Posts Tagged ‘subcontractor’

PA Workplace Misclassification Act

In March 2016 the Pennsylvania Department of Labor and Industry produced a white paper report on the “Administration and Enforcement of the Construction Workplace Misclassification Act in 2015.” Under the Act, the DLI investigates and penalizes construction companies that misclassify employees as independent contractors.

Here’s a quick snapshot from the Report:

pic for 4-29-16 blog

But in 2013, under similar circumstances, the Pennsylvania Commonwealth Court held that the general contractor’s payments to the subcontractor did not afford protection, and the Prompt Payment Act did not shield the contractor and the surety from liability. Berks Products Corp. v. Arch Ins. Co., 72 A.3d 315.

Those are the cases of Workplace Misclassification that the Bureau of Labor Law Compliance has investigated in the past five years. Notably, there were more investigations in 2015 than the previous four years combined. Also, the investigations netted $217,450 in penalties, which is a 1,612% increase from the 2014 penalty amount. In fact, the Bureau only collected $12,700 in penalties in 2014. Point being, DLI is emphasizing the enforcement of this Act, and all construction companies should take a very close look at how they supply manpower to their projects.

The Workplace Misclassification Act applies to all construction companies working on all types of projects—public, private, residential, or commercial. The Act sets forth a checklist of considerations that are scrutinized when determining if a laborer on a project is actually an independent contractor. If the laborer is misclassified as an independent contractor—when in fact he is really an employee—DLI will levy a fine. In some instances, DLI has the authority to seek criminal prosecutions.

To comply with the Act, every independent contractor must have a written contract. Further, every laborer should be analyzed with consideration of the numerous other requirements under the Act. DLI generally receives its leads from (1) complaints filed by laborers; (2) findings made during construction site visits; and (3) referrals from other government agencies, particularly the Office of Unemployment Compensation Tax Services. To avoid penalties, it is best to review your laborers and seek legal advice as necessary.

What’s Happening Now . . .

11.2 % Increase

  • Increase in construction spending for first two months of year, comparing 2015 to 2016.
  • Construction spending for January & February 2015 was $141.3 billion.
  • Construction spending for January & February 2016 was $157.1 billion.

Source: U.S. Census Bureau News, February 2016 Construction at $1,144.0 Billion Annual Rate, U.S. Dept. of Commerce (Apr. 1, 2016).

Newsletter written by Jeffrey C. Bright, Esq. , an attorney licensed in Pennsylvania and Maryland. For more information, contact an attorney at Harmon & Davies, P.C.


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Legal Punchlist November 2015

Legal Punchlist Newsletter (Nov. 2015)

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The U.S. District Court for the Eastern District of Virginia recently held that a laborer hired by a subcontractor cannot sue the construction project’s general contractor for same-sex harassment. In the lawsuit, Matthew Allen alleged that an unidentified man from another company made sexual advances towards him. After reporting the incident to the general contractor, D.A. Foster Company, Inc., the man who allegedly made the advances was ejected from the worksite. Allen alleged, however, that he was continually harassed by coworkers who had heard about the incident. Allen filed suit against the general contractor, and Barnes Excavating, the subcontractor, alleging, among other counts, discrimination, hostile work environment, retaliation, and retaliatory termination in violation of Title VII of the Civil Rights Act.

The court held that claims against an employer under Title VII may only be brought by an employee, not an independent contractor, against an employer. To determine whether the claimant is an employee or independent contractor, courts weigh several factors of the conventional master-servant relationship. While no one factor is determinative, several factors are considered, including: the workers skill required; who provides the tools required; location of the work; duration of the relationship; the hiring party’s right to assign additional projects to the hired party; the extent of the hired party’s discretion over working time and hours; the method of payment; and whether the work is part of the regular business activities of the hiring party.

In the case at hand, D.A. Foster was the general contractor who subcontracted excavating work to Barnes. Barnes directly hired Allen as a laborer and assigned Allen to work on the project supervised by D.A. Foster. Although D.A. Foster provided some guidance and training for the project, and the company does regularly perform work in this industry, the level of control over Allen did not rise to the extent necessary to establish an employee-employer relationship. The court held that, with respect to D.A. Foster, Allen was an independent contractor. Most tools were provided to Allen by Barnes Excavating, not Foster. Allen worked under the direct supervision of and was paid by Barnes. The court found that Allen could not reasonably believe that he was an employee of D.A. Foster. Thus, the court granted summary judgment in favor of D.A. Foster.

While in the case at hand the general contractor was not subject to liability on the claim, employers still need to be weary of the current trend to try towards expanding the definition of who is the “employer.” Particular attention should continue to be paid to the IRS independent contractor test and, in particular, the most recent movement of the NLRB to redefine joint-employer status. The consequences of misclassifying an employee as an independent contractor can be significant. The case should also serve as a reminder to all contractors that they need to take steps to make sure that their jobsites are free from any kind of harassment.

This article is authored by attorney Lori L. Buntman and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.


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The Pennsylvania Field Guide for Construction Contract Review

There is no substitute for having a lawyer review your contract.  In fact, I encourage all contractors to have lawyers review their construction contracts.  However, I’ve practiced construction law long enough to know that doesn’t always happen.  Understanding this reality, I’ve prepared a general field guide of sorts to assist contractors with reviewing construction contracts when they “go it alone” against my recommendation.  I also note that this guide does not touch upon every contractual issue.  For example, I don’t elaborate upon insurance requirements or indemnification provisions, both of which require close review.

Here’s what contractors should look for:

 Scope of Work-Get the Wrinkles Ironed Out:   Examine whether the scope of work in your proposal and the scope of work as defined in the contract match-up.  Typically, the scope of work in the contract will be broader.  For example, the scope of work in the contract may require the contractor to perform the work set forth in the proposal and any necessary work “implied” by the drawings. If there is a conflict between what is set forth in your proposal and the scope of work in the contract, seek to eliminate the conflict.  Otherwise, the discrepancy could come back to haunt you.

Flow Down or Pass Through Clauses-Don’t Ignore ThisContractors/subcontractors need to understand what flow down/pass through clauses are.  Such clauses incorporate the terms of Owner/General Contractor agreement and bind the subcontractor to the general contractor to the same terms that the general contractor is bound to the owner.  Sometimes a prime contract requires general contractors to insert such a clause into all subcontracts.  Wherever such a clause appears, it is important for subcontractors to review the prime contract in addition to the subcontract to fully understand the terms that the subcontractor is agreeing to.  If there are conflicts between the prime contract and the subcontract, contractors need to seek clarity regarding which provisions control.  By failing to review the general contract, a subcontractor risks agreeing to terms that it knows nothing about, including termination clauses, claims processing clauses, indemnification clauses, and dispute resolution clauses.  I routinely advise my clients to insist on receiving a copy of the general contract and reviewing it before signing any subcontract that contains a flow down/pass through clause.

Pay-if Paid Clauses-We’re Talking Money Out of Your PocketSubcontractors should learn to spot pay-if-paid clauses under which a subcontractor bears the risk of nonpayment and to know the difference between this clause and a pay-when-paid clause, which is merely a timing mechanism.  Pay-when-paid clauses do not condition payments to a subcontractor on the contractor’s receipt of payments from the owner while pay-if-paid clauses make the contractor’s receipt of payment from the owner a strict condition precedent to the subcontractor receiving payment.  In other words, pay-if-paid clauses shift the risk of nonpayment from the contractor to the subcontractor.  If words such as “condition,” “if and only if,” or “unless and until” are used to describe when payment to a subcontractor is due then chances are it’s a pay-if-paid clause.  If you are concerned that the subcontract could be interpreted as a pay-if-paid clause, I strongly recommend consulting with a lawyer, because the analysis is a bit more complex than I’ve described.  However, if you are seeing the words described above, that should serve as a warning that the contract may contain a pay-if-paid clause. 

While I typically advise clients against agreeing to payment terms that use the words “condition,” “if and only if,” or “unless and until,” the reality is that many of my clients frequently agree to these terms because they don’t have the bargaining power to insist on their removal and they want or need the work.  In such circumstances, subcontractors can lessen the potential impact of a pay-if-paid clause by adding a pay-if-paid clause into their subcontracts.  It’s a pass-the-buck tactic, and I’ve actually had clients object to doing this out of a sense of fairness, but this is the age we live in.

No Damages for Delay Clauses-Typically EnforceableTypically such clauses state that time shall be the only compensation for delay.  Although such clauses are typically enforced, Pennsylvania law refuses to enforce such clauses where: (1) there is an affirmative or positive interference by the owner with the contractor’s work; or (2) there is a failure on the part of the owner to act on some essential manner necessary to the prosecution of the work. 

Change Order Clauses-The Stumbling Block of Many ContractorsIf a contractor does not follow the process to perfect and preserve its claim in accordance with the contract, the contractor may have a difficult time receiving compensation.  Therefore it is vital that the contractor carefully examine and understand the contractual change order process. 

One common issue that arises with respect to change orders is that the contract specifies that only a certain person or persons can approve change orders.  During the project, contractors frequently receive approval for a change order from a field person, but not the person specified in the contract.  Having received such approval many contractors/subcontractors complete the change order work only to have the owner/contractor refuse to pay for the change order work because the change order work was technically not approved by the individual specified in the contract.  While we highly encourage our subcontractors to strictly follow the contractual change order process, our clients tell us that sometimes it is not feasible to engage in such a process because doing so will delay or disrupt the work.  In such cases, we encourage our clients to document change order approvals as much as possible, especially via emails.  If you get in a jam like this, you might want to consult with your attorney about what the email should say because I would word emails differently depending on the circumstances.

If a dispute arises, having a string of emails showing how the change orders arose, is better than relying solely upon your word that someone working for the owner/contractor orally approved the change order.  Again, if that happened, send an email confirming it, e.g., “per the [insert person’s name]’s direction, Company XYZ was directed to do [insert extra work], which work is outside the scope of work of Company XYZ’s contract.  Accordingly, such work constitutes change order work for which a Change Order will be submitted.”

Furthermore, don’t jeopardize your chances of being compensated for change order work by failing to give the required written notification for claims for compensation within the certain time period specified in the contract.  Failure to provide such notice can result in a waiver of your claim.   Finally, know how claims must be submitted and include all required information in your claims submissions.

Differing Site Conditions/Changed Conditions Clause-Exploring the Great Unknown:    This clause comes into play when a contractor discovers site conditions that were neither known, anticipated, nor disclosed to the contractor.  Typically, there are two types of changed conditions:  (1) Type I conditions are conditions that materially differ from conditions that were disclosed to the contractor in the contract documents at the time of bidding; and (2) Type 2 are the conditions that are “unusual, unknown, and unanticipated.” 

Keep in mind that if the contract also contains a site investigation clause, in order for the contractor to benefit from the differing site conditions clause to the maximum extent possible, the contractor should conduct a reasonable investigation of the site and review all relevant data.

Watch out for contracts that attempt to shift the risk of bearing the cost of differing conditions to the contractor by requiring the contractor to disclaim any claim for extras related to a differing site condition and watch out for contracts that don’t address differing site conditions.

Dispute Resolution Clauses-Who Is the RefereeKnow what is required.  For example, do you have to seek mediation before arbitration or litigation?  Know where you are allowed to litigate or arbitrate.  Also, pay attention to whether the owner/contractor has the sole discretion to elect to pursue the matter through arbitration or litigation. 

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.


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A New York City contractor recently agreed to pay nearly $1 million dollars to settle a prevailing wage investigation into complaints that one of its subcontractors on a public housing project underpaid 31 masonry workers and bricklayers.  The contractor also agreed to pay $100,000 in back wages to four of its laborers, plus $50,000 in costs and fees to the state.

The New York Attorney General’s prevailing wage investigation revealed that for over a year, the contractor’s subcontractor paid masonry workers and bricklayers between $16 to $22 dollars per hour, with no overtime premium, for work that should have been paid at a prevailing wage rate of between $53.55 to  $72.44, plus supplemental benefits.  The investigation further revealed two instances where the contractor failed to classify or list employees in its certified wage payroll reports and two other instances where employees were misclassified at pay rates below what they should have been paid.

The New York Attorney General’s office said that in addition to requiring government contractors to pay wages and benefits comparable to local norms for a given trade, federal and state prevailing wage laws also hold general contractors responsible for underpayments by their subcontractors.

The settlement mandated that the contractor’s contracts with any subcontractor on public or private construction projects state that compliance with labor laws is a material term of the contract and that the subcontractor may be terminated if it does not fix labor law violations brought to its attention.

According to New York’s Attorney General, his office will hold contractors accountable for their prevailing wage violations and for their lax oversight of subcontractor’s practices.

Lesson:  Contractors need to pay attention to their subcontractor’s payment practices.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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A Quick Reference Guide to Pennsylvania Mechanics’ Lien Laws

Disclaimer:  This fact sheet pertains only to the Mechanics’ Lien Law of Pennsylvania.  Other states, including Maryland, New Jersey, and Delaware have dramatically different Mechanics’ Lien Laws.

What is a mechanics’ lien?  A security interest in the title to a property for the benefit of those who have supplied labor or materials to the property.  In other words, it’s a tool to help contractors, subcontractors, and suppliers ensure payment. 

Obviously subs/suppliers care about mechanics’ lien rights, but what about GCs?  Most contracts with owners require GCs to defend and bond off mechanics’ lien claims.  Therefore, on a basic level you need to know: (1) what mechanics’ liens are; (2) how to avoid them (get a list of all subs/suppliers and make sure everyone is getting paid for the labor and material they supply); (3) how to defend against them (did the claimant follow all the procedures for perfecting a lien within the allotted time?); and (4) how to bond them off.

On rare occasions, a GC might need to file a mechanics’ lien claim to secure its right to payment.  In this event, you need to know how to preserve your claim.

Who can file a lien? General contractors, subcontractors and sub-subcontractors (i.e. contractors and suppliers who have a direct contract with subcontractors).  No one below the level of a sub-subcontractor has lien rights.

When to file a lien?  Subcontractors (but not general contractors) must provide the owner with what is referred to as a formal notice of intent to lien.  This formal written notice must be provided to the owner at least 30 days before the lien claim is filed by a subcontractor or supplier.

All claimants must file their lien claim within six months of the claimant’s last date of work.

How do I determine the last date of work? Time limits to file a claim or serve a formal notice of intent to lien are based on the date of completion of the claimant’s work, not from the date of completion of the entire project.  The work is complete when the claimant has performed the last of the labor or delivered the last of the materials required by the terms of the claimant’s contract.  [Note: claimants cannot tack on additional material or labor to a contract for the purpose of extending the time to file a claim.  It is prudent to count deadlines from the last substantial new work.  Warranty work and repair work may not extend the filing deadlines.]

What must a subcontractor include in its formal notice of intent to lien?

  1. Name of claimant
  2. Name of the person with whom claimant contracted;
  3. The amount claimed;
  4. The general nature and character of the labor or materials furnished;
  5. The date of completion of claimant’s work; and
  6. A description of the property. 


What happens after a lien claim is filed?  Within one month after the initial claim filing, written notice of the filing of the lien must be served on the owner, typically by the sheriff.  Thereafter, the claimant has 20 days to serve an affidavit of service with the court.

After the above steps have been taken, no further action is immediately necessary.  However, within two years of filing the claim, the claimant must file a complaint to enforce its claim.

Does a mechanics’ lien require any pre-filing before construction? No.

Can a public project be liened? No.  Liens are not allowed for labor or material furnished for a purely public purpose.

What is the minimum amount for a lien claim?  $500.00.

Can lien rights be waived?  Yes, but certain procedures need to be followed as Pennsylvania has declared lien waivers to be void as against public policy.

On all projects, a subcontractor can waive its rights to file a lien only if the general contractor provides a bond guaranteeing payment to subcontractors, i.e. a payment bond.  As long as a payment bond is in place, a general contractor may file a stipulation against liens with the prothonotary’s office in the county where the project is located.  To be effective, a stipulation against liens should be filed: (1) prior to commencement of work on the ground; (2) within 10 days after execution of the principal contract; or (3) not less than 10 days before the contract with the subcontractor.  Moreover, the lien stip must be indexed in the name of the general contractor and owner of the property.  Although the GC does not have to provide its subs/suppliers with a copy of the Stipulation Against Liens, it is a good practice to do so because this way the GC ensures that its subs/suppliers actually receive notice.

A subcontractor can also waive lien rights in exchange for progress payments received on a project.

Is there a way to remove a lien?  Yes.  A lien against the property may be removed by petitioning the court to discharge the lien by depositing the amount of the lien with the court or by posting a bond in double the amount of the lien.

Is payment a defense to a mechanics’ lien claim?    There is no automatic “defense of payment” for the owner.  The owner can be required to pay for a project twice.  But the owner can protect itself by recording a copy of the general contract or stipulation in the prothonotary’s office before commencing construction.  This will limit each subcontractor to a pro-rata share of money still owed to the general contractor.

Why might a mechanics’ lien be preferred over filing a breach of contract complaint in court?  A mechanics’ lien creates a better security interest.  In the event of the owner’s bankruptcy, the automatic stay of the United States Bankruptcy Code does not stay perfection of the mechanics’ lien claim for new construction.  This is because a lien claim “relates back” to the time when work visibly commenced on the project.  Moreover a mechanics’ lien has priority over all liens on a property (except an acquisition or construction loan).  Additionally, lien rights survive any foreclosure or sale of property (except foreclosure on an acquisition or construction loan).

Accordingly, if the owner’s finances appear to be precarious and a contractor is not getting paid, a mechanics’ lien might be the best mechanism for protecting the contractor.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.


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  1. What is a performance bond?

Generally, a performance bond assures an obligee (usually an Owner/General Contractor) that if the principal fails to perform, the surety will discharge the principal’s obligations either through performance or by paying the obligee the excess cost of performance.  Performance bonds differ from payment bonds (sometimes called labor and materials bonds), which are put in place to ensure that laborers, subcontractors, and suppliers are paid.

By way of example, where a performance bond is in place, a general contractor may file a performance bond claim with a surety when a subcontractor defaults.  It isn’t enough for a party to simply assert a claim under a performance bond.  Rather, a claiming party must heed the requirements of the performance bond.  Particularly, a claiming party needs to pay attention to the deadline for initiating litigation to enforce a bond claim or else the claim may be lost.


  1. The Timeliness of a performance bond claim. 

As a general rule in Pennsylvania, the statute of limitations for asserting an action on a performance bond or payment bond is one yearSee 42 Pa.Cons.Stat. §5523(3).  However, under Pennsylvania law, parties to a contract may contractually agree to shorten a statute of limitations period.  In Kedar Corp. v. American Contractors Indemnity Company, a case decided just last month by the Eastern District of Pennsylvania, the time period for filing a performance bond had been contractually shortened to six months.  [Of note: six months is considered a permissibly reasonable contractual limitations period under Pennsylvania law, but if one is dealing with a performance bond issued on a federal project, a six month duration within which to file a bond claim most likely would not be upheld under federal law.]


  1. The doctrine of fraudulent concealment based on a theory of estoppel may save an otherwise untimely bond claim.  

In the Kedar Corp. case, the surety defended the contractor’s performance bond action by arguing that it was untimely because the action had not been filed within six months after the subcontractor defaulted.  The surety moved for summary judgment (an early dismissal of the case) on this basis.  In response, the contractor successfully argued that its claim was not untimely by asserting a doctrine developed in Pennsylvania known as the doctrine of fraudulent concealment based on a theory of estoppel (the “Doctrine”).

The Doctrine tolls (a/k/a suspends) the statute of limitations where, through fraud or concealment, the defendant causes the plaintiff to relax his vigilance or deviate from the right inquiry; some sort of affirmative act of concealment that would divert or mislead the plaintiff from discovering the injury is required.   In other words, if the defendant was merely silent, the Doctrine won’t apply.  The Pennsylvania Supreme Court has recognized that any act which tends to mislead the plaintiff, while parties are dealing on friendly terms, to avoid litigation, will be held to be evidence of a waiver of the contractual limitations period.

In Kedar Corp., the contactor successfully defeated summary judgment by arguing that a course of dealings existed between the contractor and the surety whereby the contractor was led to believe that the performance bond’s six month limitations period would not be enforced by the surety.  There, the contractor notified the surety of the subcontractor’s default in September 2009 and made an unequivocal demand for the surety to honor its obligations under the performance bond.  After November 2009, little, if any, communication took place between the contractor and surety.  In May 2010 the contractor completed the work on the project.  By October 2010, the surety and contractor resumed their discussions regarding the contractor’s demand for payment on the performance bond with no indication by the surety that it intended to assert that the contractor’s claim was untimely.  In July 2011, the surety averred that the contractor’s claim was submitted more than six month’s after the sub’s default and, therefore, untimely.

The court found that although the record did not show that the surety expressly waived enforcement of the limitations period or definitely acknowledged liability in this case, its conduct was such as to reasonably convey that the limitation period would not be strictly enforced as the parties pursued settlement opportunities.  The court acknowledged the lack of documented communications between the parties for a period of time, but recognized that: (1) a demand for payment had already been made; (2) the parties had begun a course of discussions regarding that demand; (3) surety was aware of the plaintiff’s ongoing work on the project; (4) the surety never indicated that contractor should cease work on the project; and (5) no definitive payment on the performance bond could be made until the plaintiff completed the project in May 2010. Moreover, the Court noted that the surety promptly resumed negotiations with contractor in October 2010, which was directly contrary to any intent to enforce a time bar.


  1. Conclusion

 If you are an owner or contractor and a surety tries telling you that your bond claim is untimely, don’t tuck your tail and run if the surety led you to believe that your claim could be worked out to the point where you felt like pursuing litigation to recover on the bond claim was unnecessary.  However, under such circumstances, it is strongly recommended that you consult with an attorney before your filing deadline expires.  The attorneys at Harmon & Davies are available to assist with bond claims.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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