Successful Resolution for General Contractor

Michael W. Siri, an associate at Bowie & Jensen, LLC, successfully negotiated payment to a general contractor by the owner for two separate commercial buildings. Mr. Siri was able to secure payment prior to the filing of a mechanic's lien or any other cause of action. As a result of the payments obtained by the owner, the general contractor was able to resolve underlying invoices owed to several subcontractors.

The Importance of Lien Releases

A question that comes up often is whether an Owner can be forced to pay twice for the same work. In the context of commercial construction, the answer is "yes," if the Owner does not get the appropriate lien releases. A Petition for a Mechanic's Lien allows a subcontractor to collect for unpaid labor, materials and equipment from the Owner when the subcontractor has not been paid by the general contractor. Consequently, if the Owner has paid the general contractor, but the general contractor has squandered the money or otherwise not paid the subcontractor, the subcontractor can collect from the Owner through a Mechanic's Lien. However, if the Owner obtains all of the requisite lien releases from the general contractor's subcontractors, sub-subcontractors and materialmen prior to payment, then the Owner can prevent the entry of a mechanic's lien.

For further questions contact Matt Hjortsberg at (410) 583-2400 or at hjortsberg@bowie-jensen.com

Bid Protests and Appeals - Time for Filing

Maryland provides only a limited time for a contractor to file a bid protest and failure to abide by these time constraints will be fatal to all claims by the contractor. Further, Maryland provides a limited time for an appeal to the Maryland Board of Contract Appeals and contractors must be aware of these rigid time restrictions when considering protesting an unsuccessful bid or denial of any claim.

If a contractor believes it has been aggrieved in connection with the solicitation or the award of a governmental construction contract in Maryland, the timing for a bid protest depends on the stage of the procurement process. If improprieties in a solicitation are apparent before either the bid opening or the closing date for receipt of initial proposals, the bid protest must be filed before the bid opening or the closing date for receipt of the initial proposals. As a result, a contractor with knowledge of any improprieties at this stage of the procurement process cannot wait until the bid has been awarded to make protest. The contractor must act immediately to preserve its claims. Further, if the discovery of the impropriety occurs after the bid has been awarded, a contractor may file a protest based no later than 7 days after the basis for the protest is known or should have been known, whichever is earlier. Regardless of the stage of the procurement process, a contractor must act immediately if any impropriety has been discovered.

Further, a contractor must file an appeal with the Maryland Board of Contract Appeals (the “Board”) within 30 days from receipt of any ruling, including a denial of a bid protest or a denial of any claim. The Board recently dismissed a contractor’s appeal for a claim of over $390,000.00 in unpaid change orders because of an untimely notice of appeal. The contractor filed a notice of appeal via electronic mail to the Board of the Contract Appeals, which is impermissible. Despite claims by the contractor that a notice of appeal had been filed via regular mail, the fact that the Board could not verify receipt within 30 days of the final decision resulted in dismissal of the appeal. As a result, the failure to meet the requisite deadline cost the contractor its opportunity to be heard on the substantive issues of the case.

Timing to file bid protests and any appeals with the Maryland Court of Contract Appeals are stringent. If you intend to file either, be sure to contact an attorney as soon as possible so you do not waive any of your rights. If you have any additional questions, please contact Michael W. Siri at siri@bowie-jensen.com or at 410-583-2400.

UPDATED - Maryland's New Prevailing Wage Law

Maryland’s new living wage law becomes effective October 1, 2007. The law applies to all contractors or subcontractors that have state contracts for services valued at $100,000 or more. Nonprofits are exempt. Employers with fewer than 10 employees are also exempt on contracts that do not exceed $500,000.

All contractors covered by the new legislation must post a notice advising their employees of their rights under the new law and the name, address, and telephone number for the Commissioner of Labor and Industry. Failure to post the notice can result in a civil penalty not exceeding $50 per violation.

The law requires government contractors and subcontractors to pay their employees either $11.30 or $8.50 per hour, depending on where the work is performed. In Montgomery, Prince George's, Howard, Anne Arundel and Baltimore Counties as well as Baltimore City (“Tier 1 areas”), employees must be paid an hourly rate of at least $11.30. Employees performing work in all other parts of the state (on government contracts) must be paid an hourly rate of at least $8.50.

If a government contractor provides health insurance to its employees, it may be entitled to a credit against the legally required wage for the hourly cost of its share of the employee’s health insurance premium. Specifically, if a Tier I employer pays $1 per hour for an employee's health insurance, it is entitled to a $1-per-hour credit toward the payment of the mandated $11.30 hourly wage.

Violation of the new law is a misdemeanor punishable by a fine not exceeding $500 or imprisonment not exceeding one year or both. In addition, employers may be required to pay restitution to affected employees along with liquidated damages to the State in the amount of $20 per day for each employee paid in violation of the law. The law also gives employees a private right of action to recover the difference between the amount they were paid and the amount they should have been paid under the law.

Maryland’s new living wage does not apply to state-funded construction projects where workers are paid the prevailing wage for each locality. In addition, it only applies to employees who work at least 13 consecutive weeks on a particular government contract and is at least 18 years old.

For more information contact J. Nicole Windsor at Windsor@bowie-jensen.com or 410-583-2400. Ms. Windsor concentrates her practice on employment law.

Protecting Yourself from an Insolvent Sub-Contractor’s Bonding Company

In a recent 1st Circuit case, a surety bonding company sued a contractor and its principals for indemnification when the surety bonding company paid claims on a bond issued to the contractor for a project involving construction of a parking lot. Although the contractor had required its subcontractor, which performed the work on the parking lot, to provide a bond for the benefit of the contractor, the bonding company that provided the subcontractor’s bond became insolvent and could not pay the contractor’s claim. This triggered protections under the Maine Insurance Guarantee Act, an Act designed to protect policy holders from insolvent insurers, and the contractor was not liable for indemnification to its surety bonding company because the contractor was an obligee on the bond issued to the subcontractor by the insolvent bonding company.

The 1st Circuit held, however, that the principals of the contractor, who had not been named as individual obligees on the subcontractor’s bond, but who had agreed individually to indemnify the surety bonding company, were still liable to the contractor’s bonding company for indemnification. The court noted that the contractor and its principals could have avoided liability under the Maine Insurance Guaranty Association Act if the individual principals had been named as obligees on the subcontractor’s bond.

In Maryland, a similar insurance guarantee act exists - the Maryland Property and Casualty Insurance Guarantee Act - and a similar situation could arise. Therefore, a contractor should make sure that any bonds, provided by a sub-contractor for the benefit of the contractor, name as obligees the contractor, as well as all individuals liable under the contractor’s indemnification agreement with its surety bonding company. If individuals liable under an indemnification agreement are not named as obligees and the sub-contractor’s bonding company becomes insolvent, the Maryland Property and Casualty Insurance Guarantee Act will offer no protections for those individuals because they would not be considered protected third party obligees on the bond.

In sum, a contractor should be certain that the contractor and any individuals liable on an indemnification agreement with the contractor’s surety bonding company are named as obligees on a sub-contractor’s bond issued for the contractor’s benefit.

For more information, please contact Vincent M. Guida, Jr. at 410-583-2400.

Prevailing Wages on Government Contracts

Certain federal laws require contractors and subcontractors to pay some employees wages in excess of minimum wage. Most notably, the Davis-Bacon Act (“DBA”) and the McNamara-O'Hara Service Contract Act (“SCA”) impose wage requirements related to nearly all construction and service contracts with the U.S. or District of Columbia governments.

The DBA requires contractors to pay laborers and mechanics prevailing wages as determined and published by the Department of Labor (“DOL”). The Act applies to contracts with the U.S. government and District of Columbia for the construction, alteration, or repair of public buildings or public works (provided that the contract sum is at least $2,000). The term “prevailing wages” means the locally prevailing wages and fringe benefits paid on similar projects as determined by the DOL. In addition to the Act, there are approximately 60 other statutes whose intent is to assist construction projects through grants, loans, loan guarantees, and insurance include prevailing wage requirements. These "related Acts" involve construction in transportation, housing, air and water pollution reduction, and health.

The SCA applies to every contract entered into by the United States or the District of Columbia, the principal purpose of which is to furnish services to the United States through the use of service employees. The definition of "service employee" includes any employee engaged in performing services on a covered contract (other than a bona fide executive, administrative, or professional employee who meets the exemption criteria).

The SCA requires contractors and subcontractors performing services on covered federal or District of Columbia contracts in excess of $2,500 to pay service employees in various classes no less than the monetary wage rates and to furnish fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor's collective bargaining agreement. Safety and health standards also apply to such contracts.

The DOL maintains a website, http://www.wdol.gov/, that provides a single location to use in obtaining appropriate SCA and DBA wage determinations for each official contract action.

For more information contact J. Nicole Windsor at Windsor@bowie-jensen.com or 410-583-2400. Ms. Windsor concentrates her practice on employment law.