] is made one by the [Workers’ Compensation] Act.”   Eck vs. Delaware County Board of Prison Inspectors, 814 A.2d 185 (Pa. 2002).  Although the term “statutory employer” is not found in the Workers’ Compensation Act (Act), the concept is well-established in the law, and the situation where it occurs is one which the careful contractor can usually avoid.

A statutory employer is a general contractor who becomes liable for workers’ compensation benefits payable to the employees of subcontractors.  While unforeseen workers’ compensation liabilities are to be avoided, there is, along with the liability, the benefit of protection against a lawsuit by the subcontractor’s employees under the exclusive remedy provisions of the Act.  That is, an employer liable for workers’ compensation benefits to any employee, even as a statutory employee, is immune from a separate lawsuit for civil damages to that employee.  Thus, a general contractor found liable for workers’ compensation benefits as a statutory employer does have immunity from a lawsuit filed by the injured worker.  

Five distinct elements must be present for a finding of liability as a statutory employer.  They are:

1. There must be a contract with an owner of land or one in a position of an owner;

2. The premises must be occupied or under control of the contractor sought to be identified as the statutory employer;

3. There must be a subcontract;   

4. Part of the contractor’s regular business must be entrusted to the subcontractor under the subcontract; and

5. The employee of the subcontractor must be injured on the premises.

If the subcontractor does not have workers’ compensation insurance the injured worker, as a claimant in a workers’ compensation case, may file a claim petition against the general contractor and skip over the uninsured subcontractor.    In that case, the general contractor, a “statutory employer” under the terms of the Act, is liable to pay compensation to the subcontractor’s employee.  Under Section 302 of the Act, the statutory employer has a right to seek reimbursement from the subcontractor who is primarily liable. 

Pennsylvania courts have clarified that the owner or lessee of the land in possession and control of the premises cannot be a “statutory employer”.  By the same token, a general contractor which also owns the property/premises upon which the work is being performed cannot be a statutory employer, according to Commonwealth Court in Liebensperger v. W.C.A.B. (Thomas H. Lewis Builders, Inc.), 813 A.2d 28 (Pa. Cmwlth. 2002).  The alleged statutory employer must actually be working as a general contractor and “either occupy or be in actual control of the premises.”

The statutory employer sections of the  Act provide the means to avoid this situation.  For example, Section 302(d) states, “A contractor shall not subcontract all or any part of the contract unless the subcontractor has presented proof of [workers’ compensation ] insurance…”   The Act also provides special protections for municipalities.  Section 302(f)(1) requires a contractor “performing work for a public body or political subdivision” to provide proof of workers’ compensation insurance for itself as well as all sub- contractors on the job.  Subparagraph (f)(2) mandates the issuance of “a stop-work order to any contractor who is performing work for that public body or political subdivision” if any of the workers’ compensation insurance “has expired or has been cancelled.”  Proof of insurance under the Act “shall include a certificate of insurance or self-insurance, demonstrating current coverage and compliance with the requirements of” the Act.

The Act defines certain construction professionals and excludes them from potential liability as statutory employers.  These are “construction design professionals” and include only those occupations identified in Section 105.3 of the Act.  Under that Section, a “construction design professional” is a professional engineer or land surveyor, a landscape architect, an architect, “or any corporation or association, including professional corporations… practicing engineering, architecture, or surveying in” Pennsylvania.  All, however, must be licensed by appropriate state licensing or registration board.

Under Section 323 of the Act, a construction design professional “who is retained to perform professional services on a construction project…shall not be liable…for any injury or death of a worker not an employee of such design professional on the construction project for which workers’ compensation is payable…”

All Pennsylvania contractors should be aware of the statutory employer provisions of the Act. 

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In each issue, we will introduce a member of the RECON Industry Group. In this issue, we spotlight...

KENNETH W. LEE

Kenneth W. Lee, Co-Chair of the firm’s RECON Practice Group, practices in the areas of construction litigation, construction-related insurance matters, municipal and government contracts, and surety law. His experience includes the representation of owners, contractors (including general contractors, sub-contractors, and specialty contractors) and surety providers in all fields of the construction industry. Ken has handled mechanics’ lien matters, and has written and lectured on the subject. Ken recently redrafted the Contracts Section of the Pennsylvania Standard Jury Instructions (2003 Ed.) issued by the Pennsylvania Bar Institute.

Ken has handled litigation in the state and federal courts of Pennsylvania and the Pennsylvania Board of Claims. In addition, he has tried cases before the American Arbitration Association, the Federal Mediation Service and “private” dispute panels.

Ken is a 1987 graduate of the University of Pittsburgh School of Law, where he received the Faculty Award for Legal Scholarship. He earned his Bachelor of Arts degree from Gettysburg College and a Master of Arts degree from Villanova University. He is a graduate of The Mercersburg Academy.  Ken is a member of the Allegheny County Bar Association, the Dauphin County Bar Association, the Better Business Bureau where he served as an arbitrator/mediator, and the Associated Pennsylvania Constructors (APC). He was recently selected by his peers for inclusion in The Best Lawyers in America® 2005-2006 in the Construction Law category.

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