In Nutt v. Andrew L. Ritter, in his official capacity as Executive Director of the North Carolina Board of Examiners for Engineers and Surveyors, et al, 2023 WL 9067799 (E.D.N.C. December 20, 2023), the Court found that an individual not licensed as an engineer did not run afoul of North Carolina’s prohibition against the unlicensed practice of engineering by preparing expert reports and providing expert testimony in an underlying lawsuit involving allegations of negligence in the management of stormwater. Left unaddressed and unresolved was whether a trial court could exclude the testimony of an unlicensed expert witness under the Rules of Evidence.
Filed under: Recent Construction Legislation and Cases
In the Summer of 2014, the North Carolina Legislature enacted vast changes to the process by which prospective bidders on public construction contracts are prequalified. N.C. Sess. Laws 2014-42, amending N.C. Gen. Stat. § 143-135.8. Prequalification is defined as “[a] process of evaluating and determining whether potential bidders have the skill, judgment, integrity, sufficient financial resources, and ability necessary to the faithful performance of a contract for construction or repair work.”
Prior to this legislation, § 143-138.5 read simply: “Bidders may be prequalified for any public construction project.” With only those words as their guide, public owners have been prequalifying bidders for years. Some have challenged public owners’ prequalification determinations as shrouded in secrecy or too subjective to be of any value. To add some consistency and transparency to the prequalification process, the Legislature established specific requirements and conditions for the continued use of prequalification in the award of public construction projects.
With this legislation, there are now specific criteria, conditions and limitations on prequalification. For contracts awarded on or after October 1, 2014, the public owner may use a prequalification process only if all of the following conditions are met:
- The public owner is using single-prime, multi-prime or dual bidding under N.C. Gen. Stat. § 143-128(a1). Note: prequalification may not be used for the qualification-based selection of architects or engineers, design-builders, or construction managers at risk.
- The public owner adopts an “objective prequalification policy” applicable to all construction work prior to the advertisement of the contract for which the owner intends to prequalify bidders.
- The public owner adopts the assessment tool and criteria for that specific project, which must include the prequalification scoring values and minimum required score for prequalification on that project.
To qualify as an “objective prequalification policy,” the following criteria must be met:
- Be uniform, consistent, and transparent in its application to all bidders.
- Allow all bidders who meet the prequalification criteria to be prequalified to bid on the construction project.
- Be rationally related to construction work.
- Not require that the bidder to have previously been awarded a construction project by the public owner.
- Permit bidders to submit history or experience with projects of similar size, scope, or complexity.
- Clearly state the assessment process of the criteria to be used.
- Establish a process for a denied bidder to protest to the public owner denial of prequalification. The process must be completed prior to the opening of bids and allow sufficient time for a bidder subsequently prequalified pursuant to a protest to submit a bid on the contract for which the bidder is subsequently prequalified.
- Outline a process by which the basis for denial of prequalification will be communicated in writing, upon request, to a bidder who is denied prequalification.
If the public owner opts to prequalify bidders for a particular project, all bids submitted by bidders who are not prequalified “shall be deemed nonresponsive.” This rule does not, however, apply to a bidder who was initially denied prequalification and subsequently prequalified following a successful protest to the public owner pursuant to the required protest policy.
There is often confusion as to what it means to be a “prequalified bidder.” On public projects let pursuant to competitive bidding, the award is to be made to the lowest responsive, responsible bidder. Without prequalification, a public owner determines upon opening of the bids which of the bidders are responsible bidders. By utilizing a prequalification procedure, the public owner determines which bidders are responsible prior to receiving and opening the bids. At bid opening, the public owner still must determine which bid is the lowest responsive bid.
Public owners throughout the state have long used prequalification processes on certain construction projects. There was no uniformity of application or interpretation of the criteria and standards by which certain prospective bidders were successfully prequalified and others rejected. More often than not there was no mechanism for one to challenge the rejection.
The intent of this legislation is to legislate into the competitive bidding process greater objectivity and consistency at least with regard to the prequalification of bidders. For without being prequalified where such was a prerequisite to bidding, bidders were being closed out (unfairly according to some) of even the opportunity to submit a bid.
Filed under: Recent Construction Legislation and Cases
It is not unusual to see a “no-damages-for-delay” provision in a construction contract. But what happens if the contract also includes a separate provision entitling one party to an equitable adjustment for cost increases incurred after the project’s scheduled completion date? In Southern Seeding Service, Inc. v. W.C. English, Inc., 719 S.E.2d 211 (N.C. App. 2011), the Court of Appeals held that the subcontractor was entitled to the equitable adjustment, and that the equitable adjustment did not constitute “delay damages.”
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On remand and following a bench trial, the trial court found that the subcontractor was entitled to an equitable adjustment to the subcontract to compensate the subcontractor for its actual costs incurred after the scheduled completion date. The trial court also ruled that the contractor had unreasonably refused to resolve the matter. The court then awarded the subcontractor attorneys’ fees under the North Carolina Little Miller Act. The North Carolina Court of Appeals affirmed and held that the subcontractor was entitled to the compensatory damages awarded by the trial court as well as the attorneys’ fees awarded. Southern Seeding Service, Inc. v. W.C. English, Inc., 735 S.E.2d 829 (N.C. App. 2012).
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Filed under: Recent Construction Legislation and Cases
For the first time in nearly twenty years, the North Carolina Legislature has made significant changes to
North Carolina’s Lien and Bond Law. Whether you are an owner, a general contractor, a subcontractor, a
supplier, or a design professional, you will likely be affected by Senate Bill 42 (SB42) and House Bill 1052
(HB1052). Each law contains new notice requirements to preserve legal rights: SB42 requires the use of and
notice to a “lien agent” on private projects, while HB1052 requires lower tier claimants on public projects to serve
the general contractor with a “Notice of Public Subcontract.”
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SB42: THE “LIEN AGENT”
SB42 (which becomes effective April 1, 2013) was enacted in an attempt to fix the so-called “hidden” lien
problem on private construction projects. This problem results from North Carolina’s lien statute that allows a
Claim of Lien on Real Property to be filed up to 120 days after the date on which the general contractor last
furnished labor or materials to the property being improved. Once filed, the Claim of Lien on Real Property
relates back and becomes effective as of the date labor or materials were first furnished to the project. Although
“hidden” liens most often arise during the construction of residential subdivisions when homes are sold shortly
after construction is completed, the statute as enacted applies to all private construction projects valued at
$30,000 or more.
Consider the following scenario: A general contractor last performs work on a new house on July 1.
Based on the 120-day rule, the contractor has until October 29 to file a Claim of Lien on Real Property. If the
home sale closes on September 1, there is no document filed in the public records that would alert a title
searcher to the existence of a potential, unfiled lien claim. Even though the property is sold to an innocent
purchaser, a lien that is timely filed by the contractor after the closing will still attach to the property.
SB42 addresses this situation through the use of “lien agents.” The lien agent is designated by the owner
of the property to receive notices from potential lien claimants. Contractors and subcontractors that want to
preserve their right to file a lien against the real property should complete the new statutory form entitled “Notice
to Lien Agent” and ensure that the lien agent receives the Notice within fifteen days (15) of their first furnishing
labor or materials to the project. Although potential lien claimants may still have an opportunity under limited
circumstances to assert a lien against the real property if they fail to serve the Notice to Lien Agent, the better
practice would be to get into the habit of serving the Notice at the start of each new project.
To facilitate the service of a Notice to Lien Agent, the owner of the property is required to provide the lien
agent’s contact information within seven (7) days of a request by any potential lien claimant for such information.
Similarly, contractors and subcontractors are required to provide a written notice with the lien agent’s contact
information within three (3) days of contracting with any subcontractor or supplier. The easiest way to comply
with this new requirement is to include the lien agent’s contact information within the subcontract itself. A
contractor or subcontractor that fails to provide the lien agent’s information may become liable for actual
damages incurred by a lower tier subcontractor that was entitled to receive such information. The contractor
is also required to provide the lien agent’s contact information to the inspection department when applying for
the building permit.
HB1052: Notice of Public Subcontract
Just as SB42 was enacted to address “hidden” liens on private projects, the focus of HB1052 was to
address the “double payment” issue often faced by general contractors on public projects. The double payment
may occur when the general contractor (the principal on a payment bond) pays its first-tier subcontractor in full,
but the first-tier subcontractor fails to pay in full all second-tier subcontractors or suppliers, or when a secondtier
subcontractor fails to pay in full all third-tier subcontractors or suppliers. The general contractor is then
exposed to double payment when the unpaid lower tier claimants make claims on the general contractor’s
payment bond. Because these lower tier claimants have 120 days from the date of their last furnishing of labor
or materials within which to serve their Notice of Claim on Payment Bond, the general contractor may not know
of the claims until long after the first-tier subcontractor has been paid in full.
HB1052 (which becomes effective January 1, 2013) requires the lower tier claimants to serve the general
contractor with a “Notice of Public Subcontract.” This Notice is separate from and in addition to the Notice of
Claim on Payment Bond (that must be given to the contractor within 120 days of the claimant’s last furnishing of
labor or materials). The Notice of Public Subcontract provides notice to the general contractor that the lower tier
subcontractor/supplier will be furnishing or has furnished labor or materials to the bonded project. First-tier
subcontractors/suppliers are not required to serve a Notice of Public Subcontract because the general contractor
is already aware of parties with whom it has contracted.
Although there is no statutory deadline to serve the Notice of Public Subcontract, the claimant’s bond claim
will only “capture” payment for labor or materials provided within seventy-five (75) days prior to the claimant’s
service of the Notice and thereafter. This type of provision is known as the “look back” period for the claim.
While a lower tier subcontractor/supplier has 120 days from its date of last furnishing to give the contractor its
Notice of Claim on Payment Bond, the claimant may fail to “capture” a portion of its claim if it waits too long to
serve its Notice of Public Subcontract. A lower tier subcontractor/supplier that is required to serve a Notice of
Public Subcontract should do so as soon as it enters into its subcontract to furnish labor or materials to the
project.
HB1052 also addresses a problem subcontractors of all tiers often face in obtaining information about the
payment bonds. The new law requires that the general contractor provide to each subcontractor it engages a
“Contractor’s Project Statement.” The Contractor’s Project Statement provides the subcontractor with the
relevant information to serve a Notice of Public Subcontract and, if necessary, a Notice of Claim on Payment
Bond. The requirement to provide the Contractor’s Project Statement flows down to lower tier subcontractors:
every subcontractor, at any level, must provide the Contractor’s Project Statement to each subcontractor it
engages. There is a severe penalty for failing to provide the Contractor’s Project Statement. Any party that fails
to provide the statement to a subcontractor is prohibited from enforcing the subcontract until the statement is
provided.
Summary
SB42 and HB1052 include significant new requirements for all participants on both private and public
construction projects in North Carolina. Many of your current forms and procedures will need to be changed to
satisfy the requirements of the new laws. If you fail to comply with these new requirements, you may lose
valuable rights to make or defend lien or bond claims.
By: Drew Chapin, CGS Greensboro Office
This publication is intended for informational purposes only.
July 2012
Filed under: Recent Construction Legislation and Cases
Sometimes in litigation, even if you win, you lose. Even if you have a great case and
recover all the money you’re owed, you’re usually still out of pocket for your attorneys’ fees.
Historically, North Carolina law has not allowed the winning party in a lawsuit or in an arbitration
to recover its attorneys’ fees from the other party — except in very limited cases. This has
been true even though your contract may have contained a provision which seemingly created
the right to recover attorneys’ fees.
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Earlier this year, however, the North Carolina Legislature passed a law that makes it
easier to be awarded attorneys’ fees in litigation or arbitration — as long as you meet certain
requirements. The law, known as Senate Bill 414, allows the parties to a “business contract” to
agree to a “loser pays the winner’s attorneys’ fees” provision in their contract. The Legislature
called this a “reciprocal attorneys’ fees” provision. In order for an attorneys’ fee provision to be
enforceable under the new law, the provision must apply equally to both of the parties to the
contact and each party must sign the agreement by hand. For example, a provision in a contract
that only allows one party to recover its attorneys’ fees, as you might see in a subcontract
between a general contractor and a first-tier subcontractor, will not be enforceable.
Having a “reciprocal attorneys’ fees” provision in your contract does not mean the losing
party is automatically required to pay the other party’s attorneys’ fees. The decision whether to
award the winning party its attorneys’ fees is made by the judge (or arbitrator). The amount of
fees awarded, if any, is in the judge’s discretion and is based on “all relevant facts and circumstances”
before the judge. The attorneys’ fees awarded cannot be greater than the money
damages awarded to the winning party. For example, a party cannot be awarded $10,000 in
damages but $15,000 in attorneys’ fees.
Proponents of the new law have argued that it will make it easier to settle cases. Now,
not only will a party who breaches a construction contract be forced to pay the other side what
it is owed, the breaching party could also face the prospect of having to pay the other side’s
attorneys’ fees too. The thought of having to cut large checks following a trial for both sets of
attorneys may make the breaching party more open to sitting down at the negotiating table.
Although it is not clear how judges (and arbitrators) will apply this law, one thing is clear
— parties in commercial litigation or arbitration stand a better chance of recovering their attorneys’
fees if they have a well-drafted “reciprocal attorneys’ fees” provision in their contracts.
Now is the time to review and update your contract and subcontract forms to make sure they
comply with Senate Bill 414 to take advantage of the protection offered by this new law.
This law became effective on October 1, 2011, and applies only to contracts entered into
on or after that date.
This publication is intended for informational purposes only.
October 2011
Filed under: Recent Construction Legislation and Cases
