In 2011, we served as counsel to the DIP Lender for a publicly-traded oil and gas production company in the Eastern District of Texas.  In that case, the DIP Lender ultimately submitted a plan of reorganization that was confirmed by the Court.  The Plan resulted in the restructuring which resulted in taking a public company private.  The reorganized company operates oil and gas properties in Eastern and South Texas.

In addition, we also successfully reorganized the Town of Muldrow in a Chapter 9 proceeding in the United States Bankruptcy Court for the Eastern District of Oklahoma.  In that case, we achieved a negotiated multi-million dollar agreement for the use of water that allowed funding of substantial improvements to the town’s waste water treatment facilities.

We also achieved successful reorganization of a trucking company and warehouse operator in the United States Bankruptcy Court for the Western District of Arkansas, which Plan was confirmed in January 2011.  The Plan utilized a Creditors Trust for post-confirmation implementation, for which the Firm is co-counsel.

During 2011 the firm served as counsel for the Hale-Halsell Company Creditors Trust, established pursuant to a Plan Mr. McDonald and Mr. Kutmas submitted for the Official Unsecured Creditors Committee, which was confirmed.  Distributions to holders of general unsecured claims of approximately 125% of allowed unsecured claims, based upon successful Trust recoveries.

Since 2008, lawyers of this firm have represented the interest of oil and gas producers in the nationally significant case of In re SemCrude, L.P. pending in the United States Bankruptcy Court for Delaware and in related matters before the Third Circuit Court of Appeals and the federal courts in Texas and bankruptcy court in New Mexico.  The SemCrude Case involved claims of oil and gas producers against their production purchaser, SemCrude.  Our lawyers represented clients’ interests in pursuit of secured lien status for oil and gas production sold in Oklahoma, Texas, Kansas, New Mexico, and Wyoming and took a leading role in development and presentation of such rights.

Members of the firm bring experience in business reorganization and creditor representation which is unparalleled in Oklahoma.  Mr. McDonald served as Practice Group Chair of the Creditor Rights and Bankruptcy Practice Group at Doerner, Saunders, Daniel & Anderson, LLP from formation of the Group until his departure from the firm on December 31, 2010.  During a 35 year career, Mr. McDonald has served creditors, debtors, secured creditors, and lenders in a broad range of industries, including:

• Automotive Manufacturing (tier one)
• Aviation Cases of Major Airlines
• Grocery Retail
• Wholesale Distribution
• Oil & Gas Business, including
  • Production
  • Transportation and Marketing
  • Petroleum Engineering
  • Natural Gas Gathering Systems
• Major Retail Chains
• Financial Services
• Commercial Real Estate
• Real Estate Development
• Manufacturing
• Medical Technology
• Steel Mill Production
• Transportation Industry

Mr. McDonald has developed expertise in Creditor Committee representation, beginning with the Osage Crude Oil Purchasing, Inc. case in 1985.  Committees represented by Mr. McDonald have submitted and gained confirmation of Committee Plans for the benefit of creditors in a number of Chapter 11 cases.  The Osage Crude case recovered nearly 100 cents on the dollar for Creditor Claims.  Recovery in this case resulted largely from successful litigation by the Committee, led by Mr. McDonald against one of Oklahoma’s major banking institutions on a preference/fraudulent transfer theory resulting in a multi-million dollar recovery.  Other representative matters in which Mr. McDonald successfully represented Creditors Committees include:

• Official Committee in the Sheffield Steel Case, a steel mini-mill in the United States Bankruptcy Court for the Northern District of Oklahoma
• Official Committee in the J.P. EMCO case in the United States Bankruptcy Court for the Western District of Oklahoma
• Official Committee in the Camrose Technologies, L.L.C. bankruptcy case in the United States Bankruptcy Court for the Western District of Oklahoma
• Official Committee as co-counsel in the Hale-Halsell Company case in the United States Bankruptcy Court for the Northern District of Oklahoma

Both the J.P. EMCO and Camrose cases involved Tier I automotive suppliers.  Under Mr. McDonald’s representation, the Creditors Committee prepared and confirmed Plans of Reorganization in both cases.  The Hale-Halsell Company involved a large wholesale grocery distribution network, in which the Committee filed and confirmed a Plan of Liquidation creating a Creditors Trust for administration of the Plan.  The Creditors Trust has provided substantial distributions to creditors, which at the present time has distributed approximately one hundred twenty-five percent (125%) to unsecured creditors.  The Firm has represented the Hale-Halsell Creditors Trust post-confirmation.  The Committee, led by Mr. McDonald and other lawyers of the firm, successfully undertook litigation against former Officers and Directors of the Company in the Hale-Halsell case, achieving a substantial settlement, and was active in the effective disposition of other assets in the case, including the sale of a leading grocery chain in Western Oklahoma.

Representation of a Creditors Committee requires a solid general business knowledge, and an understanding of the United States Bankruptcy Code and its various powers and provisions, coupled with strong litigation skills.  Mr. McDonald had the opportunity to see the challenges that face a Committee from the inside as a member of the Committee in the Piper Aircraft bankruptcy pending in the Middle District of Florida.  The successful reorganization of Piper included addressing novel and complex issues related to possible future injury claims, and the Committee, of which Mr. McDonald was a member worked with the Debtor and industry leaders in an effort that resulted in Piper’s successful reorganization.

Mr. McDonald has also served the Courts as a member of the Committees to revise Local Rules, as a Court appointed Special Master/Expert, and on occasion has assisted in mediation of matters at the Court’s request.

Fundamentals of Construction Contracts: Understanding the Issues
May 19, 2011
Tulsa, OK
Tulsa Marriott Southern Hills, 1902 East 71st Street

http://www.lorman.com/seminars/seminar_details.php?sku=384091

Register online: http://www.lorman.com
Call: 866-352-9539
Discount code: F2716129
Priority code: 15000

Mr. McDonald stated, “The Tulsa and Northwest Arkansas business communities are vitally connected and increased client needs in Arkansas prompted my decision to gain admittance. Our firm is presently representing clients in Arkansas, and we have just recently confirmed a plan in a Chapter 11 bankruptcy proceeding in the United States District Court for the Western District of Arkansas.”

Mr. McDonald noted that through these representations the firm has had an opportunity to work with a number of outstanding Arkansas lawyers, and his admittance will foster those relationships and signify the firm’s commitment to its clients in Arkansas.

Being admitted to the Arkansas bar has a special significance to Mr. McDonald because he grew up in Arkansas and received both his undergraduate and law degrees from the University of Arkansas.

In addition to Mr. McDonald, William H. Spitler of the firm is also admitted to the bar of the State of Arkansas.

McDonald, McCann & Metcalf, LLP, is a full service law firm dedicated to providing the highest quality representation. The firm serves a diverse mix of clients, including private individuals, small businesses, and large companies.

For additional information contact:
Gary M. McDonald, Partner
McDonald, McCann & Metcalf, LLP
(918) 430-3700
gmcdonald@mmmsk.com
http://www.mmmsk.com

Statutes of Limitation

People are typically more familiar with statutes of limitation. Generally speaking, every type of claim and every cause of action is subject to a statute of limitation. A statute of limitation sets a time limit after which a party cannot recover on a particular claim (technically, a statute of limitation does not extinguish a cause of action, it bars the remedy). The time period applicable to statutes of limitation vary from claim to claim. In Oklahoma, some examples that are common to construction claims are as follows:

Breach of written contract – 5 years
Breach of oral contract – 3 years
Foreclosure of M&M lien – 1 year
Negligence and other torts – 2 years

The time limit for bringing an action under the various statutes of limitation begins to expire when a cause of action accrues. Each type action has a number of elements. A cause of action does not accrue until all of those elements exist. Another way to conceptualize the limitation imposed by a statute of limitation is that it does not begin to expire until a party has a legal right to sue on a particular claim. However, it is not always clear when all the elements of a cause of action for a particular claim exist. Consequently, that question is often the subject of litigation as its answer determines whether litigation of the claim/cause of action can move forward. Once all the elements of a claim exist, the limitations period defined by the statute of limitations for that particular claim begins to expire. As a general rule, a claim can only be pursued to judgment if an action on the claim is commenced within the limitations period.

There are, however, exceptions to the general rule. Various things can happen that will extend or “toll” a limitations period. The “discovery rule”, for example, often operates to keep the limitations clock from starting to tick. The discovery rule tolls the limitations period until the injured party knows, or with reasonable diligence should have known, of an injury giving rise to a claim/cause of action. The discovery rule recognizes it would be unfair to start the limitations period running when a party does not know and has no way of knowing of the injury giving rise to a claim until years after the limitations period has expired. In the construction industry, the unknown injury is often a latent defect. On the other hand, if the discovery rule were to toll the ticking of the limitations period until the discovery of a latent defect, a contractor would forever be potentially exposed to defect claims. Enter the statute of repose.

Statutes of Repose

Like statutes of limitation, statutes of repose create a time bars to the right to assert claims. To address the unlimited duration a builder would be exposed to liability for a latent defect, Oklahoma has a statute of repose particular to injuries arising from construction defects. Oklahoma’s statue of repose provides that no tort action for: (1) any deficiency in the design, planning, supervision or observation of construction or construction of an improvement to real property; (2) injury to property, real or personal, arising out of any such deficiency; or (3) injury to the person or for wrongful death arising out of any such deficiency, can be brought against any person owning, leasing, or in possession of such an improvement or performing or furnishing the design, planning, supervision or observation of construction or construction of such an improvement more than ten years after substantial completion of such improvement. Note the event which triggers the statute of repose to begin running and the number of years it must run before claims are barred, can vary from state to state. The statute of repose in the state in which a project is built will control.

Statutes of repose operate differently from statutes of limitation in two important respects. First, a statute of repose begins to run from the occurrence of a particular event. With respect to Oklahoma’s construction statute of repose, that event is substantial completion of the project. In larger project a certificate of substantial completion is issued when substantial completion is achieved. A certificate of substantial completion will fix the date for the beginning of the running of the statute of repose. On smaller projects where no certificate of substantial completion is issued, substantial completion may be the subject of some debate. It is a good practice to have some acknowledgment by the owner that substantial completion has been achieved on every project for various reasons, including fixing a time for the start of the running of the statute of repose.

Second, unlike statutes of limitation, statutes of repose are not subject to tolling or extension. As one Oklahoma court put it, the statute of repose “sets an outer boundary beyond which no cause of action may arise.” Significantly, the discovery rule does not apply to the statute of repose. As such, once a statute of repose has run on a project, a builder (and others protected by the statute) is generally in the clear with respect to latent defect claims.

Both statutes of limitation and statutes of repose can be modified by contract. However, the only parties that will be bound by those modifications are the parties to the contract. For example, if an owner and builder modify the statute of repose in their contract, a third party who is injured by a construction defect would not be bound by that modification and would still be able to bring a claim against the builder for the injury suffered due to the construction defect, so long as that claim is brought within the ten year statute of repose.

Statutes of limitation and statutes of repose provide overlapping protections. The purpose of statutes of limitation are to force parties to bring claim they are aware of or should be aware of within a reasonable time. The purpose of a statute of repose is to provide an outside boundary at which time a builder (and others protected by the statute) can rest assured that no claim can be maintained against him for injuries suffered from defects in construction. Because Oklahoma’s statute of repose runs for ten years, it is recommended that builders keep their files on a project for ten years following substantial completion of a project.

William H. Spitler, Esq.

6. Give prompt notice of extra work or increased costs.

Anytime you believe you are about to perform work or incur costs that are beyond the scope of your contract, prompt notice of your intent to make a claim for additional compensation should be given to the party you expect to pay you for the work or the increased costs. This is true whether the extra work or increased costs result from some direction you’ve received from such party or is due to some unanticipated condition experienced on the project. This is also true whether the precise nature or extent of the work or changed condition is known at the time notice is given, or the amount to be sought in additional compensation can at that time be determined. Don’t wait; give notice.

7. Agree to and sign a change order before doing extra work.

Construction contracts frequently include provisions to the effect that “no cost incurred beyond the contract amount will be paid without a signed change order issued before the cost is incurred.” Despite this language, contractors frequently perform work and incur costs not contemplated in their contracts before receiving a signed change order or change directive. It is recommended that before performing work or incurring costs beyond the terms of your contract, you should obtain a signed change order that accounts for all additional compensation due for extra work and increased costs resulting from unanticipated conditions.

8. Give prompt notice of and make timely claims for time extensions.

In a climate of tight schedules and liquidated damages, time really is money on a construction project. Failing to be alert to delays and failing to give prompt notice when delays occur can be devastating to a contractor. As soon as it becomes apparent that your work is being delayed by conditions beyond your control, notice of the delay should be given and a request for time extension should be made. You should then be vigilant in having the time extension included in a signed change order.

9. Take meeting minutes and formally correct those taken by others.

All construction projects involve meetings at which many important discussions occur and decisions are made. Sometimes others will prepare and distribute minutes of those meetings. Sometimes those minutes will include a request that any errors or omissions in the minutes be identified within a specific time period. Whether an invitation to correct the minutes is extended or not, if the minutes you receive contain errors or are susceptible of being taken out of context or distorted later, you should notify the person distributing the minutes, and in the proper case the entire distribution list, of the errors, omissions, or unclear entries in the minutes, accompanied by the correct information. To be effective in this effort – both in the short term and in the long term – the contractor will need to take and preserve its own minutes of the meetings it attends. Include in those personal minutes a list of all attendees (even if only there for a short time), the topics discussed, the discussion that occurred and the decisions made, especially as they pertain to the contractor’s work or presence on the project.

10. Set up separate cost codes to track claims for increased cost or extra work.

The economic impact suffered by contractors due to unanticipated conditions or extra work will frequently be lost or virtually impossible to track because contractors fail to take steps to segregate and track those costs on a contemporaneous basis. This not only makes it difficult for the contractor to substantiate those costs in the claims process, but also provides the party that should be paying them less likely to agree to do so. Contractors should develop and be prepared to implement as necessary a protocol that establishes and uses a separate set of costs codes to track increased costs due to unanticipated conditions and extra work that may occur on a project. In this way a contractor can substantially reduce uncertainty in identifying costs incurred as a result of a particular claim event and greatly increase its chances of recovering those costs in the claims process.

11. Follow the dispute resolution procedure.

Many construction contracts include dispute resolution provisions. These provisions typically include a roadmap that dictates the process for perfecting resolution of the dispute under the contract. Many times the roadmap includes mediation as a prerequisite to arbitration or litigation. Virtually always the roadmap also includes time limits for service of notice of a claim, appeal of a decision, and other related actions. In some cases the roadmap will also stipulate that the architect’s decision is binding upon the contractor unless a demand for mediation, arbitration or litigation is made within a specified time. These are but a few of the pitfalls that await contractors unfamiliar with the terms of their contract or who simply fail to abide by them. Strict adherence to the requirements set out in the dispute resolution roadmap is strongly recommended.

Steven K. Metcalf

Retainage is a term of art in the construction industry. It consists of contract funds earned by a contractor for work performed on a project that the owner is entitled by contract to withhold from payments to the contractor until some specified time or event occurs to trigger the owner’s obligation to pay the contractor some or all of the retained funds. The amount of retainage the owner is entitled to retain is typically defined in the construction contract as a percentage of progress payments periodically due for completed work. Conditions to the contractor’s entitlement to payment of the retained funds are likewise typically defined in the contract, being usually tied to the occurrence of a particular event(s) (e.g. substantial completion) or stage of the project (e.g. when the work is 50% complete). Contractors constrained by such retainage provisions in their contract with the owner will typically reserve the right to withhold funds earned by their subcontractors in the same, or in some cases greater percentage as the owner is permitted to withhold funds from the contractor. In all cases, however, the purpose of retaining funds earned under the contract is to protect one contracting party from the inability or unwillingness of the other contracting party to remedy defective work, discharge liens filed against the property, or otherwise comply with its obligations under the contract.

On large construction projects retainage can result in millions of dollars earned for work performed (and frequently paid for by the contractor) being held by the owner for extended periods of time. Whether the project is large or small, retainage can be a major issue when significant funds are retained, delays in payment of retained funds occur, or cash-flow problems exist on a project. Even with the nearly universal problems prolonged retaining of earned funds causes for contractors, the contract terms dealing with retainage frequently receive little attention in construction contracts. While contracts nearly always stipulate the percentage of retainage to be withheld and the stage(s) in the project the retained funds will be paid, there is seldom anything describing the obligations the owner has with respect to the retained funds. For instance, typical retainage clauses seldom stipulate how the owner must hold the retained funds (interest bearing or not) and who gets benefit of interest earned on retained funds, under what circumstances the retained funds may be used by the owner short of termination for cause, what conditions must be met before the owner may apply retained funds in the event of a dispute without termination, what circumstances justify an owner’s use of retained funds to discharge a lien, or how the retained funds may be used if the owner identifies some deficiency in the work or other non-compliance by the contractor that does not result in termination of the contract.

Each of these issues merit consideration in the construction contract. After all, the funds being retained are funds already earned by the contractor and, in theory, the debts owed by the contractor with respect to the work performed have already been paid by the contractor.

Following are some frequently asked questions about retainage and our answers to them. Each of these issues should guide contractors in addressing retainage provisions in their contracts.

Who owns the retainage held by the owner? Courts have concluded that the contractor’s interest in retained funds is only a contingent interest. In other words, the extent to which the contractor is entitled to the retained funds is dependent upon the contractor fulfilling certain contingencies to payment. Those contingencies typically require the contractor’s full and satisfactory completion of its obligations under the contract. While there may be terms in the contract that require partial release of retained funds to the contractor at various milestones (e.g. 50% completion, substantial completion, etc.), the contingency to the contractor’s right to release of retained funds in those instances is full and satisfactory achievement of the stipulated milestone, just as full and satisfactory completion of all the contractor’s obligations under the contract is a predicate to the release of all remaining retained funds.

Is the contractor entitled to interest earned on the retained funds? Because the contractor only has a contingent interest in the retained funds, any interest earned on those funds does not inure to the benefit of the contractor unless the contract so stipulates. This is one area where simply modifying the construction contract to require the owner to hold retained funds in an interest bearing account with interest earned inuring to the benefit of the contractor, would prove beneficial to contractors and of little detriment to owners.

So what are the contractor’s rights with respect to retainage when the owner breaches the contract, thereby preventing the contractor from completing the project and fulfilling the contingency to the contractor’s absolute right to payment of the retainage earned for work performed? Under Oklahoma law, and unless the contract otherwise requires, if the owner prevents the contractor from completing the project through no fault of the contractor, whether by way of the owner’s breach or otherwise, the contractor is entitled to payment of the retainage held by the owner. E.V. Cox Construction Co. v. Brookline Associates, 1979 OK CIV APP 66, ¶ 17, 604 P.2d 867.

Does the owner have an obligation to pay retainage to the contractor if the contractor breaches the contract or otherwise fails to fulfill the contingency that entitles the contractor to receive retainage held by the owner? In Oklahoma, and unless the contract provides otherwise (and they very seldom do), failure of the contractor to satisfy the contingency that entitles the contractor to payment of retainage from the owner, negates the owner’s obligation to pay the retainage to the contractor until the owner determines whether the cost of completing the portion of the project left unperformed by the contractor exceeds the unpaid balance of the contract price, including the retained funds withheld. Mid-Continent Cas. v. First National Bank & Trust, 1975 OK 18, ¶¶ 27-35, 531 P.2d 1370.

Can retainage be treated by the owner as liquidated damages in the event the contractor breaches or otherwise fails to perform under the contract, and in so doing fails to fulfill the contingency entitling the contractor to payment of retainage from the owner? In Oklahoma, and unless the contract provides otherwise (and they very seldom do), the owner is entitled to retain only so much of the retainage withheld as is reasonably necessary to complete the unperformed portion of the contractor’s obligations under the contract. Mid-Continent Cas. v. First National Bank & Trust, 1975 OK 18, ¶¶ 27-35, 531 P.2d 1370; Professional Const. Consultants, Inc. v. State ex rel. Grimes, 1982 OK 61, ¶¶ 6-7 , 646 P.2d 1262.

What costs are reasonably necessary to complete the unperformed portion of the contractor’s obligations under the contract? What qualifies as “reasonable costs of completion” is a question of fact dictated by the particular circumstances and, frequently, the terms of the construction contract. The fact question is most often answered between the owner and contractor (or the contractor’s bankruptcy trustee or performance bond surety) through an accounting by the owner of the “reasonable costs” incurred and an evaluation of those “costs” by the contractor. To aid in this process, construction contracts often include language that permits the owner’s costs of completion to include, in addition to the actual cost of completion, the owner’s overhead incurred with respect to taking over the contractor’s work, attorneys fees and costs associated with completion, reallocation charges, storage charges, architectural and consultants fees, inspection fees, and other fees that would not have been a part of the contract sum had the contractor completed its obligations under the contract.

May an owner use retained funds to discharge lien claims or cure other deficiencies in the contractor’s work? The owner’s right to use retained funds is dependent on (a) a failure of the contractor to fulfill some obligation under the contract, (b) the contractor’s refusal or unreasonable delay in fulfilling its obligation under the contract, and (c) the owner’s good faith belief that the contractor will not fulfill the particular obligation within a reasonable time after becoming aware of the non-performance. In general terms, in order to use retained funds to remedy some failure by the contractor to fulfill some obligation under the contract, the owner must act in good faith and in a reasonable manner. For instance, if a contractor refuses to discharge a subcontractor lien asserted against the owner’s property on grounds the lien is invalid, the owner need not wait for a judicial determination of the validity of the lien before using retained funds to discharge the lien. United Parcel Service, Inc. v. Weben Industries, Inc., 794 F.2d 1005 (5th Cir. 1086). Similarly, an owner may withhold the payment of retained funds to cover a contractor’s underpayment of mandatory minimum wages, but may not withhold a large amount of retainage due to the contractor’s modest underpayment of wages. Appeal of BECO Corp., IBCA No. 1795 ,Nov. 16, 1984); Columbia Engineering Corp., IBCA No. 2351 (March 7, 1988).

Must the owner release a stipulated portion of retained funds at a milestone date stipulated in the contract? Construction contracts sometimes include terms whereby the owner is required to release a stipulated portion of the retainage at a particular stage or milestone of the project (e.g. substantial completion). The answer to this question is best answered by the terms of the subject construction contract. If the contract requires a stipulated reduction in retainage at a specified milestone, the owner is required to comply with those terms by releasing the stipulated amount unless the owner has some reasonable justification for its non-compliance. If there is no language in the contract requiring a stipulated reduction at substantial completion, the owner may be entitled to retain only so much of the retainage as may be reasonably necessary to complete the punch list and remaining items of work, and paying the balance to the contactor. State of Louisiana v. Laconco, Inc., 430 So.2d 1376 (La.App. 1983). Conversely, if the contract permits the owner to withhold some multiple of the projected costs of completing the project (including punch list), or permits the owner to withhold some or all of the retainage through the warranty period, such provisions of the contract are generally upheld by the courts barring a state or federal statute prohibiting such excessive or prolonged holding of retainage. Economy Forms Corp. v. City of Cedar Rapids, 340 N.W.2d 259 (Iowa 1983); Appeal of B.F. Carvin Construction Co., Inc., VABCA No. 3224 (September 18, 1991); The Baldwin Co. v. Rainey Construction Co., Inc., 280 Cal.Rptr. 499 (Cal.App. 1991).

Steven K. Metcalf

In the recent case of Purcell Investments v. Express Fire Protection, Division I of the Oklahoma Court of Appeals came to a different conclusion. In Purcell, the Court of Appeals concluded that the 75 day notice period begins to expire when the lien claimant last supplies material, services, labor, or equipment, rather than the date of first supply. Purcell is the first opportunity an Oklahoma Appellate Court has been called upon to interpret the pre-lien notice statute. We believe the Court’s conclusion is plainly inconsistent with the language of the pre-lien notice statute. Nevertheless, it now has precedential value in other disputes involving pre-lien notice and, some would say, is the law of the land on the subject of when pre-lien notice must be given in order to preserve a lien claim.

We believe the court has incorrectly interpreted the statute and an adjustment in the law will eventually result. Until then, we recommend that if pre-lien notice is required with respect to your lien claim, you continue to adhere to the advice we provided in our October 2009 newsletter. There is little risk in following the advice we provided in the October 2009 newsletter. On the other hand, there is considerable risk in complying with the pre-lien notice statute in reliance on the court’s conclusion expressed by Purcell.

Our advice (based on the plain language of the statute) is that pre-lien notice should be given in accordance with the pre-lien notice statute within 75 days after the first supply of material, services, labor, or equipment on a project for which you have not been paid. For instance, if you first supply material and labor on a project on May 15, 2010 and in each of the 6 months following, your first pre-lien notice deadline should be not later than July 29, 2010 (May 15 + 75 days). If, before July 29, 2010, you are paid for the material and labor furnished beginning on May 15, 2010, the next pre-lien notice deadline can be extended to 75 days after the first supply of material, services, labor, or equipment for which you have not been paid. In the alternative, and to bypass the need to continually track payments and deadlines, you may simply comply with the first pre-lien notice deadline (75 days after the first supply) because the pre-lien statute permits one pre-lien notice to satisfy the notice requirements for all later provided material, services, labor, or equipment on the particular project.

If any of this is unclear, or if you have questions, please contact the author, or Steve Metcalf, Chair of the Firm’s Construction Law Practice Group. He will be happy to speak with you in more detail about pre-lien notice and lien filing requirements generally or with respect to a particular set of circumstances.

William Hayden Spitler

PAWA proposes the most sweeping legislative change to the Occupational Safety and Health Act in its 40 year existence. Though many of the proposed revisions contained in PAWA have been in the works for several years, they have yet to be passed into law and there is some speculation that current attempts to gain passage will likewise be unsuccessful. However, the Department of Labor and OSHA have promised reform and have taken an active involvement in the passage of PAWA.

The most recent discussion draft of PAWA (March 9, 2010), contains provisions that would:

Increase protection for whistleblowers under OSH Act Section 11(c)

Require immediate abatement of serious, willful, or repeat violations (currently can be abated pending contest) unless affirmative determination allowing delay in abatement is made by OSHA

Substantially increase civil and criminal penalties for violations of the OSH Act

Expand criminal liability:
felony conviction of officers and directors and imprisonment for up to five (5) years (replacing 6 months for “employer”) for “knowing” (replacing “willful”) violation that contributes to serious bodily harm to an employee (currently the OSH Act specifies that only the “employer” may be held liable)
felony conviction of officers and directors and imprisonment for up to ten (10) years (replacing 6 months for “employer”) for “knowing” (replacing “willful”) violation that contributes to the death of an employee (currently the OSH Act specified that only the “employer” may be held liable)

Increase maximum civil penalties for violations:
for willful and repeat violations from $70,000/violation to $120,000/violation;
for willful and repeat violations that result in a fatality to $250,000/violation;
for serious violations from $7,000/violation to $12,000/violation;
for serious violations that result in a fatality to $50,000/violation;
for “other-than-serious” violations from $7,000/violation to $12,000/violation;
for failure to abate and failure to post violation, from $7,000/violation to $12,000/violation

Increase minimum civil penalties for violations:
for willful violations from $5,000/violation to $8,000/violation;
for willful or repeat violations that result in a fatality, to $50,000/violation.

Permit accrual of pre-final order interest on penalties beginning on the notice of contest date.

The House Education and Labor Committee will hold hearings on the bill on July 13, followed thereafter by Committee vote. It is projected that the bill could reach the floor of the House by the end of July.

PAWA is an extension of OSHA’s effort to increase enforcement, most recently illustrated by implementation of the Severe Violator Enforcement Program (SVEP), which became effective June 18, 2010. Announced in April 2010, the SVEP is designed to focus increased inspection and enforcement efforts on employers that continually disregard their legal obligations to protect their workers by willful, repeated, or failure-to-abate violations. The SVEP replaces OSHA’s Enhanced Enforcement Program.

Employers should pay close attention to the progress of the MSHA. The inclusion of PAWA will result in substantial revisions to the OSH Act that will seriously effect all employers, not just those interested in mine safety.

Steven K. Metcalf

If you didn’t know or weren’t sure, if you ever wondered and even if you haven’t, it is important to a contractor’s proper assessment of contract risk to understand the significance of the terms used in its contracts. This is especially true when the terms define the standard of performance the contractor will be called upon to meet. In this article we will tackle one of those terms – “performance in a workmanlike manner”.

Construction contracts frequently include terms that require performance in a “workmanlike manner”. Seldom, however, do those contracts define what performance “in a workmanlike manner” means. In Oklahoma, and in other states, the courts that have given meaning to the term. In other states the term is defined by statute. As we will see, whether the contract expressly includes the term or whether it does not, contractors would do well to understand its meaning because either way, it is the standard against which the contractor’s performance will be judged.

“Workmanlike manner” has been routinely used as the standard for performance in construction contracts for well over fifty years. Throughout that time the term has come to loosely mean the way work is customarily done by contractors in the community. As the law progressed, however, this rather loose definition has been refined and coupled with certain other requirements that, as a unit, have been adopted by courts as a covenant that is implied in every contract for construction (whether written therein or not). This implied covenant goes something like this: “By agreeing to perform work in a contract, a contractor promises (a) to use reasonable skill, care and diligence, (b) that the work will be performed in a workmanlike manner, and (c) that the work, when completed, will be reasonably fit for its intended use.” In the evolution of “workmanlike manner”, the term has gone from “work as customarily done by other contractors in the community”, to “that degree of skill, efficiency and knowledge which is possessed by those of ordinary skill, competency and standing in the particular trade or business for which the contractor is employed”. Though this “refined” standard leaves out the “in the community” piece, courts have traditionally included that parameter in the analysis without saying so in some cases, and without defining how the “community” is or should be determined in others.

In either case, it is not the “in the community” component that determines whether a contractor has performed in a “workmanlike manner”. Rather, it is the “degree of skill” component that is the most significant. A contractor can no longer simply measure its “degree of skill” against other contractors in the community because standards of performance “in the community” may very well be below the “ordinary skill, competency and standing in the particular trade or business for which the contractor is employed” standard that establishes the minimum for performance in a “workmanlike manner”. It is important to the success of all contractors to continually evaluate the quality of their performance. In that process, it is critical that the contractor understand the standard against which that evaluation must be made to comply with the requirements of the contract and the law.

Steven K. Metcalf

The risk manager argued that the knowledge-of-occurrence clause in the insurance policy resulted in a waiver of late notice. The insurance company took the position, however, that the duty to forward a summons and petition is a separate duty under the policy, and therefore the knowledge-of-occurrence clause did not apply. The court agreed with the insurer and the insurer was not required to defend or otherwise cover the insured loss giving rise to the lawsuit.

In addition to jeopardizing your company’s right to have its insurer defend and provide coverage for a covered loss, the failure to promptly respond to a lawsuit can lead to other devastating results. Under both federal and state law in Oklahoma, strict time limits apply to responding to a lawsuit. Unless a response is filed with the Court within the stipulated time, the opposing party may request and obtain a default judgment that it can then attempt to enforce without giving additional notice to the defaulting party. This risk can be substantially reduced or eliminated by promptly delivering a copy of the summons and petition to the company’s insurance company and attorney for further handling.

Steven K. Metcalf