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What happens when a general contractor files for bankruptcy?

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If you are a subcontractor or owner on a project where the general contractor has declared bankruptcy, you should act quickly to ensure, to the extent possible, that your rights are protected.

First, whether you are a subcontractor or owner, examine your contract and realize that termination due to bankruptcy is likely unavailable. Once an individual or corporation files bankruptcy, a provision called the “automatic stay” comes into play, which allows the individual or corporation filing bankruptcy to avoid creditors’ demands while organizing for the coming proceedings. Thus, generally, a contract with a general contractor cannot be terminated unless the bankruptcy court lifts the automatic stay.

Second, if you are a subcontractor, you should contact the surety (if the project is bonded) or the owner (if it is a private, unbonded project) to make sure that the owner or surety has a formal written claim from you that shows what has been paid, what invoices were submitted but not yet paid, and the balance to finish. Make sure that the owner or surety, as the case may be, is also aware of any submitted changed orders that may be going through the approval process. Note that lien rights are unaffected by a general contractor’s bankruptcy, as liens are against the owner and not the general contractor.

Third, if you are a subcontractor, your automatic reaction may be to stop or slow work. However, simply pulling from the job may not be the best option in all circumstances. General contractors can still enforce their rights for performance under the subcontract, and you do not want to be dealing with a breach claim at the same time as trying to receive payment for work performed but unpaid. However, if a general contractor decides to enforce his or her rights to performance, the general contractor will have to pay you for that work. To ensure payment, joint checks from the owner may need to be negotiated. In either event, slowing work while working with the general contractor, owner, or surety may be the best option to preserve all rights and make sure you do not incur additional costs or obligations.

Fourth, if you are an owner and the project is bonded with a performance or payment bond, you will want to make sure you are in close communication with the bonding company. Additionally, you will want to make sure the surety is paying claims so you are not faced with lien claims by unpaid subcontractors or suppliers.

In conclusion, the key point is to communicate up and down the chain. Owners need to know what claims are outstanding and who was working on the projects so they can protect their rights and move forward with the project. Similarly, and for the same reasons, subcontractors need to let owners and the surety, if applicable, know that they have outstanding unpaid bills and receive guidance on how to proceed. While this article addresses certain considerations after bankruptcy is declared, owners and subcontractors should consider contacting legal counsel to make sure they are protected while moving the project forward and to protect their rights in the bankruptcy proceedings.


Sam Newton portrait

If you are concerned about how this issue affects your business, contact Samuel D. Newton, who represents and counsels clients in Oklahoma and Texas on construction law issues, including contract review and negotiation, bond and lien claims, and other construction matters. Sam can be reached at 405.606.4711 or at sdnewton@phillipsmurrah.com.

Click here to view Sam’s Attorney Profile page.

 

Newton presents on preemptive business practices for ASA-OK

ASA LogoPhillips Murrah Attorney Samuel D. Newton gave the last presentation for a Fall educational series on Nov. 2 for members of the American Subcontractors Association of Oklahoma.

Newton’s presentation was entitled “Protect and Preserve: Considerations and Implications of Business Practices on your Company’s Future” and follows presentations given by Attorneys A. Michelle Campney and David A. Walls in September and October, respectively.

“In the discussion, we covered maintaining corporate best practices to preserve the corporate shield, non-disclosure and confidentiality agreements, discussed the implications of the Oklahoma Uniform Trade Secrets Act and how it works with confidentiality and non-disclosure agreements and how they all apply to protecting your business,” Newton said. “I switched to discussion of preserving businesses either through succession planning or selling the business.

“With succession planning, I discussed the importance of seeing the truth of the situation and not the idea (ie, who really is most apt to take over your business) and how to implement such changes, like through a buy-sell agreement or the organizational documents. I then gave a basic overview of a sale and the initial documents owners may be confronted with (letters of intent, confidentiality agreements) as well as the importance of preparing for due diligence.”

Newton, Campney and Walls will continue the series and each give presentations to ASA-OK in the Spring.

For more information about ASA, visit their website here.

Phillips Murrah attorneys present for Construction Financial Management Association

Attorney David Walls addresses construction industry professionals at September's CFMA meeting.

Attorney David Walls addresses construction industry professionals at September’s CFMA meeting.

David A. Walls, Construction Law Attorney, and Byrona J. Maule, Phillips Murrah Director and Employment Law Attorney, addressed construction industry professionals at a September meeting for Construction Financial Management Association.

Walls presented an update regarding American Institute of Architect changes to standard form construction industry contracts. Maule followed, speaking on the impact of Oklahoma’s medical marijuana laws on employment law.

Maule’s presentation focused on drug and alcohol testing, policy impacts on drug and alcohol testing and anti-discrimination, and preemption issues under the Controlled Substance Act, the Drug Free Workplace Act and the Federal Motor Carrier Safety Act.

As a result, she said, testing procedures need to be updated or changes, policies will have to be updated, and training will be needed for managers.

For more information about the Oklahoma chapter of CFMA, please click here.

Attorneys prepare educational presentations on construction law

ASA LogoPhillips Murrah Attorneys A. Michelle Campney, Samuel D. Newton, and David A. Walls explore facets of construction law as a part of an educational series for members of the American Subcontractors Association of Oklahoma.

The team has planned six presentations, three in the fall and three in the spring, with the first topic covering the “Do’s and Don’ts of Bidding” on Sept. 7. Subsequent presentations by Walls and Newton are planned for Oct. 5 and Nov. 2, respectively.

“In the past, we have spoken about different provisions in the typical construction contact,” Campney said. “The presentations are new material on different topics important to subcontractors and construction.”

For more information about ASA, visit their website here.

An alternative to federal funding

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on August 2, 2018.


Sam Newton

Samuel D. Newton is an attorney practicing in Oil and Gas, Construction, and Healthcare Law.

By Phillips Murrah Attorney Samuel D. Newton

Efforts made this year to move forward with a federal infrastructure bill have stalled. Now, with the state budget strained and federal dollars unlikely, the legislature, counties, and municipalities will likely need to look at alternative methods to deliver needed infrastructure enhancements and repairs without additional tax funding.

Public-private partnerships provide a viable alternative. Using a P3 structure, a state will turn over one of its essential services, such as highway construction, to a private developer.

When people think of P3s, they generally imagine large-scale infrastructure projects. However, bundling smaller projects has shown promise that allows benefits to flow to smaller projects or rural communities. For example, Pennsylvania awarded a multi-year contract for a developer to finance, design, construct, and maintain 558 bridges that otherwise would have had to wait until the budget constraints allowed for repair. P3s have also been used on other public works projects such as wastewater treatment centers, schools and hospitals.

In 2017, the Oklahoma Public and Private Facilities and Infrastructure Act was enacted, authorizing a governmental entity to enter into P3s. While the act appears to be more focused on utilizing the P3 scheme for non-highway infrastructure projects – it exempts the Oklahoma Department of Transportation and the Oklahoma Turnpike Authority – it does allow for ODOT and the OTA to utilize its general scheme for awarding road infrastructure projects. Most importantly, it provides a ready framework for identification and implementation by examining, among other factors, the project’s ability to improve public operational efficiencies, promote public safety or attract private investment in the state and minimize governmental liabilities.

However, P3s aren’t a panacea. One of the oft-cited concerns of using P3s is turning over an essential government service to a private corporation that isn’t subject to the same oversight and accountability standards as a public agency. This concern is addressed in the contractual documents surrounding the P3 project, with the government generally having significant oversight rights. The agency that would generally be responsible and the partnership committee established under the act will need to engage in significant analysis prior to deciding on a P3, and both the parties have to be able to work together in the spirit of the project with awareness as to its respective rights and responsibilities.

Samuel D. Newton is an attorney with the law firm of Phillips Murrah, practicing in construction, oil and gas, and health care law.

Q&A: Medical Marijuana and the Construction Industry

Sam Newton

Samuel D. Newton is an attorney practicing in Construction, Health Care, and Oil and Gas Law.

In this article, attorney Samuel D. Newton discusses procedures Oklahoma construction industry employers need to develop with the legalization of medical marijuana.

With the passage of State Question 788 and the decision by the Governor not to call a special session, many of the ancillary questions regarding the impact of medical marijuana will remain unanswered until the next legislative session in 2019. But, in jobs where safety is key, such as construction, employers will need to develop procedures now to ensure that they are complying with safety rules and regulations as well as not stepping on an employee’s rights.

Q: How does the passage of State Question 788, medical marijuana, affect my safe work site and drug free policies?

A: The provisions of State Question 788 provide that an employer can take action against an employee who uses or possesses medical marijuana at the place of employment or during work hours. Thus, a contractor’s safe work site policy that prohibits the use of drugs or alcohol on the job is allowable under the law. However, unless an employer can show an imminent risk of losing a monetary or licensing benefit under federal law or regulation, an employer cannot refuse to hire, terminate, or otherwise discriminate against an employee simply because the employee has a medical marijuana card.

Q: If one of my employees with a medical marijuana card is “high” on the job can I still terminate him or her?

A: Maybe. Contractors will need to carefully differentiate between being impaired at work (ie, under the influence of marijuana and its attendant effects) and testing positive for marijuana although the employee may not be impaired. Unlike alcohol, scientific research has not been able to put a specific number on the THC levels (the compound in marijuana that makes one “high”) that impairs a person’s ability to drive or work safely—and THC may appear in a blood or urine screen well after it is consumed. So, unless the legislature choses a legal level of THC, the key will likely be whether, based on an objective observation, the employee was able to safely function.

Q: My company is working on federal projects, how can I mesh the state law requirements and federal law requirements?

A: Federal law still considers marijuana to be a Schedule I Narcotic under the Controlled Substances Act. Thus it is against federal law to consume or possess marijuana, medical or not. Additionally, most, if not all, federal projects are subject to the federal Drug Free Workplace Act which requires employers to have a drug free work place policy prohibiting the unlawful possession or use of drugs in the workplace and make an ongoing good faith effort to maintain a drug free workplace. These policies include requiring the employee to report to the employer and the employer to report to the contracting agency any workplace criminal drug conviction. However, the distinctions are fine and the interplay between federal law and the imminent risk of losing federal contracts or licensing has yet to be defined by Oklahoma or Federal courts and not by the federal or state government.

Phillips Murrah awarded for continued construction law service

A. Michelle Campney, Phillips Murrah Construction Law Attorney, accepts ASA-OK's Service Provider of the Year award on behalf of the Firm.

A. Michelle Campney, Phillips Murrah Construction Law Attorney, accepts ASA-OK’s Service Provider of the Year award on behalf of the Firm.

Phillips Murrah law firm has been recognized once again for its commitment to construction law in Oklahoma.

The American Subcontractors Association of Oklahoma awarded the Firm with the 2018 Service Provider of the Year award at their annual Awards Gala on June 8 at Grand Casino Resort in Shawnee.

“This is the second time that the Firm has won this award,” said David A. Walls, Phillips Murrah Construction Law Attorney. “The award recognizes the Firm’s efforts and time spent conducting education seminars for the members of ASA-OK on various topics important to the construction industry, such as good business practices, legal developments in construction law and business structure.”

ASA-OK is the primary industry trade group representing subcontractors in the construction industry in Oklahoma and is the state chapter of the national ASA organization.

“ASA-OK members choose the top Service Provider from a group of 19 member companies, and Phillips Murrah received the most votes,” said Tami Hasselwander, ASA-OK Executive Director. “ASA-OK’s membership voted for the company they believe demonstrates knowledge and expertise of our industry and who has supported our organization by providing consulting advice and educational training to our members.”

A. Michelle Campney, Phillips Murrah Construction Law Attorney, accepted the award on behalf of the Firm and gave a presentation to the association’s members.

“Michelle and I have led several seminars and group discussions during the last year for this group, which is the largest subcontractor and supplier construction organization in Oklahoma,” Walls said. “This is a part of our broad construction practice, which also includes representing general contractors, developers and insurance companies who underwrite construction companies.”

Attorneys in Phillips Murrah’s Construction Law Practice Group have more than 20 years experience in the industry and represent and advise clients in every stage of the construction process. Learn more about our Construction Law representation here.

Avoiding construction contract litigation

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on February 15, 2018.


Samuel D. Newton is an attorney practicing in Oil and Gas, Construction, and Health Care Law.

By Phillips Murrah Attorney Samuel D. Newton

Oklahoma heavy civil and oil and gas construction will likely increase in the near term due to increased activity in the oil and gas fields and President Trump’s proposed $1.5 trillion investment in infrastructure.

Often seen as a heavily litigious industry, construction projects don’t have to end in litigation if contracts are carefully drafted and parties enforce the provisions during the course of the project. Here are some points to consider when drafting and/or reviewing.

Know your deadlines. Most construction contracts impose liquidated damages in the event of delay. While substantial/final completion is likely non-negotiable, (sub)contractors should raise, and try to draft around, any potential milestone concerns during negotiations to prevent the assessment of liquidated damages or exercise of the contract default provisions. Additionally, all parties need to be aware of the timeline for making claims or submitting change orders. Both are often waived under the contract if the proponent of the claim/change doesn’t submit the appropriate notice to the appropriate person in the requisite period of time.

Know the payment scheme. Payments are also often a litigious issue in construction. All parties should be aware of lien and, if applicable, bond claim rights, as they vary based on who the contracting entity is and where the project is located. Additionally, “pay if paid” and “pay when paid” clauses should not be confused. “Pay if paid” clauses shift the risk for nonpayment to lower tiers if payment is not received from higher tiers. “Pay when paid” generally only acts to give the (sub)contractor time to pay after it receives payment. Case law suggests that “pay if paid” clauses would need to be explicit to be enforceable in Oklahoma, though no cases directly examine the clause.

Know your contracting partners. Conduct due diligence to ensure that those you are contracting with – at each tier – have the skills and financial stability to complete the project. Consider including (or modifying) clauses that allow suspension and/or termination of the contract, if the representations and warranties you relied on when deciding to enter into the contract were untrue or grossly overstated.

Know your contract. Finally, don’t simply sign the contract and put it in a drawer. All parties should know the provisions and educate their employees about provisions relevant to their scope of work.

Samuel D. Newton practices construction and oil & gas law at Phillips Murrah P.C.

‘Prequalifying’ Primes Pays Off for Subcontractors

By David A. Walls & A. Michelle Campney.

From The Contractor’s Compass, an educational journal of the Foundation of the American Subcontractors Association.

Published Q2 2012 – originally posted Jun 18, 2012

IN THIS ARTICLE . . .

  • Research primes’ reputations.
  • Research project liens and litigation records.
  • Investigate financial strength of prime and project financing.

Imagine that you need to fill a high-level position in your business. This position is one that will have a visible and immediate effect on your bottom line. Perhaps it is your chief estimator, COO or head of sales. Because you need this person right away, you decide not to ask any applicants for a resume or do any kind of background check. You are going to hire solely on the basis of the fact that you really need to fill the position. Sound crazy?

It is. Yet, many businesses follow this same plan when submitting bids or soliciting work from owners, developers and prime contractors — all of whom will affect their business to at least the same extent as the aforementioned employees. This is likely traceable to the difficult economic environment for the construction industry. When work is scarce, it is hard to be too picky about work. Regardless, there are some basic steps any subcontractor can and should take to assess, or “prequalify,” a prime contractor before taking on any new project.

Reputation

A great deal of information can and should be learned about a prime contractor’s business reputation before bidding a new project. This is especially true if the subcontractor has not worked for the prime contractor previously, or the project is in a state where the subcontractor has not previously worked. The Internet, and particularly social networking sites, can be a wealth of information about a prime contractor. Many businesses will list their projects and customers on their Web sites, and a few quick phone calls can provide valuable information regarding how those projects turned out. Many Web sites will also list the trade groups that a prime contractor belongs to, and these can be verified and investigated. This same type of reputation investigation should be done for the project owner and the project architect. Remember that much information can be discovered simply be speaking to other subcontractors. Questions that should be asked include:

  • What type of work is the prime contractor known for in the industry?
  • What current or recently completed projects has the prime contractor done?
  • What subcontract agreement does the prime contractor use, and can it be negotiated?
  • Can a copy of the subcontract be obtained in advance of bidding?
  • Will the prime contractor work with the subcontractors when the inevitable project challenges arise?

[Editor’s note: ASA-chapter Business Practice Interchanges are a great forum for getting objective information about prospective customers.]

Project Liens and Legal Filings

Subcontractors also should do a thorough background check on the public legal records pertaining to a prospective prime contractor partner. Many states and counties make these records available on the Internet, but at a minimum they can be checked via a quick trip to the office of the records clerk.

Typically, county records can be checked to determine if subcontractors and suppliers have filed liens on projects involving the prospective prime contractor. If a foreclosure action has resulted from the lien, it may mean that, for some reason, payment issues were serious and difficult to resolve. It is important to keep in mind that liens can be filed even when a project is going smoothly, but their existence likely warrants further inquiry.

Subcontractors can check court filings to see if the prime contractor has been involved in litigation, and if so, the nature of the lawsuits that have been filed. Unfortunately, today’s society is litigious, so the mere existence of litigation does not, in and of itself, reveal much about any business. But a large volume of litigation, or a large volume relative to the number of projects undertaken, may warrant further investigation. Moreover, lawsuit records will show the names of other businesses that can be contacted to obtain additional information.

Financial Status

A subcontractor should attempt to determine the financial liquidity of the prime contractor. Examining Uniform Commercial Code filings against the prime contractor in the county clerk’s office may provide some information in this regard. If there are many filings, most of the prime contractor’s assets may be encumbered for financing. It is even more important to investigate the financial status of the owner and the project. If the project is not fully funded, there is a real possibility the project will terminate and payment in full on the subcontract will not be made. Is the project financed with public, private or a combination of public and private funding? Publicly financed projects need scrutiny, as government agencies struggle with tight or reduced, and sometimes forecasted, funding. For example, some public projects may be funded in phases and have only partial appropriations before work commences. If the project is privately financed, the project likely has to meet requirements of the financial institution. A project financed by a public-private partnership may have project financing in place, but could lack payment assurances for subcontractors, as liens cannot be filed on public property and a payment bond may not be required. The subcontractor also should scrutinize the financial health of the industry of which the owner/ developer is a part, such as oil and gas, technology, or health care.

10 Commandments of Getting Paid

“Prequalifying” the prime contractor will help ensure that the project goes smoothly and that the subcontractor will receive full payment in a timely fashion. Follow these 10 commandments of getting paid:

 

  1. Know your customer.
  2. Know your lien rights.
  3. Know your bond rights.
  4. Calendar all deadlines to file claims.
  5. Deal with payment issues immediately.
  6. Get change orders and extra work in writing.
  7. Obtain the legal description for the property or project.
  8. Understand your backcharge rights.
  9. Know what happens if you don’t get paid.
  10. Know whether the contract has an arbitration clause or venue provision.

Taking the time up-front to protect your company will save you time and money in the end.

David A. Walls and Michelle Campney are attorneys with Phillips Murrah P.C., Oklahoma City, Okla. Walls can be reached at (405) 235-4100 or dawalls@phillipsmurrah .com. Campney can be reached at (405) 235- 4100 or amcampney@phillipsmurrah.com.


Read original article HERE.

Related Link: The Foundation of the American Subcontractors Association (FASA)

Construction Attorney David A. Walls sourced in Oklahoman story about fire at luxury apartments

By Diana Baldwin | The Oklahoman

[ JULY 22, 2010 – EDMOND, OK ] – A 149-unit luxury apartment complex in northwest Edmond will be rebuilt, an attorney for the developers said this week.

Enclave Apartments, near Covell Road and Kelly Avenue, was destroyed by fire Oct. 19 just weeks before the complex was scheduled to be completed.

In April 2008, Shannon Sorrells, with Indianapolis-based SC Bodner Co. Inc., said the overall cost of the Enclave project was $14.5 million.

Edmond firefighters said this was the largest fire in the history of Edmond and also was the single largest loss. The fire burned for several days.

Burned rubble has been cleared from the 12.65 acres at 1201 Covell Village Drive. The property is platted as Water’s Edge Addition. David A. Walls, attorney for the owners of Enclave Apartments Covell Village, LLC, said there is no timetable for when construction will begin.

“We are working with the city of Edmond to make any tweaks in the original design,” Walls said.

Plans are to construct the same building again with minor changes, he said.

Planning commissioners this week recommended the owners be given a five-year extension on their site plan to complete the project. City council members will make a final decision Aug. 9. The project was originally approved in 2006. City Planner Bob Schiermeyer said the owners have a building permit, and if there had not been a fire, there would have been no reason for them to obtain city approval.

Planning commissioners also approved an extension for the 160-acre Covell Village Planned Unit Development. Lowe’s Home Improvement, 3 Girls Photography, Prime Bank, Walgreens and an office building for dentist Damon Johnson are already in business there. Still undeveloped are 36.85 acres.

Planning Commissioner Lydia Lee voted against both of the extensions. She said the city was creating multiple design statements for the 160-acre project that was originally approved under one planned unit development district.

Schiermeyer said it was necessary because there are different owners of sections of the property.