American Bar Association

Forum on the Construction Industry

PLENARY 3

LEGISLATING CONSTRUCTION CONTRACT TERMS AND CONDITIONS

Christopher H. Little

Little Medeiros Kinder Bulman & Whitney P.C.

Providence, RI

Wendy Kennedy Venoit

Pepe & Hazard LLP

Hartford, CT

John Onnembo

Turner Construction Company

New York, NY

Richard P. Dyer

Duane Morris

New York, NY

Presented at the 2009 Fall Meeting

“The Two-Way Street of Construction Counseling:

Learning From the Ins & Outs”

October 15 & 16, 2009

Philadelphia, PA

© 2009 American Bar Association

Plenary 3: Legislating Construction Contract Terms and Conditions*

I. Introduction

It is a fundamental tenet of contract law that private parties can contract for any terms to which they can mutually agree so long as the terms, or the subject of the contract itself, do not violate public policy and are not illegal.[1] This tenet was traditionally true in the construction industry; however, state legislators increasingly have been passing legislation that limits the parties’ ability to set their own contract terms. Much of this legislation is intended to equalize perceived unequal bargaining power between contracting parties or to remedy perceived “abuses” by owners and contractors in their treatment of lower tier contractors and suppliers.

Before contracting for a project in any jurisdiction, it is important to understand whether such legislation exists in that jurisdiction and how it will impact the contract terms and the parties’ performance under the contract they sign. Ideally, to the extent that there is pertinent legislation, it should be explicitly incorporated into the contract terms so that there is no misunderstanding as to what terms will apply to the contract performance. The worst possible scenario is to agree upon a term, base your pricing on that term, and later find out that a contrary legislated term negatively impacts the contract’s pricing, cash flow, risk profile, or even enforceability.

This paper will identify some types of legislation that affect private contract terms, and will provide specific examples of such legislation. At the end of this paper, we have provided a 50-State matrix of such legislation.

_____________________________________________________________________________

* The writers of this paper wish to acknowledge the contributions by the authors to A State-By-State Guide to Construction and Design Law (2d 2009), whose research has been the basis for much of this paper. A 50-State Martix of legislation impacting construction contract terms and conditions is included on the disk included with the program materials. That Matrix was prepared by Richard Dyer and others at Duane Morris.

II. Legislation Affecting Project Delivery Systems

A. Design-Build

Generally, there are no restrictions on private parties’ ability to utilize the design-build delivery method if that is the preferred delivery system. That said, licensing requirements in some states can limit the ability of the owner’s preferred contractor to perform design-build work. Specifically, some states require that the contractor providing design-build services must also be a licensed architect or engineer within the jurisdiction where the work is to be performed.[2] For example, in Iowa, a design-build contact may be unenforceable when a contractor subcontracts design services and does not hold a license to practice architecture.[3]

Florida takes a slightly more liberal approach – the design builder is not required to be licensed architect/engineer as long as architecture/engineering services are performed by a licensed engineer or architect.[4] The converse can also be true – e.g., in Louisiana, an architect must be licensed as a contractor if it acts as a design builder.[5]

At least one state, Ohio, has attempted to ease the process by providing express statutory means for a single contractor to provide design-build services.[6] The Ohio statutes permit a design builder to sell professional design services and permit an architect or engineer to work with a design builder.[7]

Both owners and contractors should be aware of any applicable licensing requirements before entering into a design-build agreement to insure that there is full compliance with such requirements.

B. Construction Management

There are generally no restrictions on the use of Construction Management at Risk or Construction Manager as Agent project delivery methods on private projects. Even on public projects, these delivery methods are gaining increased acceptance, although many states have imposed separate regulations for construction managers.[8] However, in at least one state, construction management using multiple prime contractors may be illegal.[9]

As with design-build, state licensing requirements can be implicated by the construction management delivery method. For example, in Arkansas, on both private and public projects, general contractors may only perform construction management services in those fields in which they hold proper classification.[10]

III. Legislation Affecting Design and Construction Professional Liability

A. Statutes of Limitations

The time within which a lawsuit may be brought against a design or construction professional can be a key consideration in evaluating cost and risk on a project. Nearly every state has enacted a statute of limitations within which a claim must be brought. Many of these statutes are applicable to oral and written contracts generally without reference to whether the contracts relate to design or construction.[11]

However, several states have enacted statutes specific to design and construction work. For example, in Alabama, an action against an architect, engineer or builder for defective design, supervision, or observation of construction or improvement to real property must be commenced within two years.[12] In Arizona, while an action based on a written contract has a 6 year limitations period,[13] actions based on a construction contract or the development of property have an eight year limitations period after “substantial completion.”[14] If the injury occurs during the eighth year after substantial completion (or a latent defect was not discovered until the eighth year), the injured party has an additional year to bring a claim.[15]

In Colorado, claims against any architect, contractor, builder, engineer, or inspector performing construction related tasks must be brought within two years.[16] Claims against land surveyors have a three year limitations period.[17]

In Delaware, a six year statute of limitations applies to construction work (excluding improvements to residential properties).[18] Claims relating to improvements to residential properties have a three year limitations period.[19]

A full list of applicable statutes of limitation appears in the Appendix to this paper. Suffice it to say, given the great disparity in the times permitted to commence suit against a design or construction professional, it is important to have an understanding of the applicable law before signing a construction contract and agreeing to a price. It may even be prudent to specifically incorporate the applicable statute of limitations into the contract itself so that there is no confusion as to the timing in which suit must be commenced.

B. Licensing and Regulation

As discussed above with respect to project delivery systems, most states impose licensing requirements upon architects and engineers. Many states have also imposed licensing requirements on surveyors, landscape architects, interior designers, major contractors and home improvement contractors,[20] although this is by no means universal.[21]

In some states, the failure of the contractor to be licensed can render the contract void or unenforceable by the unlicensed contractor.[22] In Mississippi, there are criminal penalties for knowing and willful submission of a bid by a person not holding a certificate of responsibility.[23]

IV. Legislation Affecting Payment Terms

A. Timing of Payment/Prompt Payment Acts

Some of the most significant legislation to impact the construction industry are the statutes that impact the timing of payment on private projects. Having been used for years on public projects, this legislation has been creeping into the private contracting industry and can catch contractors off-guard when invoked by an unpaid subcontractor or supplier. Failure to comply with these “prompt payment acts” (referred to as “fairness in financing acts” in some states) can lead to severe penalties.

For example, Arizona’s prompt payment act states that a contractor’s failure to pay its subcontractors for work and materials supplied within 14 days (unless otherwise agreed in writing) results in the accrual of interest on the unpaid balance at the rate of 1% per month, or at a higher rate if agreed by the parties in their contract.[24] In Arizona, a person commits the offense of “defrauding” if that person knowingly or willfully fails to pay a subcontractor or material supplier within 30 days of receipt of the payment from the owner.[25]

In Connecticut, on private projects exceeding $25,000, a contractor must pay its subcontractors and material suppliers within 30 days of receiving payment from the owner.[26] Failure to do so may result in a penalty of 1% monthly interest and an attorney’s fees award if it is found that the unpaid amount was “unreasonably withheld” by the contractor.

In Hawaii, contractors are required to pay their subcontractors within 60 days after the subcontractor submits a statement that its services are complete.[27] Amounts not paid within 60 days are subject to 1% monthly interest.[28]

In Kansas, the Fairness in Private Construction Contract Act requires prompt payment by owners to contractors (30 days) and contractors to subcontractors (7 days).[29] Failure to make prompt payment may result in a penalty of 18% interest per annum.[30]

Kentucky has a similar statute requiring payments due to a contractor be made within 30 business days and that contractors pay subcontractors within 15 business days of receipt of payment from the owner or contracting entity.[31] Failure to make prompt payment results in the accrual of interest at a rate of 12% per annum.[32]

Virginia has one of the more severe penalties. Its statute provides that funds that an owner pays to a general contractor, subcontractor, or owner-developer must be used to pay the persons who performed labor or provided materials for the owner’s property. If the funds are used for purposes other than to pay for labor or materials, and done with intent to defraud, the contractor, subcontractor, or owner-developer is guilty of larceny. Notably, use of money for another purpose is prima facie evidence of intent to defraud.[33]

Nevada not only has a legislatively imposed prompt payment statute, but it has also incorporated provisions relating to change orders.[34] Specifically, if a contractor submits a request for change order to the Owner, the owner has thirty (30) days to either (i) issue a change order; or (ii) if the request for change order is unreasonable or does not contain sufficient information to make a determination as to whether a change order should be issued, give written notice to the contractor of the reasons why the request for change order is unreasonable or explain that additional information and time are necessary to make a determination.[35] If the owner fails to comply with this requirement, the change order request becomes binding on the Owner, the contract price and schedule are deemed adjusted, and the owner must pay the contractor with the next payment cycle.[36]

In order to avoid surprise, it is prudent to research these statutes at the time of contracting to determine whether there is a prompt pay statute applicable to private projects executed in the state where the project will be performed. To the extent possible, incorporate the required timing of payment provisions into the contract so that there is no confusion as to when payments and other decisions (such as responses to change order requests) must be made.

B. Retainage

Retainage has been used in the construction industry for years as a means to protect owners in the event a contractor does not complete its work on the project and to incentivize contractors to complete the work. Traditionally, the amount of retainage was negotiated by the parties and incorporated into the contract terms.

In recent years, many states have passed legislation which affects the amount of retainage that may be withheld by the owner, and in turn, passed through to the lower tier subcontractors. In most cases, the legislation sets a cap on the amount of retainage that can be withheld from progress payments. For example, in Idaho, retainage cannot exceed 5% of any progress payment or 5% of the contract price.[37] Similarly, Montana’s statute limits retainage to a maximum of 5%.[38] In Nevada, owners are permitted to withhold up to 10% of each payment, as the contract provides, as retention to be paid out with the final payment.[39]

In Connecticut, no construction contract may provide for any retainage in an amount that exceeds 7-1/2% of the estimated amount of a progress payment for the life of the construction project.[40] Connecticut further requires that an escrow account be established for all retainage in a bank domiciled in Connecticut, and such account may be terminated upon substantial or final completion of the work and full payment to the contractor.[41] If the owner fails to deposit retainage that is withheld or to release retainage as required by the statute, the owner must pay the contractor an additional 1-1/2% of the amount not deposited or released for each month until the retainage amount is paid in full.[42] Moreover, in an action to enforce these provisions, a court may award to the prevailing party not only court costs, but also reasonable attorney’s fees.[43]

Some legislation restricts retainage for “disputed” amounts. For example, Alabama’s prompt payment act restricts retainage to twice the disputed amount if there is a bona fide dispute.[44]

Some states limit retainage only after the project has reached a certain percentage completion or is substantially complete. For example, in Kentucky, no more than 10% of an undisputed payment may be withheld by the contracting entity, contractor or subcontractor after 50% of the project is complete.[45] North Dakota limits retainage to a maximum of 10% until the project is 50% complete, after which point no further retainage can be withheld.[46] Maine’s Contracts Act states that payments may only be retained from the contractor, subcontractor, or supplier if there is a good basis to do so.[47] Otherwise, retainage must be paid within 30 days after final acceptance of the work.[48]

One state, New Mexico, recently amended its Retainage Act to prohibit retainage altogether.[49] Notably, this statute does not apply to construction contracts for residential property containing four or fewer dwelling units.

Most states permit owners to accept alternate securities (e.g., bonds) in lieu of retainage, but they will not force the owner to accept such alternate security. However, in Maryland, if a contractor furnishes performance and payment bonds, each equaling 100% of the contract price, the owner may not retain more than 5% of the contract price.[50] Oregon’s retainage statute limits allowable retainage to 5% of the contract price, but only if the contractor or subcontractor provides a performance and payment bond in accordance with the statute.[51]

C. Trust Fund Statutes

In order to provide security for both the owner and lower tier subcontractors and suppliers, several states have enacted “trust fund” statutes that require contractors and subcontractors to hold funds received in trust for the payment of their subcontractors, material suppliers, and laborers.

For example, in Colorado, all funds disbursed to any contractor or subcontractor must be held in trust for the payment of the subcontractors, material suppliers, or laborers who have furnished labor, materials, or other services on a construction project.[52]

In Delaware, all money received by a contractor from a construction contract is a trust fund in the hands of the contractor.[53] The contractor may not use these funds until payment is made to all persons furnishing labor and/or materials.[54]

Similarly in Maryland, money paid by an owner to a contractor or by a contractor to a subcontractor is deemed to be held in trust to ensure payment to all subcontractors and suppliers.[55]

The Michigan Building Contract Fund Act is a trust fund statute that requires contractors or subcontractors to retain all contractual funds until all laborers, suppliers, and subcontractors are fully paid.[56]

New York’s trust fund statute is particularly potent in its penalties for owners, general contractors, and subcontractors on both public and private construction projects who use monies from one project to pay creditors on other projects or use the monies for their own purposes.[57] In New York, an owner, general contractor, or subcontractor who “diverts” project funds other than paying labor and material claims on that particular project, can be subject to civil liability and criminal penalties.[58] Notably, such a diversion of trust assets can render the corporate officers, directors, and agents who actively engage in the known diversion personally liable to the unpaid claimants on the project and such liability is not dischargeable in bankruptcy.

In Oklahoma, any funds received as payment for a building contract, construction mortgage, or conveyance of a warranty deed are deemed held in trust for payment of all lienable claims owed by the recipient.[59]

Texas has a trust fund statute which provides that construction payments made to a contractor or subcontractor under a construction contract for the construction or repair of improvements on real property shall be deemed to be “trust funds” held for the benefit of a contractor or subcontractor who labors or furnishes labor or material for the construction or repair of the improvement.[60]

D. Penalties for failure to make payment

As referenced above, many of the states that have imposed prompt payment statutes have also imposed penalties for failure to make payment in a timely manner. The vast majority of these statutes impose interest on wrongfully withheld amounts ranging from 12% to 18% per annum.[61]

Some statutes further allow the court to award reasonable costs and, in some cases, attorney’s fees for an owner or contractor’s failure to make statutorily required prompt payment. For example, in Maryland, a court may award an injunction, interest, and reasonable costs (including attorneys’ fees for bad faith) for failure to comply with the prompt payment statute.[62] Pennsylvania’s statute provides that untimely payments are subject to interest of 1% per month, plus reasonable attorney’s fees for any amounts “deemed to have been withheld in bad faith and to the extent that the withholding was arbitrary or vexatious.”[63]

Some states even make violation of their prompt payment statutes a criminal offense. For example, in Virginia, if an owner-developer, contractor, or subcontractor receives funds for payments to persons who have provided labor or materials and diverts those funds for another purpose with intent to defraud, it may be guilty of larceny.[64] Likewise, in Florida, anyone who receives a payment for improving real property and knowingly and intentionally fails to make payment of all amounts then due for labor, services and materials which were performed prior to the receipt of payment, is subject to criminal penalties.[65]

V. Legislation Affecting Contractual Warranties

A. Implied Warranties

Most design and construction contracts contain some form of warranty or guarantee provision which specifies the express warranties offered by the designer/contractor, the period of the warranty/guarantee, and the remedies for failure to comply with such warranty/guarantee. In most cases, the contract will also contain a provision disclaiming any other warranties/guarantees, express or implied, other than those specified in the contract.

A few states have statutorily imposed warranties and guarantees in design and construction contracts. For example, Louisiana implies a warranty that a project has been substantially completed within the plans and specifications.[66] Notably, this warranty cannot be waived or disclaimed by contract.[67]

Oklahoma law implies a warranty of workmanlike performance. As to new home construction, Oklahoma law also implies a warranty of fitness and a warranty of habitability.[68]

Puerto Rico law implies a warranty of workmanlike performance and a warranty against hidden defects or burdens.[69]

While a number of other statutes have implied warranties through case law, such warranties are not codified and are, therefore, beyond the scope of this paper.

B. New Home Warranties

States that have not codified their implied warranties have nonetheless done so with respect to new home construction, presumably in an effort to protect unsophisticated consumers and to thwart unscrupulous home builders. As referenced above, Oklahoma law implies a warranty of fitness and a warranty of habitability for new home construction.[70] Connecticut’s New Home Warranty Act regulates new home construction and implies a number of warranties for new homes and improvements to existing homes.[71] Louisiana’s New Home Warranty Act establishes exclusive remedies and warranties applicable to home construction, and precludes the application of other forms of warranty law to home construction.[72] Maine’s Home Construction Contract Act requires all new home construction contracts to include a clause warranting that the home is free from faulty materials, meets the standards of the building code, and is built in a skillful manner fit for habitation.[73] That Act also applies the U.C.C. to the contract.[74]

Maryland is unique in that builders have the option of providing buyers of new homes with new home warranties through a new home warranty security plan.[75] If a warranty security plan is provided, it must provide minimum statutory warranties against defects in materials, defects in the electrical, plumbing, heating, cooling and ventilation systems, and structural defects.[76] All new home warranty security plans must be registered with the Maryland Department of Labor, Licensing and Regulation.[77]

Mississippi has a new home warranty act that imposes a one year warranty that all new homes be free of any defects due to noncompliance with building standards and a six year warranty that all new homes be free of major structural defects due to noncompliance with building standards.[78] If a homebuilder fails to comply with the Act, then the builder faces damages, legal fees, and court costs.[79] Notably, the homebuilders association in that state was successful in imposing a requirement that the homeowner must give the contractor notice and an opportunity to cure any defective work before it can sue the builder.[80]

In New Jersey, in addition to the implied warranty of habitability, builders must also comply with the New Home Warranty Act.[81] This Act requires that contractors constructing new homes provide through either a private warrantor or through the state New Home Warranty program, certain warranties with regard to workmanship and structural items. The Act and regulations adopted under it allow for an arbitration process under an election of remedies concept. The homeowner may invoke either arbitration or court remedies, but once having made such election, he or she is precluded from re-litigating the issues in the alternate forum.

New York’s Housing Merchant Implied Warranty statute requires that the buyer of a new home has certain warranties.[82] Covered under the new home warranties are:

· One year of protection against faulty workmanship and defective materials

· Two years of protection against defective installation of the plumbing, electrical, heating, cooling and ventilation systems

· Six years of protection against structural defects.[83]

When a problem is discovered, the new home owner must report the problem to the builder within 30 days after the expiration of the warranty.[84] The builder is expected to make repairs within a reasonable amount of time after the problem is reported. An action for damages or other relief caused by the breach of a housing merchant implied warranty may be commenced prior to the expiration of one year after the applicable warranty period, or within four years after the warranty date, whichever is later. In addition, if the builder makes repairs in response to a warranty claim under this subdivision, an action with respect to such claim may be commenced within one year after the last date on which such repairs are performed.[85]

C. Anti-Disclaimer Legislation

As stated above, in many construction contracts, the contractor will seek to disclaim both implied warranties and express warranties not specifically set forth in the contract documents. In response, some states have imposed “anti-disclaimer” legislation which renders any such disclaimer of warranties void and unenforceable. Several examples are set forth below:

· In Indiana, a builder may only disclaim an implied warranty if certain express statutory requirements are met.[86] First, a builder must provide insured two-year warranties that the new home will be free from defects caused by faulty workmanship or defective materials and will be free from defects caused by the faulty installation of plumbing, electrical, heating, cooling or ventilation systems, exclusive of fixtures, appliances or items of equipment.[87] A builder must also provide a warranty against defects caused by faulty workmanship or defective materials in the roof or roof systems for four years, and against major structural defects for ten years.[88] A builder’s express warranties run from the date of first occupancy of the new home as a residence by either the builder, a person renting from the builder or living in the home at the request of the builder, or the initial home buyer.[89] A builder or initial home buyer selling the home must notify the purchaser in writing of the date the warranties began and the amount of time remaining under the warranties.[90] Second, the builder must expressly provide the warranties in the written contract with the initial home buyer, must back the warranty obligations with an insurance policy in an amount at least equal to the purchase price of the home, and must carry completed operations products liability insurance covering the builder’s liability for reasonably foreseeable consequential damages arising from warranty-covered defects.[91] Finally, the disclaimer of implied warranties must be set forth, in no smaller than 10 point boldface font, that the statutory warranties are provided in lieu of the implied warranties that have been disclaimed by the builder, and the buyer must affirmatively acknowledge by signature that the buyer has read, understands, and voluntarily agrees to the disclaimer.[92]

· In Louisiana, the contractor cannot disclaim or waive the implied warranty that the project will be substantially completed within the plans and specifications.[93]

· In New York, except for the implied warranty applicable to new home construction, parties can exclude or modified warranties by clear and conspicuous terms in their contract.[94]

· In Mississippi, parties cannot disclaim implied warranties of merchantability and fitness for a particular purpose and cannot limit remedies for breach of those warranties.[95]

Notably, although not legislated, some state courts have invalidated anti-disclaimer provisions on public policy grounds. For example, in Puerto Rico, using a disclaimer in a contract stating that no warranties are given except for those specifically stated in the contract has been declared to be contrary to public policy and, thus, unenforceable.[96]

VI. Legislation Affecting Indemnification Agreements

Most construction contracts contain indemnity provisions generally requiring each party to the contract to indemnify the other for claims that arise out of that party’s negligent acts, errors, or omissions that cause personal injury or property damage to a third party. In some contracts, the indemnity extends beyond claims for personal injury or property damage to third parties and encompasses other types of third party actions (e.g., breach of contract or other types of tort) and/or first party claims (i.e., between the parties to the contract).

Such indemnity provisions are generally enforceable; although some states preclude parties from seeking indemnity for their own negligent, reckless or intentional acts. Such preclusion can arise either out of state common law or through legislation. This paper focuses only on those states that have enacted legislation limiting indemnity rights.

For example, in Arizona, any agreement in a construction contract that indemnifies or holds harmless the loss or damage resulting from negligence of another is against public policy and void.[97]

Arkansas law makes certain hold harmless clauses in construction contracts unenforceable, but does not prohibit the parties from providing insurance to cover the negligence of the parties.[98] The same is true in Nebraska.[99] Colorado and Oregon, in contrast, prohibit provisions in construction contracts that indemnify or insure the negligence or fault of another.[100]

In California, with limited, specified exceptions, it is against public policy for any construction contract to have language in which the promisee attempts to contract away liability that arises from the sole negligence or willful misconduct of the promisee, or for defects in the design furnished by the promisee.[101]

Connecticut prohibits any provision that indemnifies or holds harmless another’s negligence that results in bodily injury or property damage.[102] Similarly, in Delaware, indemnification agreements are generally enforceable except for provisions that indemnify the negligence of another that results in injury or property damage.[103] The same is true in Hawaii,[104] Idaho,[105] Illinois,[106] Indiana (except for highway contracts),[107] Kansas,[108] Kentucky,[109] Maryland,[110] Massachusetts,[111] Michigan,[112] Mississippi,[113] Montana (for contacts entered after October 1, 2003),[114] New Jersey, [115] Ohio,[116] Rhode Island,[117] Texas,[118] Utah,[119] Washington,[120] and West Virginia (only when the indemnitee is 100% negligent).[121]

New Hampshire has enacted a broad “anti-indemnity” statute pertaining to indemnity provisions within construction contracts – it voids any contractual clause or provision in a construction contract that requires any party to indemnify any other person or entity for injury to persons or property damage not caused by the contracting party or its agents, regardless of whether the contracting party was negligent.[122] In Pennsylvania, an indemnification agreement that indemnifies or holds harmless an architect, engineer, surveyor, or their agents for any damages arising from either the preparation or approval of designs or the giving of instructions is void as against public policy.[123] In North Dakota, an agreement to indemnify a person against an act thereafter to be done is void if the act is known by such person at the time of doing it to be unlawful;[124] however, an agreement to indemnify a person against an act already done is valid, even thought the act was known to be wrongful, unless it was a felony.[125]

Louisiana, in contrast, enforces indemnity clauses, even those that purport to indemnify the negligence of another, if the clause is expressed in clear and unequivocal terms.[126] Maine does not have a statute that prohibits indemnification for another party’s negligence; however, such provisions are disfavored by the courts and are strictly construed against the asserting party.[127]

New Mexico law limits the scope of indemnity clauses on virtually any construction or improvement of real property and voids indemnity clauses unless the limitations set out in the statute are incorporated as a limitation on the indemnity liability.[128] The limitation applies to contractual clauses that include within the scope of the indemnification any agreement to indemnify for damage or loss caused in whole or in part by the negligent act or omission of the indemnitee, the acts of employees of the indemnitee, or any legal entity for whose negligence, act or omissions any of the foregoing may be liable.[129]

VII. Insurance Requirements

Most states impose an obligation on contractors to maintain workers’ compensation insurance. Beyond that fairly consistent theme, state insurance requirements vary significantly. Many states that require contractor licensing also impose an obligation to maintain general liability insurance. For example, Rhode Island requires all contractors to maintain public liability and property damage insurance with coverage of not less than $500,000. Failure to maintain such insurance shall invalidate a contractor’s registration and may result in a fine.[130] Other states impose that obligation upon certain trades, such as electrical contractors.[131]

A. Workers’ Compensation Insurance

Georgia is typical in requiring that all general and residential contractors provide proof of workers’ compensation insurance as a condition of licensure.[132] Similarly, Nebraska’s Contractor Registration Act requires that contractors provide proof of insurance, or self insurance privileges approved by the Nebraska Workers’ Compensation Court, or proof that insurance is not required.[133] Texas is one of the few states that does not impose a specific requirement for workers’ compensation insurance coverage with respect to private construction contracts.[134] But, in Texas, an employer electing not to provide such insurance is not entitled to assert the defense of contributory negligence, assumption of the risk, or negligence of a fellow employee.[135] Wyoming is one of the few remaining states where workers’ compensation is handled only through a state fund without provision for private insurance.[136] Wyoming also has particularized requirements for registration of employers, identification of employees, and timely payment of premiums to the state fund.

Unlike many states, Wyoming’s workers’ compensation scheme does not grant owners immunity for claims arising out of injuries to the contractors’ employees.[137] Rather, most states follow a legislative policy such as Nevada’s, which provides protection to the owner from workers’ compensation liability where the owner has hired a licensed principal contractor.[138] Connecticut follows a similar rule holding that a general contractor, as an employer of an independent subcontractor, is not liable for the torts of that subcontractor.

There are exceptions to this general rule, e.g., if the work is intrinsically dangerous, or if the work contracted for is unlawful. A general contractor may, depending on the circumstances, be held liable to an employee of its subcontractor for its own negligence.[139] The purpose of this, “principal employer exception” is to afford full protection to workers by preventing the possibility of defeating the workers’ compensation act by hiring irresponsible contractors or subcontractors.[140]

Florida imposes additional teeth into its workers’ compensation laws to assure compliance by the construction industry. Any person engaged in for-profit construction activities - public or private (except work done by a homeowner) - who knowingly violates Florida’s workers’ compensation law is subject to an award of damages in an action by a losing bidder for the contract in issue.[141] Florida also requires a contractor, as a condition to receiving a building permit, to prove that it has complied with the Florida workers’ compensation law.[142]

B. Additional Insurance Requirements

States are increasingly requiring that contractors be licensed or registered, and, recognizing the importance of insurance to cover typical liabilities, mandating insurance coverage. Oregon goes further, requiring that a contractor have in effect public liability, personal injury and property damage, including coverage for liability for products and completed operations.[143]

The Maryland Home Builder Registration Act, for example,[144] requires those that construct new homes for sale to the public maintain general liability insurance of at least $100,000, and the Maryland Home Improvement Law requires that a licensed home improvement contractor maintain general liability insurance providing coverage of at least $50,000.[145] Maryland similarly requires all holders of a heating, ventilation, air conditioning, and refrigeration license to maintain general liability insurance of at least $300,000.[146] A similar requirement is imposed for plumbers. New Jersey requires every registered contractor engaged in home improvements to hold general liability insurance with limits of not less than $500,000 per occurrence, while requiring electricians and certain other licensed construction professionals to hold policies with at least $300,000 in coverage for property damage and bodily injury and $300,000 in coverage for liability claims.[147]

C. Other Insurance Provisions

States are expanding the breadth of insurance requirements affecting the industry in other respects. Connecticut law, for example, provides for owner-controlled insurance programs.(“OCIP”) An OCIP is an insurance procurement option that allows coverages for multiple insureds to be bundled into a consolidated program. Addressing subcontractor concerns, Connecticut now expressly requires that each contract or policy of insurance issued under an OCIP provide 1) coverage for work performed and materials furnished and to continue from completion of the work until the date that all causes of action are barred under any applicable statute of limitations; 2) any notice of a change in coverage under the contract or policy, or of a cancellation or refusal to renew be given to the principal and all contractors and 3), the effective date of a change in coverage shall be at least 30 days after the date the principal and the contractors have received notice of change in coverage and at least 60 days after the principal and contractors have received the notice of a cancellation or refusal to renew.[148]

Recognizing the control the lenders often impose, Rhode Island law mandates that when a lender imposes an obligation to provide property insurance, the party acquiring the insurance shall have a free choice of insurance producer or insurer. This free choice is subject only to the right of the builder, creditor, lender, or seller to require evidence that reasonable coverage has been obtained.[149]

VIII. Suretyship and Bonds

A. Little Miller Acts

The Miller Act requires contract payment and performance bonds on federal construction projects.[150] The labor and material payment bond requirement applies to subcontractors and suppliers of materials who have direct contracts with the prime contractor, as well as those at the second-tier level, i.e., those with direct contracts with subcontractors. Many states have followed the Miller Act by adopting comparable statutes, frequently called “Little Miller Acts.” Virginia provides a Little Miller Act as part of the Virginia Procurement Act.[151] Arizona’s Little Miller Act,[152] mandates that public construction contracts be secured by payment and performance bonds; the bonds become binding upon the award of the contract to the contractor.[153] Arizona’s Act is a remedial statute to be liberally construed to protect subcontractors providing labor and materials for public construction projects. The prevailing party in a suit on a bond in Arizona actions is entitled to attorneys’ fees, and a provision to that effect must be included in the bond.[154]

Maryland’s Little Miller Act applies to construction contracts by the State, counties, municipal corporations and other applicable subdivisions.[155] Bonds are required for any construction contracts greater than $25,000.[156] Maryland’s Act explicitly extends to claimants one tier lower than the federal statute, and allows suit on the bond by any claimant with a direct contractual relationship with a subcontractor or second-tier subcontractor of the prime contractor, although Maryland follows the federal law in holding that a materialman is not a subcontractor.[157]

Like its federal counterpart, Alabama’s Little Miller Act provides that the following items are recoverable: 1) labor and materials actually incorporated in the work or furnished with a reasonable expectation that they would be incorporated; 2) items normally consumed in the project; 3) rental equipment necessary for the work; 4) repairs incidental in nature and made necessary by the prosecution of work; and 5) architectural and engineering services. Although one should not ignore the provisions of the bond, the provisions of the Alabama statute will be read into the body if they do not otherwise appear.[158]

In addition to variations as to applicable limitations periods, states also vary the available remedies. Colorado, for example, creates an additional remedy for claimants in an action on bonds. A public entity must publish a Notice of Final Settlement with respect to a public works project at least 10 days before such settlement. An unpaid claimant may file a verified statement of amounts due and unpaid up to the actual date of the final settlement, and if the statement is filed, the public entity must withhold enough money to ensure payment of that claim from payment due to the contractor.[159]

Georgia requires a contractor furnishing a payment bond on a private construction project to file a Notice of Commencement with the clerk of the superior court for the county in which the project is located, no later than 15 days after the contractor physically commences work on the project. A copy of this notice must be supplied within 10 days to any party who makes a written request.[160] If the contractor complies with these requirements, potential bond claimants that have no contractual relationship with the contractor furnishing the bond must provide a written notice to the contractor within 30 days of the later of the filing of a Notice of Commencement or the first delivery of labor and material, machinery or equipment, in order to retain the right to bring an action upon the payment bond.[161]

B. Notice Provisions

Little Miller act notice requirements vary. Nevada provides very specific provisions pertaining to required notice.[162] A claimant, for example, must give the prime contractor written notice (typically called a pre-lien notice) within 30 days after first furnishing materials or labor for the job.[163] A vendor must also give the prime contractor notice within 90 days from the date when claimant last furnished labor and materials for which it claims payment. Those notices are mandatory – actual notice is insufficient to excuse a subcontractor’s or supplier’s failure to strictly follow the law.[164] In Virginia, anyone dealing with the bond principal is not required to give notice of the bond claim until a suit to enforce. Generally the bond principal will be the general contractor, but it could include a subcontractor required to provide its own payment bond. Virginia is more liberal than most states in that it allows the party not dealing directly with the bond principal, to provide notice up to 180 days after performing the last of the labor or furnishing the last of the materials for which payment is claimed.[165] This extended notice period can leave a general contractor vulnerable to claims from parties with which it did not contract, for a period of time longer than is the case in most states. Maryland is more typical, requiring parties lacking a direct contract with the bond principal to provide written notice within 90 days.[166]

Georgia’s Little Miller Act provides a one-year statute of limitations, running from completion and acceptance of the work by the government, for claimants to file on an action.[167] If the payment bond required by statute is not available to subcontractors and materialmen on a public works project, they may then proceed directly against the owner.[168] A subcontractor is not only entitled to proceed directly against the public owner, but also to assert against that owner an equitable lien on funds it holds that are otherwise payable to the general contractor.[169]

On private bonds, the limitations periods vary. In Connecticut, for example, private bonds must allow for at least three years time within which suits on the bond may be brought.[170] In Massachusetts, courts apply the limitations period contained in the bond, which is frequently one year from the last date on which work was performed.[171] Rhode Island has provisions in different statutes. A statutory provision in the mechanics’ lien law provides that the language of the bond governs notice provisions as well as limitations periods. On the other hand, the law pertaining to payment bonds on public contracts imposes specific notice requirements for remote claimants. The Rhode Island courts have construed this inconsistent language to provide that a party asserting a payment bond claim meets the notice provisions by following either alternative.[172]

C. Other Bond Obligations

Many states impose an obligation upon contractors and subcontractors to post a bond with state tax authorities, in amounts that in some cases are fixed as little as $10,000 and other cases relate to the amounts due under a contract.[173] Oregon requires contractors to post a bond to be registered. The amounts vary, depending on the classification of the contractor, and whether the contractor is a residential, commercial or specialty contractor.[174]

Virginia requires any person selling an interest in an unfinished condominium unit to file a bond with the Common Interest Community Board. The bond must equal the sum of the estimated cost of completion of the parts of the condominium that will not be completed at the time that the first unit of the condominium will be conveyed.[175]

Massachusetts tax law requires non-resident contractors to furnish a bond to secure the payment on taxes in the amount equal to 5% of the total amount to be paid unto the contract.[176]

Most states provide for lien bonds to be issued to avoid the filing of a mechanics’ lien or to bond over a lien once it has been filed. Massachusetts law permits a party to obtain a lien bond to prevent the attachment of mechanic’s liens.[177] These bonds are often incidental to the acquisition of the performance and payment bonds and recorded prior to the commencement of the work.

IX. Consumer Protection Statutes

In recent years state legislatures have increasingly adopted consumer protection acts to provide an additional means of redress for claims arising out of deceptive and unfair trade practices. It is not uncommon for these acts to apply to construction activities and although these laws are generally limited to consumers engaged in residential construction. In some states, they also apply to commercial ventures. New Hampshire’s law, for example, applies to consumer ventures and in at least one case, was applied to uphold a substantial jury verdict in favor of the developer of an indoor tennis center against its paint vendor.[178] On the other hand, the consumer protection act of Massachusetts does not extend to transactions between businesses.[179] States having such laws often intend that they be remedially applied.[180] These statutes can significantly expand the scope of remedies available to an aggrieved party in a construction contract relationship. The Massachusetts law, which applies to unfair business practices, has been utilized in the construction setting to authorize awards of exemplary damages and attorneys’ fee in a contract dispute.[181]

A. Unfair Trade Practices Acts

The Connecticut Unfair Trade Practices Act prohibits persons from engaging in unfair or deceptive acts or practices in the conduct of any trade or commerce.[182] The law has been applied to construction claims.[183] Many jurisdictions, Delaware among them, specifically provide that such statutes do not cover real estate transactions, although they may apply to the construction of, or improvements to, structures with respect to goods and services sold.[184] Other states, like Iowa, extend the scope of coverage to construction contracts, as well as to any unfair, deceptive, or fraudulent practice in connection with a lease, sale, or advertisement of any merchandise, including real estate and related services.[185]

Jurisdictions generally provide for public enforcement, as well as private enforcement of consumer protection acts. In Washington State, for example, an individual claim is established if an unfair or deceptive practice occurs in trade or commerce, impacts the public interest, and causes injury to the plaintiff’s business or property.[186]

B. Residential Construction Laws

Many states have enacted statutes intended to protect homeowners who engage contractors for home repair and remodeling. Legislatively mandated new home warranties are discussed earlier in this paper. Such laws generally mandate contractor registration and impose specific warranties as a condition of registration.[187] Most states that regulate contractors also impose regulations upon a contractor’s behavior, and many provide a fund for which some recourse may be provided in the event of injury being caused by a licensed contractor. For example, Hawaii law authorizes the license board to establish a recovery fund from which an individual injured by the conduct of a licensed contractor may recover not in excess of $12,500.[188] Some states also require that contracts for home improvement must be in writing, legible, and conform to specific statutory requirements.[189]

X. Legislation Impacting Damages Recoverable for Breach

Most jurisdictions apply the general common law with respect to recovery of damages and rely upon the Restatement (Second) of Contracts, which notes that recoverable damages are measured by

(a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus

(b) any other loss, including incidental or consequential loss, caused by the breach, less

(c) any cost or other loss that he has avoided by not having to perform[190]

Georgia, on the other hand, has codified its rules for contract damages, generally following the same principles as the Restatement. Georgia law provides, for example, that “damages recoverable for a breach of contract are such as arise naturally and according to the usual course of things from such breach, and such as the parties contemplated, when the contract was made, as a probable result of its breach.”[191] “Remote or consequential damages are not recoverable unless they can be traced solely to the breach of the contract, or unless they are capable of exact computation, such as the profits which are the immediate fruit of the contract, and are independent of any collateral enterprise entered into in contemplation of the contract.”[192]

A. Liquidated Damages

Georgia authorizes an award of liquidated damages if the parties agree in their contract and if the agreement does not violate some principle of law.[193] Georgia follows the general rule that liquidated damages must not act as a penalty.[194]

Connecticut is typical of most states that apply the common law that liquidated damage provisions are enforceable, provided that 1) the damage that was to be expected as a result of the breach of contract is uncertain in amount and difficult to prove; 2) there was intent on the part of the parties to liquidate damages in advance; and 3) the amount stipulated was reasonable in the sense that it is not greatly disproportionate to the amount of damages that, as the parties looked forward seem to be the presumable loss that would be sustained by the contractee in the event of a breach of contract.[195]

B. Exculpatory Clauses

The enforceability of exculpatory clauses is generally the subject of judicial - as opposed to legislative - authorization. Massachusetts courts, for example, have upheld exculpatory clauses for negligent, but not knowing misrepresentations.[196] Courts construing such clauses generally require that the clauses be clear and unambiguous, and that “they must be specific in what they purport to cover, and any ambiguity will be construed against the drafter.”[197] Many courts and legislatures have expressed disfavor of exculpatory clauses on public policy grounds.[198]

“No damage for delay” and “pay when paid” clauses are frequently present in construction contracts and generally the subject of judicial interpretations. Georgia, for example, follows the rule that a “no damage for delay” provision is enforceable provided that the party seeking to enforce it is not found to have breached the contract.[199]

“Pay when paid” clauses are generally construed to provide only for postponement of payment by the general contractor to the subcontractor for a reasonable time pending payment by the owner, even if the owner ultimately never pays.[200] However, where a subcontract expressly provides that payment by the owner is a condition precedent to payment by the contractor, courts are more likely to enforce those provisions, particularly in the commercial setting.[201]

Several jurisdictions have legislatively addressed “no damage for delay” provisions. The Ohio Code provides that a “no damage for delay” clause is not enforceable for delays caused by an owner.[202] It is also unenforceable against a subcontractor when the delay is caused by the contractor. In Nevada, “no damage for delay” provisions are restricted when 1) the delay is so unreasonable in length as to amount to project abandonment; 2) the delay is caused by fraud, misrepresentation, concealment or other bad faith of the parties seeking to enforce the clause; or 3) the act of interference of the parties seeking to enforce the clause.[203]

In the context of public construction, Virginia provides that a “no damage for delay” provision that waives a contractor’s right to recover costs or damages for unreasonable delay in performance caused by a public body is unenforceable.[204]

C. Economic Loss Rule

Most jurisdictions limit the ability of a party to maintain a suit in tort, for purely economic loss, in the absence of a personal injury or damage to property. The general rule, however, is riddled with exceptions. In Georgia, for instance, there are exceptions in the event of negligent misrepresentation or accident.[205] Rhode Island has adopted the economic loss doctrine to bar actions between commercial entities for negligent breaches of contractual duties which result in solely economic damages. There are two limitations. First, the economic loss doctrine does not apply to transactions involving consumers,[206] and second, it also does not apply where there is a “community of interest” between the two parties who are not in privity of contract with each other.[207]

D. Other Remedies

A few jurisdictions provide the measure of damages that may be awarded for construction defects. Idaho, for example, provides that the homeowner/claimant may recover the reasonable cost of repairs necessary to cure any construction defect, including engineering and consulting fees, the cost of temporary housing, the reduction in market value, if any, and reasonable attorneys’ fees.[208] Most jurisdictions, however, deal with consumer issues in the manner discussed in Section IX above.

XI. Legislation Affecting Dispute Resolution

A. Uniform Arbitration Act

The Uniform Arbitration Act, (“UAA”) promulgated in 1955, was developed by the National Conference of Commissioners on Uniform State Laws. Thirty-five states have adopted the UAA.[209] The model act was changed in 2000 to reflect changes that have occurred within the industry over the past 45 years, to promote speed, cost and efficiency of arbitration, and to expand the ability of parties to shape the arbitration process. The UAA now reflects trends in arbitration by expressly addressing consolidation of issues involving multiple parties, limiting provisions to vacate awards, by protecting arbitrators from unwarranted litigation to ensure their independence, by providing for authority to allow provisional remedies and by providing for limited discovery.[210]

The states which have failed to adopt the Act have generally adopted analogous provisions. Alabama, for example, legislatively mandates the enforceability of arbitration provisions and addresses the mode of arbitration, the duties and powers of arbitrators, and enforcement and review of awards.[211] Most states also have adopted laws providing for the enforceability of arbitration agreements, except where specific grounds for revocation exist.[212]

Many states have also enacted statutes for court ordered judicial arbitration for law suits where the amounts in controversy are relatively small - usually for not more than $100,000. In these instances, arbitration is usually non-binding, but an award becomes final unless a request for a trial is filed within a certain time period after the award with the court.[213] Many states have also adopted mandatory mediation provisions, at least with respect to those types of disputes which are subject to non-binding arbitration.[214] Where there is a mediation provision in a contract, some state courts, e.g., Massachusetts, have ruled that completion of mediation is a condition precedent to proceeding with litigation or arbitration.[215]

B. Forum Selection Clauses

Particularly in a commercial context, parties frequently stipulate in advance to submit their controversies for resolution within a particular jurisdiction. These “forum selection clauses” have been specifically upheld by the Supreme Court [216] and, in another significant holding, the Supreme Court has held that where those provisions are obtained through “freely negotiated agreements” they are sufficient to subject a party to personal jurisdiction. [217] As the law has evolved over the past thirty years in the federal system, and is true in many states, the circumstances of which warrant non-enforcement of a forum selection clause typically involve fraud, overreaching conduct, a significant public policy concern or evidence that trial in the contractually mandated forum would effectively deprive the litigant of his or her day in court. [218] Some legislatures, confronted by cries by hometown subcontractors performing work in their own jurisdictions, have started to put a halt, at least under state law, to the enforceability of such clauses. Is it fair, for a Rhode Island mechanical contractor, for example, performing work for an Illinois general contractor on a project located in Providence to be required to arbitrate in Chicago? The Rhode Island General Assembly has said “no”! [219] Texas and Utah are among the other states with such provisions which, in substance, ensure that a subcontractor on a project in a particular state will have the option of having a dispute adjudicated in his or her particular state, as opposed to the home state of the general contractor or developer. [220]

XII. Environmental Legislation

A. Regulatory Statutes

Every state imposes statutes and regulations regulating hazardous waste, underground storage tanks, water quality, air quality, and similar issues that may come into play with respect to construction. In New Hampshire, for example, the environmental statutes of interest to a developer include the Toxic Substances in the Workplace Act[221]; the Asbestos Management and Control Act[222]; the Oil Spillage in Public Waters Act[223]; the Water Pollution and Waste Disposal Act[224]; the Fill and Dredge in Wetlands Act[225]; and the Safe Drinking Water Act.[226] An additional number of states, including New York and Massachusetts, require review of environmental impacts for certain construction projects.[227]

Washington has one of the most extensive statutory schemes for managing growth. Its Growth Management Act (“GMA”) establishes a statewide planning framework and requires development of comprehensive plans from many local governments. Under the GMA, an applicant for a land use permit must show that public facilities and services are in place or will be provided concurrently with the development. These concurrency requirements are conditions of land use without which a development cannot proceed. The four principal elements that must be established are 1) available potable water supply[228]; 2) the development may not cause transportation service to decline below the service level set in the transportation elements of the municipalities’ comprehensive plan[229]; 3) the municipality must have in place a capital facilities plan that is funded and provides facilities adequate to serve the land uses authorized by the plan[230] and finally, 4) the element cannot degrade groundwater quality.[231]

B. Brownfields Legislation

States like Washington are fairly typical with respect to the adoption of laws to encourage the redevelopment of contaminated properties, often referred to as Brownfields. Washington amended its Model Toxic Control Act (“MTCA”) to authorize the state to enter into prospective purchaser agreements, which are settlement agreements allowing prospective real-property purchasers to determine their liability for cleanup costs associated with a site prior to purchase.[232] Generally, applications for agreements will be accepted only where the prospective owner will dedicate substantial new resources to facilitate site cleanup or expedite the remedial action and has demonstrated a commitment to purchase, redevelop or re-use the facility. The California Land Re-Use and Revitalization Act provides liability protections to Brownfield developers and landowners which are intended to promote the cleanup and redevelopment of contaminated properties.[233]

C. Green Building and Sustainable Construction Initiatives

A sustainable, “green”, building is the outcome of a design which focuses on increasing the efficiency of resource use – energy, water and materials – while reducing building impacts on human health and environment during the building’s life cycle, through better siting, design, construction, operation maintenance and removal.[234] Such initiatives have substantial impacts upon typical building construction. Building materials typically considered to be “green” include renewable plant materials, and/or recycled materials. Such materials are generally extracted and manufactured locally to the building site to minimize the energy embedded in transportation.

Energy use is a major element of “green” building. Frequently “green” buildings look toward increasing the efficiency of the building envelope through use of high-efficiency windows and insulation, through passive solar building design, through solar water heating, and through onsite generation of renewable energy. Such construction promotes reduced waste in the construction.

The evolving growth in “green” and sustainable building has lead to a pronounced role by organizations such as Leadership and Energy in Environmental Design (LEED), developed by the U.S. Green Building Council, which provides standards for environmentally sustainable construction. The experience of LEED certification to date has been generally an increase in the cost of initial design and construction with the anticipation of savings over time due to lower than industry standard operational costs. [235] A number of states and municipalities have considered or are implementing incentives for LEED certified buildings.

Many states are now mandating sustainable buildings for the public sector. Connecticut, for example, has mandated that all new state buildings costing $5 million or more or renovations of state facilities exceeding $2 million must meet or exceed a LEED Silver Rating or a 2-globe rating under the Green Globes.[236] Connecticut law also mandates sustainable energy practices for all new construction.[237] Sustainable building is also being extended into the private sector. Maine, through the adoption of the Energy Efficiency Building Performance Standards Act imposes minimum efficiency standards on all new residential or commercial construction.[238] In Nevada, for example, construction materials for a qualifying LEED building are exempt from local taxes.[239] New Mexico has enacted legislation providing for sustainable building tax credits.[240] Virginia is another state providing such incentives.[241] Greensburg, Kansas, devastated by a tornado in 2007, has adopted a resolution mandating that all city buildings - public and private - be reconstructed to LEED platinum standards. [242]

While many states have started to advance green building, California has gone further with the 2008 adoption by the California Building Standards Commission of the Green Building Code for all new construction, state-wide. The new standards cover commercial and residential construction in the public and private sectors, as well as schools at all levels, hospitals and other public institutions. Compliance is voluntary until 2010, when the provisions are expected to become mandatory. The codes sets targets for energy efficiency, water consumption, duel plumbing for potable and recyclable water, diversion of construction wastes from landfills and use of environmentally sensitive materials in construction and design.[243]

50 State Survey Sample

Note: To access the full matrix, insert the program CD you received at the conference into your computer. The CD should auto-launch. If it doesn’t, open the CD and double click on the file “Double_Click_To_Begin.html”. A Web Site will appear in your web browser software. On the left hand side, click on Faculty, Articles, Slides. Scroll down to the “Plenary 3” section and you will find the entire matrix.

	Alabama	Alaska	Arizona	Arkansas	California
II. Legislation Affecting Project Delivery Systems
A. Design Build	Alabama statutes do not specifically address design build projects. However, based on dicta from several cases, a design build contract with a licensed general contractor and with plans/specifications properly stamped by a professional architect or engineer would be valid. See Med Plus Props. v. Colcock Constr. Group, Inc., 628 So. 2d 370 (Ala. 1993). The Alabama Supreme Court has affirmed a design build arrangement where a licensed contractor also performed the architectural plans. Id. at 374-375.	In private projects, there are no statutes regulating design build. In public projects, competitive contracts for design build are permitted under Alaska Stat. § 36.30.200(c). However, the University of Alaska, the Alaska Railroad Corp., the Alaska Housing Finance Corp. and the Alaska Court System are permitted to establish their own procurement regulations (including the use of CMAR). Id. §§ 36.30.005(c), -.015(e), -.015(f), -.030.	There is no regulation of project delivery systems in private construction projects. Project delivery systems in public projects are regulated through the Arizona Procurement Code. Ariz. Rev. Stat. § 41-2501 et seq. Each of the approved project delivery methods is defined by statute. Id. § 41-2503.	In public projects, Arkansas only allows school districts to use design build construction as a project delivery system. Ark. Code Ann. § 19-11-807.	California does not treat design build construction in any special manner, although it does acknowledge its use to certain public projects. For example, counties may use design build contracting for public works construction. Cal. Pub. Cont. Code § 20133. Also, there are other project delivery options available for schools and community colleges: traditional bid-build design, multi-prime, construction management at risk (CMAR), lease-leaseback, and piggyback contracts.

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[1] Steele v. Drummond, 275 U.S. 199, 205 (1927); May Dep’t Stores Co. v. First Hartford Corp., 435 F. Supp. 849, 852 (D. Conn. 1977).

[2] See, e.g., N.J. Stat. Ann. § 45:3-1, et seq. (construction through design build delivery systems would arguably be required to be performed by an entity holding an architectural license since the design services could not be provided by a non-licensed entity).

[3] Food Mgmt., Inc. v. Blue Ribbon Beef Pack, Inc., 413 F.2d 716, 724 (8th Cir. 1969).

[4] Fla. Stat. § 471.003(2)(f) and 481.229(3).

[5] La. Rev. Stat. § 37:2150, et seq.

[6] Ohio Rev. Code §§ 4703.182, 4733.161.

[7] Id.

[8] See N.H. Rev. Stat. §§21-i:78, 228:1.

[9] See Hosp. Serv. Dist. v. La. State Licensing Board, 723 So. 2d 1110 (La Ct. App. 1998) (the court upheld the Contractor’s Licensing Board’s decision finding that all projects in Louisiana must be constructed by a single general contractor).

[10] Ark. Code R. §224-25-5(c).

[11] E.g., Arkansas has a 5 year limitations period for any claim based on a written contract. Ark. Code Ann. §16-56-111. Claims based on oral contracts or torts must be commenced within 3 years. Id. at §16-56-105. All other actions not specifically addressed in other statutes are subject to a 5 year statute of limitations. Id. at §16-56-115. Likewise, California has a 4 year statute of limitations for a breach of a written contract, and a 2 year limitations period for breach of an oral contract. Cal. Civ. Proc. Code §§ 337, 339. In Connecticut, claims for breach of contract have a 6 year statute of limitations. Conn. Gen. Stat. §52-576.

[12] Ala Code §6-5-221.

[13] Ariz. Rev. Stat. §12-549.

[14] Id. at §12-552.

[15] Id.

[16] Colo. Rev. Stat. §§ 13-80-104(1)(a), -102.

[17] Id. at §§ 13-80-101, -105.

[18] 10 Del. C. § 8127(b).

[19] Id. at § 8106.

[20] See, e.g., Ala Code §§34-2-1, et seq., 34-11-1, et seq., 34-17-1 et seq. and 34-8-1 (requiring licensing of architects, engineers, land surveyors, landscape architects, general contractors and subcontractors); Ariz. Rev. Stat. § 32-101, et seq. (requiring certification of architects, assayers, certified remediation specialists, engineers, geologists, home inspects, landscape architects and surveyors by the Board of Technical Registration); Ariz. Rev. Stat. § 32-1101, et. seq. (any person acting in the capacity of a contractor (who is not exempt by statute) must be licensed by the Registrar of Contractors). A full list of the licensing requirements, by state, appears in the Appendix to this paper.

[21] For example, in Maine, construction professionals, including contractors, do not require state licensing. The same is true in Montana, although M.C.A. §39-A-101 requires general contractors to register with the state.

[22] See, e.g., Fla. Stat. §489.128; Miss. Code Ann. §31-3-15.

[23] Miss. Code Ann. § 73-1-25 (architecture without a license); § 73-2-21 (landscape architects); § 31-3-21 (construction professionals).

[24] Ariz. Rev. Stat. §32-1129, et seq.

[25] Ark. Code Ann. §5-37-525.

[26] Conn. Gen. Stat. §42-158j.

[27] Haw. Rev. Stat. §444-25.

[28] Id.

[29] Kan. Stat. Ann. §16-1801 et seq.

[30] Id. at §16-1803.

[31] Ky. Rev. Stat. §371.405(5), (8).

[32] Id. at 371.405(9).

[33] Va. Code Ann. § 43-13.

[34] See generally Nev. Rev. Stat. § 624, et seq.

[35] Id. at § 624.10(1)(d).

[36] Id. at § 624.10(3).

[37] Idaho Code § 29-115.

[38] M.C.A. § 28-2-2110.

[39] Nev. Rev. Stat. § 338.315.

[40] Conn. Gen. Stat. § 42-158k.

[41] Conn. Gen. Stat. § 42-158p.

[42] Conn. Gen. Stat. § 42-158p(g).

[43] Conn. Gen. Stat. § 42-158r.

[44] Ala. Code § 8-29-4.

[45] Ky. Rev. Stat. Ann. § 371.410(1).

[46] N.D. Cent. Code § 43-07-23.

[47] Me. Rev. Stat. tit. 10 § 1118(1).

[48] Id. at § 1116.

[49] N.M. Stat. Ann. § 57-28-5(E).

[50] Md. Code Ann., Real Prop. § 9-304.

[51] Or. Rev. Stat. § 701.420(1), 430.

[52] Colo. Rev. Stat. § 38-22-127(1).

[53] Del. Code Ann. tit. 6 § 3502.

[54] Id. at § 3503.

[55] Md. Code Ann., Real Prop. § 9-201.

[56] Mich. Comp. Laws § 570.151 et seq.

[57] N.Y. Lien Law § 70.

[58] Under New York Penal law, such a diversion would constitute larceny. N.Y. Penal Law § 155.05.

[59] Okla. Stat. tit. 42 § 152.

[60] Tex. Prop. Code Ann. § 162.001-162.033.

[61] See, e.g., Ala. Code § 8-29-4 (imposing interest on unpaid balance due at 12% per annum); Ariz Rev. Stat. § 32-1129, et seq (payments made later than 14 days after work or materials supplied, unless otherwise agreed in writing, results in accrual of 1% interest per month, or at a higher rate agreed by the parties); Colo. Rev. Stat. § 24-91-103 (payments made later than 7 days accrue interest at a rate of 15% per annum); Conn. Gen. Stat. § 42-158j (imposing interest on unreasonably withheld payments of 12% per annum); Del. Code tit. 6 § 3506 (imposing interest penalty for late payments); Ga. Code Ann. § 13-11-7 (late payments accrue interest at 1% per month); Haw. Rev. Stat. § 444-25 (amounts not paid within 60 days subject to 1% monthly interest); Kan. Stat. Ann. § 16-1803 (failure to pay within 30 days may result in penalty of 18% per annum); Ky. Rev. Stat. § 371.405(5)(imposing interest of 12% per annum); Me. Rev. Stat. tit. 10 § 1118 (imposing penalty of 1% monthly interest); Minn. Stat. § 337.10 (failure to make payment to subcontractors and suppliers within 10 days after receipt of payment results in an interest penalty of 1.5% per month); Miss. Code Ann. §§ 87-7-3, 87-7-5 (interim or progress payments due contractors under non-public construction contracts bear interest at 1% per month from the due date if not made within 30 days of becoming due; failure to make progress payments within 15 days of receipt of funds can carry a penalty of 0.55 per day of delinquency, not to exceed 15% of the outstanding balance); Mo. Rev. Stat. § 431.180 (if payments not made pursuant to the contract terms, a court may award interest up to 1-1/2%); Mont. Code Ann. § 28-2-2104 (requires an owner to pay interest of 1.5% for any unpaid amount 30 days past due); N.C. Gen. Stat. §§143-134.1, 22C-5 (if final payment is unjustly delayed more than 45 days, the prime contractor must be paid interest of 1% per month; if any periodic or final payment to a subcontractor is delayed by more than 7 days after receipt of payment, the subcontractor is entitled to interest of 1% per month on the unpaid balance); Ohio Rev. Code §4113.61(A) (if a contractor or subcontractor fails to pay its suppliers or subcontractors within 10 days or fails to pay retainage, interest of 18% per annum will apply); Or. Rev. Stat. § 701.420 (an owner, contractor or subcontractor must pay 1% interest per month on the final payment due to a contractor or subcontractor); 73 Pa. Cons. Stat. Ann. § 3935 (untimely payments are subject to interest of 1% per month, plus reasonable attorneys fees for any amounts “deemed to have been withheld in bad faith and to the extent that the withholding was arbitrary or vexatious.”); S.C. Code Ann. §§ 29-6-50, 29-6-30 (if payment is more than 21 days late, interest of 1% per month must be paid, but the person being charged with interest must be notified of the prompt payment statute at the time of request).

[62] Md. Code Ann. Real Prop. § 9-303.

[63] 73 Pa. Cons. Stat. Ann. § 3935.

[64] Va. Code Ann. § 43-13.

[65] Fla Stat. Sect. 713.345.

[66] La. Rev. Stat. §9:2774.

[67] Id. at 9:2774B.

[68] Okla. Stat. tit. 60 §§ 831-839.

[69] P.R. Laws Ann. § 3841.

[70] Okla. Stat. tit. 60 §§ 831-839.

[71] Conn. Gen. Stat. §§ 47-117, -118.

[72] La. Rev. Stat. § 9:3150.

[73] Me. Rev. Stat. tit. 10 § 1487(7).

[74] Id.

[75] Md. Code Ann., Real Prop. § 10-601 et seq.

[76] Id. at § 10-604.

[77] Id. at § 10-606.

[78] Miss. Code Ann. § 83-58-1 et seq.

[79] Id. at § 83-58-17.

[80] Id.

[81] N.J. Stat. Ann. §46:3B-2 et seq.

[82] N.Y. Gen. Bus. Law Art. 36-B.

[83] Id. at § 777-A.

[84] Id.

[85] Id.

[86] Ind. Code §32-27-2-1 et seq.

[87] Id. at § 32-27-2-8.

[88] Id.

[89] Id. at § 32-27-2-7.

[90] Id. at § 32-27-2-8.

[91] Id. at § 32-27-2-9.

[92] Id. at § 32-27-2-9.

[93] La Rev. Stat. §9:2774B.

[94] N.Y. Gen. Bus. Law §777-b.

[95] Miss. Code Ann. § 11-7-18.

[96] Melendez v. Levitt & Sons, 104 P.R. Dec. 797 (1976).

[97] Ariz. Rev. Stat. §§ 32-1159, 34-226.

[98] Ark Code Ann. § 4-56-104.

[99] Neb. Rev. Stat. §25-21, 187(1).

[100] Colo. Rev. Stat. § 13-21-111.5(6); Or. Rev. Stat. § 30.140.

[101] Cal. Civ. Code §2782(a).

[102] Conn. Gen. Stat. § 52-572(k).

[103] Del. Code tit. 6 §2704.

[104] Haw. Rev. Stat. § 431:10-222.

[105] Idaho Code § 29-114.

[106] 740 ILCS 35/1.

[107] Ind. Code § 26-2-5-1.

[108] Kan. Stat. Ann. § 16-121.

[109] Ky. Rev. Stat. § 371.180(2).

[110] Md. Code Ann., Cts. & Jud. Proc. §5-401.

[111] Ma. Gen. Laws ch. 149, § 29C.

[112] Mich. Comp. Laws § 691.991.

[113] Miss. Code Ann. §31-5-41.

[114] M.C.A. §28-2-2111.

[115] N.J. Stat. Ann. § 2A:40A-1.

[116] Ohio Rev. Code § 2305.31.

[117] R.I. Gen. Laws § 6-34-1.

[118] Tex. Civ. Prac. & Rem. § 130.002.

[119] Utah Code Ann. § 13-8-1. There is an exception where such an indemnification provision is included in a contract between an owner and any construction manager, contractor or supplier; in that case, the fault of the owner shall be apportioned among such parties pro rate based on the proportional share of fault of each of the parties if (a) the damages are caused in part by the owner, and (b) the cause of the damages did not arise at the time and during the phase of the project when the owner was operating as a construction manager, contractor or supplier. Id. at § 13-8-1(2).

[120] Wash Rev. Code § 4.24.115.

[121] W. Va. Code § 55-8-14.

[122] N.H. Rev. Stat. § 338-A:2.

[123] 68 Pa. Cons. Stat. Ann. § 491.

[124] N.D. Cent. Code §22-02-02.

[125] Id. at § 22-02-03.

[126] Polozola v. Garlock, Inc., 343 So. 2d 1000 (La. 1997).

[127] Emery v. Waterhouse Co., 467 A.2d 986 (Me. 1983).

[128] N.M. Stat. Ann. §56-7-1.

[129] Id.

[130] R.I. Gen Laws §5-65-7.

[131] E.g., Md. Code Ann., Bus. Occ. & Prof. §6-604, §12-403 (2004 Repl.Vol.); N.J.S.A. 45:5A-9.1

[132] Ga. Code Ann. §43-41-6 (e).

[133] Neb. Rev. Stat. Ann. §48-2105 (6).

[134] Tex. Lab. Code Ann. §406.002.

[135] Tex. Lab. Code Ann. §406.033.

[136] Wyo. Stat. Ann. §27-14-202 (2007).

[137] Wyo. Stat. Ann. §27-14-102 (a)(XIX) (2007).

[138] Nev. Rev. Stat. 616 B.642 See Harris v. Rio Hotel & Casino, Inc. 117 Nev. 482, 25 P.3d 206 (2001).

[139] Pelletier v. Sordoni/Skanska Construction Co., 286 Conn. 563 (2008).

[140] Id.

[141] Fla. Stat. §440.104.

[142] Fla. Stat. §440.103.

[143] Or. Rev. Stat. §701.081 and §701.804.

[144] Md. Code Ann. & Bus. Reg. §4.5-302 (a) (2004 Repl. Vol.).

[145] Id. at §8-302.1.

[146] Id. at §9A-402.

[147] N.J. Stat. Ann. §45:5A-9.1.

[148] Conn. Gen. Stat. § 49-41 (e) 3 (2006).

[149] R.I. Gen. Laws §27-29-4 (9) (ii).

[150] 40 U.S.C. §3131.

[151] Va. Code Ann. §2.2-4337.

[152] Ariz. Rev. Stat. §34-221, et seq.

[153] Id.

[154] Ariz. Rev. Stat. §34-222(B).

[155] Md. State Fin. & Proc. Code Ann. §17-101(d)(1988).

[156] Id. at §17-103(a).

[157] Id. at §17-108.

[158] Ala. Code §39-1-1; See U.S. Fidelity & Guar. Co. v. Couch, Inc., 472 So. 2d 614, 616 (Ala. 1985).

[159] Colo. Rev. Stat. §38-26-107.

[160] Ga. Code Ann. §10-7-31(b).

[161] Ga. Code Ann. §10-7-31(a).

[162] Nev. Rev. Stat. 339.025

[163] Nev. Rev. Stat. 339.035(2)(a).

[164] Garff v. J.R. Bradley Co., 84 Nev. 79, 436 P.2d 428 (1968).

[165] Va. Code Ann. §2.2-1431(B)

[166] Md. State Fin. & Proc. Code Ann. §17-108(b)(1988).

[167] Ga. Code Ann. §§13-10-65 (State) 3691-95 (local).

[168] Ga. Code Ann. §36-91-91.

[169] McArthur Elec., Inc. v. Cobb County Sch. Dist., 642 S.E. 2d 830, 831-32 (Ga. 2007).

[170] Conn. Gen. Stat. Ann. §38a – 290.

[171] General Electric Co. v. Lexington Contracting Corp., 292 N.E. 2d 874, 875-76 (Mass. 1973).

[172] Compare R.I. Gen. Laws §37-12-2 with R.I. Gen. Laws §34-28-30. See Air Distribution Corp. v. Airpro Mechanical Co., Inc. 973 A. 2d 537 (RI 2009).

[173] E.g., Wyo. Stat. Ann. §39-15-303(b)(iii) (2007).

[174] Or. Rev. Stat. §701.068.

[175] Va. Code Ann. §55-79.58:1.

[176] Mass. Gen. Laws Ann. ch.64, I §31A.

[177] Mass. Gen. Laws Ann. ch. 254, §12.

[178] Eastern Mountain Platform Tennis, Inc. v. Sherwin-Williams Co., Inc., 40 F.3d 492 (1st Cir. 1994) (interpreting N.H. Rev. Stat. Ann. 358-A:1 (1993).

[179] Mass. Gen. Laws Ann. ch. 93A.

[180] E.g., Illinois Consumer Fraud Act, 815 IL CS505; Tennessee Consumer Protection Act, Tenn. Code. Ann. §47-18-104(5).

[181] See Drywall Systems, Inc. v. ZVI Constr. Co., 435 Mass. 664; 761 N.E. 2d 482 (2002).

[182] Conn. Gen. Stat. §42-11-110(b), et seq.

[183] Tessmann v. Tiger Lee Constr. Co. 634 A. 2d 870 (Conn. 1993).

[184] Del. Code Ann. tit 6, §§2531-2536.

[185] Iowa Code §714.16.

[186] Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash. 2d 778, 719 P. 2d 531 (1986).

[187] N.J. Stat. Ann. 46:3(b)1-1, et seq.

[188] Haw. Rev. Stat. §444-26.

[189] E.g., Cal. Bus. & Prof. Code §§7164.

[190] Restatement (Second) of Contracts §347 (1981).

[191] Ga. Code Ann. §13-6-2.

[192] Ga. Code Ann. §13-6-8.

[193] Ga. Code Ann. §13-6-7.

[194] Daniels v. Johnson, 191 Ga. App. 70, 381 S.E. 2d 87 (Ga. Ct. App. 1989).

[195] Hanson Dev. Co. v. East Great Plains Shopping Center, Inc. 195 Conn. 60, 64-65, 485 A. 2d 1296, 1299-1300 (1985).

[196] Sound Techniques, Inc. v. Hoffman, 50 Mass. App. Ct. 925, 737 N.E. 2d 920, 924-25 (Mass. App. Ct. 2000).

[197] Dep’t of Transp. v. APAC-Georgia, Inc., 217 Ga. App. 103, 456 S.E. 2d 668, 671 (Ga. Ct. App. 1995).

[198] City of Santa Barbara v. Superior Court, 41 Cal. 4^th 747, 161 P. 3d 1095 (2007). E.g., West-Fair Elec. Contractors, et al. v. Aetna Cas. & Surety Co., et al., 661 N.E. 2d 967, 971 (N.Y. 1995); 770 Ill. Comp. Stat. Ann. 60/21; N.C. Gen. Stat. §22C-2; Wis. Stat. §779.135.

[199] Dep’t of Transp. v. Arapaho Constr., Inc. 180 Ga. App. 341, 342-43, 349 S.E. 2d 196, 198 (Ga. Ct. App. 1986), aff’d 357 S.E. 2d 593 (Ga. 1987).

[200] DeCarlo and Doll, Inc. v. Dilozir, 45 Conn. App. 633, 642 n.4, 698 A. 2d 318, 323 (1997); See generally 6 Bruner & O’Connor Construction Law §19:52.56.

[201] E.g., Star Contracting Corp. v. Manway Constr. Co., 32 Conn. Supp. 64, 337 A. 2d 669 (1973); MidAmerica Constr. Management, Inc. v. MasTec North America, Inc., 436 F.3d 1257 (10th Cir. 2006); Gilbane Bldg. Co. v. Brisk Waterproofing Co., Inc., 86 Md. App. 21, 585 A.2d 248 (Md. App. 1991); St. Paul Fire & Marine Ins. Co., et al. v. Georgia Interstate Electric Co., 187 Ga. App. 579, 370 S.E. 2d 829.

[202] Ohio Rev. Code Ann. §4113.62(C).

[203] J.A. Jones Constr. Co. v. Lehrer McGovern Bovis, Inc., 120 Nev. 277, 89 P.3d 1009 (2004).

[204] Va. Code. Ann. §2.2-4335.

[205] Eugene J. Heady and Douglas L. Tabeling, Georgia Construction and Design Law, in A State-by-State Guide to Construction & Design Law 256 (Carl J. Circo & Christopher H. Little eds., 2d ed. 2009).

[206] Franklin Grove Corp. v. Drexel, 936 A.2d 1272 (R.I. 2007).

[207] Forte Bros., Inc. v. National Amusements, Inc. 525 A.2d 1301, 1303 (R.I. 1987).

[208] Idaho Code §62504.

[209] National Conference of Commissioners on Uniform State Laws, Uniform Arbitration Act (2000), p. 6, available at http://www.law.upenn.edu/bll/archives/ulc/uarba/arbitrat1213.htm. (last visited July 24, 2009).

[210] Id.

[211] Ala. Code §6-6-1.

[212] E.g., 42 Pa. Cons. Stat. Ann. §7301; Or. Rev. Stat. §§36.600.740.

[213] E.g., Cal. Civ. Proc. Code §1141.20.

[214] Cal. Civ. Proc. Code §1755; see also, Haw. Circuit Court Rule 34; Ill. Sup. Ct. Rule 86; Nev. Arbitration Rule 1; Utah Judicial Admin. Rule 4-510.

[215] E.g., Leasecomm Corp. v. Hollyleaf Group, Inc., 16 Mass.L.Rptr. 678, 2003 WL 22285513 (2003)

[216] M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).

[217] Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985).

[218] Bremen, supra at 18; see also, D’Antuono v. CEH Computax Sys., Inc. 570 F. Supp. 708, 712 (D.R.I. 1983)

[219] R.I. Gen. Laws §6-34.1-1.

[220] Tex. Bus. & Com. Code ch. 272, U.C.A. 13-8-3 (2) .

[221] N.H. Rev. Stat. Ann. §277-A.

[222] N.H. Rev. Stat. Ann. §141-E.

[223] N.H. Rev. Stat. Ann. §146-A.

[224] N.H. Rev. Stat. Ann. §485-A.

[225] N.H. Rev. Stat. Ann. §482-A.

[226] N.H. Rev. Stat. Ann. §485.

[227] Massachusetts Environmental Policy Act, Mass. Gen. Laws. c 30 §61, et seq; State Environmental Quality Review Act, Environmental Conservation Law, §8-0113, et seq.

[228] Wash. Rev. Code, §19.27.097.

[229] Wash. Rev. Code, §36.70A.070(6)(e).

[230] Wash. Rev. Code, §36.70A.070(3).

[231] Wash. Rev. Code, §36.70A.070(1).

[232] Wash. Rev. Code, ch. 70.105D.

[233] Cal. Health & Safety Code §25395.60, et seq.

[234] http://en.wikipedia.org/wiki/Green_building (last visited July 28, 2009).

[235] See U.S. Green Building Council at http://www.nsgbc.org (last visited July 28, 2009).

[236] Conn. Gen. Stat. §16a. 38k (2009).

[237] Conn. Gen. Stat. §29-256a (2009).

[238] Maine Rev. Stat. Ann. tit. 10, §1411.

[239] Nev. Rev. Stat. tit. 58, ch. 701A.110.

[240] N.M. Stat. Ann. §7-2-18, 19.

[241] Va. Code Ann. §58.1-3221.2.

[242] Greensburg Green Town website at http://www.greensburggreentown.org (last visited July 28, 2009).

[243] Cal. Code Regs. tit. 24, part 11, Cal. Green Bldg. Standards Code (2008), available at http://www.documents.dgs.ca.gov/bsc/2009/part 11_2008_calgreen_code.pdf. (effective August 1, 2009).