Blog Posts
Construction
Best Practices When Terminating for Cause a Downstream Contractor/Subcontractor
Terminating for cause a downstream contractor (or subcontractor) is considered the “nuclear option” when handling breaches of contract. Terminating for cause usually increases the risks and likelihood of litigation. Frequently, by the time the terminating party contacts the lawyer, it has already made the decision to terminate and wants the lawyer to effectuate the termination as quickly as possible. But a snap termination may cause compound problems. Instead of a quick termination, best practice is to follow a methodical, well-documented approach. Follow the Contract Documents Most contracts outline a process for declaring breach and terminating the contract. Generally, these steps must be followed. Some contracts identify with specific precision the types of breaches that allow for termination versus other remedies. The governing law (e.g., which state’s law applies) can have significant effect on the righteousness of a termination. Some states rigidly require all processes, notices, and terms set forth in the contract termination clauses to be satisfied prior to termination. Other states may allow exceptions to the drawn-out termination process, affording quick termination that shortcuts contractual notice clauses, depending on the circumstances. Still, whether a contract can be terminated more quickly than set forth in the contract is open to interpretation, and terminating more quickly than the contract strictly requires increases the risk of wrongful termination. Meanwhile, if the contractual processes have been followed, it significantly reduces the risk of a wrongful termination. Thus, as a general rule of thumb, following the contract processes for declaring breach and termination is a good start. Best Practice is to Issue a Notice to Cure Most contracts that outline a process for termination also require issuing a notice to cure prior to termination. As previously stated, it is best to follow the contractual requirements. Even if the contract does not require a notice to cure, it is typically best practice to still issue a notice to cure. There are two main reasons why this is recommended. First, if the default party cures the breach, then, perhaps there is no need to terminate, because the work has been brought “back on track.” Generally, forcing the defaulting party to cure the breach at its own cost is less expensive than terminating and fronting the costs to bring in another trade to finish or cure the work. Second, when proving that the termination was justified, typically it must be demonstrated that the defaulting party was in “material breach” of the contract. If the breach pertains to a critical component of the work, and the defaulting party fails to cure it after a proper notice, that is very strong proof that the defaulting party was in material breach and cannot perform. Thus, the termination for cause is more likely to be adjudged as righteous and justified after a failed cure opportunity. Meanwhile, if no opportunity to cure was provided, the defaulting party can argue that it would have cured the breach. If the breach could have been cured, that is strong evidence that the breach was not material (it was fixable). Thus, a notice to cure is typically the “other foot dropping” that proves the default could not be cured and therefore the defaulting party was in material breach. Some states require a notice to cure to be issued prior to termination for cause. Lastly, sometimes the breach has already, previously been cured by the defaulting party. Occasionally, an irritated higher-tier party will provide a lengthy list of transgressions and reasons for termination, but all of them are old, stale, and already cured. Generally, it is problematic to terminate for cause, if the reason for the termination has already been cured. Usually, terminating for cause requires the defaulting party to be in current, uncured breach at the time of termination. If terminating a party for yesteryear’s transgressions, then, you are not technically terminating for breach of contract (it was already cured); instead, you are terminating because you are still angry about it. But that is not a justified basis for termination under the law. It is an uncured (or uncurable) material breach that justifies termination, not a subjective opinion that the party was incompetent due to past issues that are of no current moment. Document the Breach of Contract, the Remediation, and the Costs/Losses When terminating a defaulting party, it is important to document breach. Photographs, daily logs/reports, notices to cure, and meeting minutes should corroborate and prove the breach. Documentation of the redesign or remediation work should be well maintained, including annotated sketches or drawings to explain the details of the breach and remediation. Likewise, clear, segregated cost tracking proving the specific additional costs for remediation and cure of the issue should be maintained. Also, best practice is to maintain documentation of the curative work to show and explain the steps taken to cure the issue. Often, the curative work itself speaks volumes as to what the problem was. Preserve Evidence, Allow Access to Evidence, and Avoid Spoliation Obviously, the evidence of breach, notice, termination, and the remediation work should be preserved. Relatedly, it is best to provide notice of the pending remediation work and allow the terminated party access to the site for a last inspection of the issue prior to the remediation work occurring. This is because, once the remediation work commences, the evidence of breach will inherently be destroyed and manipulated. Sometimes the terminated party will dispute the evidence, and argue that if it had been allowed the opportunity to inspect the defect, it would have been able to prove that the work was in fact satisfactory or a less expensive cure could have been utilized. The best approach is to allow the terminated party to access the site to inspect the work and observe the remediation work. The terminated party cannot interfere with the work or project, of course, but providing reasonable access for inspection (and sometimes destructive testing) is the best practice. Lastly, sometimes, if allowed to inspect prior to the final termination, the defaulting party might present analysis or evidence to change minds about the course for remediation. Ensure that All Interested Parties Have Been Given Notice Sometimes there is a reason to give notice of the termination to third parties. For example, if there is a performance bond posted by the defaulting party, typically it is best to give notice to the surety. Also, sometimes the contract documents require notice of a termination to be given to either a lender, higher tier, or owner. Consider Whether Statutes Impose a Limitation or Constraint on Termination Sometimes the basis for termination might conflict with a separate statute. For example, under the Bankruptcy Code it is technically a violation to terminate a contract on the basis of a declared bankruptcy. You must seek bankruptcy court approval for terminating a contract with a bankrupt debtor. Other times, statutory payment acts or other statutes may require a process or steps to be taken prior to termination. This is particularly true if there are withholdings or demands for payment, which is frequently the case. Ultimately, termination of a party on a construction project is a very strong action with significant repercussions. Missteps in the termination process can compound losses and escalate risk. Care must be taken to approach the termination with careful consideration of strategy and planning in the best interests of both the project and the litigation claims/defenses. It is highly recommended to consult with legal counsel starting with the notice and termination period. Lastly, these approaches are general points for consideration; recognize that each specific situation, project, or contract will have different factors to consider when terminating a downstream party. JEFFREY C. BRIGHT is a Principal attorney in Offit Kurman’s Construction Practice Group and maintains a multi-state construction law practice, representing contractors, subcontractors, owners, construction managers, design-builders, and design professionals. He is licensed and active in construction law matters in PA, MD, DC, VA, and CA. In addition to handling construction litigation and project disputes, including termination of contracts mid-project, he regularly advises on the preparation, revision, and negotiation of construction contracts for various project delivery systems. He can be reached at jeff.bright@offitkurman.com.
August 26, 2026
Construction
The Saga of Economic Volatility Continues — Construction Contract Approaches for Potential Economic Issues Arising from the Iran Military Conflict
Six years ago, the COVID pandemic caused a shutdown of the economy. Since then, continued issues of economic volatility have occurred: supply chain woes; inflation and cost escalation; tariffs; and various other natural disasters. Now, with the Iran military conflict, specific materials and oil prices appear to be at risk. This article presents approaches for addressing these risks in construction contracts. As a starting point, military conflict is a typical type of force majeure event. But that alone does not necessarily dictate a remedy or relief for impacts. Generally, the best approach is for the construction contract to specifically address both the issue and the afforded relief. One initial issue in negotiating such contract clauses is the definition of the Iran military conflict itself. Does the military conflict constitute a war? Does the clause protect from war, terrorism, or a specifically identified military conflict? Does the current conflict constitute an unusual, unforeseen event? What if you sign a contract today—at this point, does it still remain an unforeseen event? Because of these complications, it is best to specifically address the issue with a custom contract clause. Instead of relying solely on vague or broad language, any negotiated clause should specifically identify the issue and all broad concerns—impacts of any terrorism, vandalism, armed conflict, military conflicts, or any widening military or government action, including but not limited to, events arising from the Iran/U.S. military conflict. And it should identify the potential problems (price escalation and delay of materials) and the respective relief (increase in price and extension of time through a change order). Even if a standard construction contract form includes a force majeure clause for “war,” it might not cover all incidents or events. And it might only afford relief of a time extension, but not necessarily additional compensation for price issues. Relying upon generic common law doctrines, such as commercial impracticability are risky because a court might rule that the issue was foreseeable, especially if the contract is signed while the pending conflict is developing. And a court might rule that the impacts from the event do not rise to the level of commercial impracticability. Also, when the issue of concern is economic volatility, the more that the event is known as a potential issue at the time of contracting, the more reason to specifically identify the issue and the mechanisms for relief. This is generally true for all the economic issues identified in this article—pandemics; supply chain issues; inflation and cost escalation; and tariffs. If an event is known to exist and might impact the project, best practice is to specifically address the event with a clause that affords either an extension of time, increase in price, or both. Other specific clauses to consider include: Price escalator clauses for either tariffs, price increases, or specified categories of materials (e.g., specific oil-based materials or fuel price increases) Contingencies or allowances for materials of concern or tariff costs Greater flexibility for substitutes or alternatives to allow for the sourcing of differing materials Extensions of time if materials are difficult to source Termination for convenience clauses if projects become impracticable due to any war-time orders or governmental orders that severely impede the project Segregated pricing by agreement for time-and-material budgets for carved-out scope packages that might be more volatile Prompt procurement, buy-out administration, and warehousing of goods in advance to avoid potential volatility on specified goods Value-engineering during the preconstruction phase to identify different (more easily accessible) materials Increased buffers in the contract price to account for the risk of potential tariff impositions When negotiating and drafting custom contract clauses to address risk on projects, or if litigating claims for equitable adjustments or change orders, best practice is to consult with trusted, experienced counsel that is knowledgeable on the intricacies of construction law. JEFFREY C. BRIGHT is a Principal attorney in Offit Kurman’s Construction Practice Group and maintains a multi-state construction law practice, representing contractors, subcontractors, owners, construction managers, design-builders, and design professionals. He is licensed and active in construction law matters in PA, MD, DC, VA, and CA. In addition to handling construction litigation and project disputes, including time impact claims for liquidated damages, delays, or disruptions, he regularly advises on the preparation, revision, and negotiation of construction contracts for various project delivery systems. He can be reached at jeff.bright@offitkurman.com.
April 21, 2026
Construction
A (Simple) Primer on the Voiding of Tariffs by the Supreme Court and Its Impact on the Construction Industry
On February 20, 2026, the United States Supreme Court voided the tariffs on international goods imposed by President Trump under the IEEPA. The initial, immediate effect is that the recently imposed (and relatively high) tariffs on imported goods are immediately void. This has raised various questions in the construction industry. Will prices go down? Will new tariffs be imposed? Simply because the tariffs were voided does not necessarily mean that prices will go down. Prices are affected by other market forces, not just tariffs. Also, there is the likely prospect of other tariffs being imposed. In fact, that is exactly what the Trump Administration immediately did in response to the Supreme Court ruling. The tariffs are less onerous, however, and they might be temporary. Still, there is the potential for additional or increased tariffs to be imposed on goods. Also, not all construction materials were exclusively under the new tariffs; some materials, such as steel, had longstanding protectionist tariffs dating back decades. If the tariff was through something other than IEEPA, then, the refunds are inapplicable. Thus, even with the voiding of the recent Trump Administration Tariffs, other tariffs or price volatility may still affect certain goods and materials. Contractors should carefully examine the specific tariffs that apply to specific goods and should continue to account for forthcoming tariff volatility risk in all contracts by negotiating clauses (or prices) that address economic volatility. What about the tariffs that I already paid on imported materials and goods? Generally, the key point to understand is that the “Importer of Record” has the right to seek a refund of moneys paid on the tariffs. If you are not the Importer of Record, then, it is likely difficult for you to seek a refund. Refunds are to be sought directly from Customs and Border Protection (“CBP”) or the Court of International Trade (“CIT”). Refunds from CBP generally require filing specific documents within 180 days of the “liquidation” of the initial entry of the goods. Consult with an attorney to identify the correct filing(s) for which you might be eligible, as the filings are time-sensitive with deadlines. Even if you ultimately paid the tariff cost through pass-through clauses in your contracts, if you were not the Importer of Record, you likely do not have eligibility to file a refund claim against the government. Still, each circumstance should be reviewed by an attorney. Theoretically, depending on your contract clauses, the Importer of Record could seek a refund and pass the refund dollars to you. Why did I pay all those tariff costs if the whole thing was void from the start? Shouldn’t I have refused to pay them from the start? Once the executive branch of the federal government imposed the tariff, it became required to be paid in order to receive the imported good. There really was no other option in real time (other than refusing to receive the good). You could negotiate in your contract who would bear the cost of the tariff, but refusing to pay it meant that you would be unable to receive the imported goods. Theoretically, you could have filed a protective claim with CIT with the intent of appealing to the United States Supreme Court; but realistically, that is a very expensive and burdensome process. Typically, for significant matters of this nature, a single contractor importing a good would not want to carry the cost and burden of a Supreme Court case. Thus, you did what everyone did—paid the tariff to get the goods imported and attempted to price and account for the risk in your contracts accordingly. But, with the recent Supreme Court ruling, refunds are available for certain eligible claimants, including interest. JEFFREY C. BRIGHT is a Principal attorney in Offit Kurman’s Construction Practice Group and maintains a multi-state construction law practice, representing contractors, subcontractors, owners, construction managers, design-builders, and design professionals. He is licensed and active in construction law matters in PA, MD, DC, VA, and CA. In addition to handling construction litigation and project disputes, including time impact claims for liquidated damages, delays, or disruptions, he regularly advises on the preparation, revision, and negotiation of construction contracts for various project delivery systems. He can be reached at jeff.bright@offitkurman.com. Special thanks to Janine Campanaro and Matthew Reddington from the Offit Kurman tax law group for contributing to this article.
March 24, 2026
Construction
A Primer on Mechanics’ Lien Claim Waivers in Pennsylvania
Waiver of mechanics’ lien claims is an important and frequent issue on construction projects. There are various approaches to lien claim waivers, depending on the type of project and the preferences of the parties. Because of the various types of lien claim waivers, there is often confusion. This article explains the different types of lien claim waivers. An initial fundamental point regarding mechanics’ lien claims and waivers, is that they are creatures of statute. Each state has its own laws that govern mechanics’ liens and waivers. There is no universal, national law that governs. Instead, each state has its own statutes and interpretation of the law. Additionally, mechanics’ liens generally cannot be asserted against public projects. Advance Lien Claim Waiver Versus Progress or Final Lien Claim Waiver One categorical distinction between lien claim waivers is whether they apply in advance of the work, versus lien claim waivers that are executed during the progress of the project and apply to work performed as of the date of the waiver. An “advance” lien claim waiver is executed prior to the work being performed. Accordingly, it waives lien claim rights before doing the work. Most states prohibit advance lien claim waivers. In Pennsylvania, however, advance lien claim waivers are enforceable, but only on specific types of projects, and only if specific requirements are met (more on that below). In contrast, a progress or final lien claim waiver is executed during the project, or after the work is completed, and it typically clarifies that it applies to the work already performed. The standard approach is to identify a “through date,” which means that the waiver applies to all work performed “through” a certain date. Typically, the “through date” would be a prior date that has already passed, and the lien claim waiver states that it is effective to waive lien claim rights for all work performed up to and including that date. Typically, progress lien claim waivers are executed with each payment application. None of the “through dates” are future dates—which would instead be an advance lien claim waiver. Progress and final lien claim waivers are effective and enforceable. In Pennsylvania, for advance lien claim waivers to be effective, it must be a commercial project (non-residential), and a payment bond must be posted that covers the project. Also, the advance lien claim waiver is only effective to waive downstream (subcontractor/supplier) lien claim rights. The prime contractor with a direct contract with the owner cannot waive lien claim rights in advance, and the payment bond is posted by the prime contractor (so the payment bond does not cover the prime contractor’s demands for payment). Conditional Versus Unconditional Lien Claim Waivers Another categorical distinction in lien claim waivers is “conditional” versus “unconditional.” A conditional lien claim waiver identifies that it is only effective if certain conditions (typically pending payment) occur. Thus, for example, with a conditional lien waiver, it will expressly state that the waiver is “conditioned” on the future receipt of the identified payment. If the identified payment is not received, then, the waiver (even if executed) is unenforceable. Unconditional lien claim waivers, on the other hand, expressly state that the payment has already been received, and that there are no other requirements or events to occur for the lien claim waiver to be effective. Typically, these lien claim waivers identify themselves with the words “unconditional,” and they often state that the payment identified has been “received in fact,” or “received in hand.” Complications can arise when payment has not in fact already been received; yet, an unconditional lien claim waiver (stating that payment has already been received) is erroneous executed. Generally, it is fair and reasonable to insist that lien claim waivers accurately express whether the payment has in fact already been made, or whether a conditional lien claim waiver should be used instead, because the payment is pending and not yet received. It is also appropriate to revise or annotate a lien claim waiver to expressly state that certain claims, disputed amounts, open change orders, etc., are preserved and not waived. This avoids confusion on whether the payment was intended to cover any disputed, open, or unresolved items. Preliminary Notices of Lien Rights, Construction Notices Directory, and Other Requirements Lien claim waivers are specific documents that address whether a lien claim has been waived or preserved. Different and separate from lien claim waivers are statutory requirements that must be satisfied in order to preserve or pursue lien claims. Most states, including Pennsylvania, have requirements to notice and enforce lien claims. If you fail to satisfy all the requirements, including timeliness, it is likely that your lien claim will be lost. Pennsylvania, similar to most states, has certain requirements that must be fulfilled when pursuing lien claims. In Pennsylvania, certain projects may be eligible for registration on the Construction Notices Directory, which is maintained by the Department of General Services. If a project is registered, then, the requirements under the mechanics’ lien law that pertain to the Construction Notices Directory must be followed; otherwise, the lien claim may be lost. One such requirement is to provide (and file with the Directory) early notice of potential lien claim rights. Additionally, in pursuing a lien claim, certain processes must be followed; otherwise, the lien claim may be lost. In Pennsylvania, as a general rule, if the claim is by a subcontractor or anyone who is not in direct contract with the property owner, then, the claimant must give advance notice to the property owner of the intent to file the lien claim. Also, any claimant, whether a downstream subcontractor/supplier or the prime contractor must meet specific deadlines in pursuing the lien claim. And the substance of any notices or lien claim filings must fulfill the statutory requirements. Failure to timely notice or file any of the items, or failure to adhere to the substantive requirements, will often result in the lien claim being unenforceable. These requirements for noticing and pursuing the lien claim are not technically “waivers,” of the lien claim, but failure to follow the rules may result in the same outcome—the lien claim being lost and unenforceable. This article also appears in the February 2026 edition of the Spokesman, a publication of ABC Keystone.
February 25, 2026
Construction
Practical Steps to Take When a Schedule or Time Impact Dispute Arises
Construction projects are frequently delayed and take longer than originally anticipated. When a project is delayed, claims often arise for liquidated damages, delays, disruptions, and cost overages. Here are a few practical considerations for where to start when organizing your time impact dispute. Start with the Schedule Often, litigants immediately send threatening letters regarding costs, claims, losses, blame, etc.; however, it is best to start with a clear understanding of the delay as shown on the schedule. To do so, your project manager, attorney, and any expert consultant should start by reviewing key, fundamental information. Was there a written contract with a completion date or milestone deadlines? Were those deadlines extended by already approved change orders or extensions of time? Did the contract have a baseline schedule? Was the project schedule updated throughout the project? Were there updated as-built schedules (showing the work durations, as actually performed), as well as updated projected schedules for the work yet to be completed? Are the schedules available in the native software format? Are there accompanying schedule narratives? An initial analysis should start with a clear understanding of the schedule itself. Establish why the Project was Delayed Alongside the schedule for as-built and projected work, it is necessary to understand what events, incidents, acts, or omissions are the supposed causes of the delay. Frequently, claimants will identify a list of issues or problems on the project and assert that these caused the delays. That’s a good start. But even better: You should be able to identify a list of time-impact events (incidents, acts, or omissions) that are the cause of the delay. And for each event, identify how and to what duration/extent it impacted the critical path of the work. Additionally, for each event there should be proof. Text messages and emails are typically very burdensome, inefficient, and sometimes inadequate to show the event. For example, if your work is delayed because a separate trade’s predecessor work is incomplete (or incorrect), it is best to have more documentation than an email. There should be documentation showing the origin, investigation, remedial action, and conclusion of the incident. There should be photographs, daily logs, meeting minutes, RFIs, redesign, and/or change order proposals. For each event, you should be able to present a narrative and supporting proof that concisely explains what the event was and how it impacted the critical path for the work. Establish that Notice of the Event was Issued, and Progress it to a Formal Claim if Necessary Typically, the contract documents differentiate notice of the event as different than a formal claim. Notice of the event is for the purpose of addressing the issue. This serves both a legal purpose, as well as a construction purpose— to keep the project moving forward. Most contract documents will require notice to be given with reasonable promptness. This should be a documented written notice, which might accompany an RFI or other documentation, such as a change order proposal. Recognize that notice of the issue should clarify what the issue is, and if you believe it will cause additional costs or time. If you only request additional costs or additional time, but not both, you may be waiving your right to full relief. Generally, after the notice of the event has been issued, if the matter has not been resolved through some other means, it is best practice to issue a formal request for equitable adjustment, change order, or invoice, seeking the remedy of additional time, money, or both. It is important to track costs and delays with precision so that your requested relief is specific, reasonable, and supported by the evidence. If you fail to submit the REA/CO, then, it may be more difficult to obtain relief. Most contracts have deadlines for submitting such requests, and, further, most project players are unimpressed with end-of-project REA/CO, because it is preferred to address these issues while the item is pending and immediate. Most contract documents will then have a “claims process” for transitioning the proposed or rejected REA/CO to a formal claim. When consulting with your attorney or expert, the quantifications (and supporting proof) for the requested time or compensation should be organized to facilitate the most efficient approach to claims handling. To summarize: Start with clear, organized documentation of the project schedule and deadlines Prepare organized explanations and proof of the time impact events Accurately quantify the impact with supporting proof so that the requested time and compensation are based on credible data/evidence Promptly notice the time impact issue, the request for relief and, if the request is rejected, the claim When handling time impact issues on a project, whether that be delays, disruptions, liquidated damages, or related cost overages, it is best to consult with your attorney and experts. By properly organizing, supporting, and noticing requests/claims, the preference is to reach amicable resolutions without the need for lengthy claims processes or litigation. This article also appears in the January 2026 edition of the Spokesman, a publication of ABC Keystone.
January 14, 2026
Construction
How Long Is Too Long? What Statutes of Repose Mean for Your Liability Exposure
How long are you on the hook for defects in a completed construction project? It’s a question that keeps many contractors and design professionals up at night—and for good reason. No project is flawless, and the duration of responsibility for construction or design defects depends on numerous factors, including the contract language, the type of harm or injury that is the subject of concern, and statutes of repose. Typically, construction and design work are performed under written contracts. As an initial starting point, if a design or construction defect arose and was identified during the project itself, most construction contracts have specific clauses that require the claims to be noticed, raised and submitted timely, often within a short time period of days or weeks. Thus, if an issue is discovered during the project itself, the accrual date might be immediately at that time, and, under the contract, prompt notice and submission of the claim are often required. For incidents that occur after the project is completed, the written contract may contain clauses that identify the “accrual” or starting point for claims that occur or are discovered after the project is completed. For example, some versions of AIA contracts identify Substantial Completion as the date when claims “accrue,” meaning that Substantial Completion is the triggering start date for when the clock on a statute of limitations (deadlines) begins to run. B143-2004, Section 3.6.3. Thus, for latent, unknown defects in construction or design, the contract might identify a specific milestone (e.g. Substantial Completion) as the accrual date, with a deadline that runs from there. The contractual clauses identified and discussed so far typically pertain to construction or design defects that are pursued as claims between the parties on the project, who typically have a contract where the cause of action would likely be a breach of contract or perhaps negligent design/construction. Statutes of Repose and Contractual Repose Additionally, if a contract clause does not govern the issue, deadlines for claims are typically found in statutes of limitation and statutes of repose. These are state specific statutes; thus, different states will likely have different rules, deadlines and interpretations. A statute of limitations is a deadline to file claims from the date the claim accrues, typically the date of the injury. Thus, under a statute of limitations, once the injury occurs, a claimant has a specific period of time (going forward) to file the lawsuit. It is a deadline that looks forward from the date of loss. Sometimes, the statute of limitations can be extended if the defect was unknown, or if the injury did not occur until a much later date. Depending on the circumstances, the deadline might be extended further than anticipated if the loss was hidden, concealed, or the injury is delayed. On the other hand, a statute of repose is a backward-looking deadline. Instead of looking from the date of injury, it pegs a milestone date and imposes a hard cutoff looking backwards. Once the repose period expires, no legal action can be brought, regardless of when the defect was discovered or the injury occurred. Statutes of repose create a deadline with an absolute bar on claims brought outside the set time limit. Repose periods vary by jurisdiction, and construction professionals working across state lines must be aware of those differences. Some notable examples in the Mid-Atlantic include: Pennsylvania: 12 years Maryland: 10 years Virginia: 5 years District of Columbia: 10 years Delaware: 6 years Thus, for example, in Virginia, five years after the date of performance of the work, no matter what the circumstances, all claims are barred. To be clear, the statute of limitations might run sooner than five years, depending on the type of claim, but with a statute of repose, there is no availability for an extension if the defect was concealed, latent, or unknown. Thus, it acts as a final cutoff, regardless of when the injury occurred, and regardless of who the claimant is. Understanding these timelines is essential when assessing long-term liability and risk on completed projects—especially during the negotiation and drafting of contract provisions. In some cases, parties may choose to establish a contractual clause of repose that is shorter than the statutory period provided under state law. These contract clauses should be drafted carefully to define clearly: The types of claims covered (e.g., contract, tort, breach of warranty, contribution, etc.) The event that triggers the limitations period (such as substantial completion or final payment) The duration of the contractual repose period (e.g., one year or longer duration). When drafted with precision, time limitation clauses can offer powerful protection by limiting claims to a shorter period. To further reduce exposure, contractors and design professionals should take proactive measures throughout the project, such as detailed recordkeeping to establish the scope of work performed and decisions on the project, along with establishment of the actual dates of substantial and final completion. Understanding statutes of repose and contractual clauses of repose is essential to limiting long-tail liability and thus protecting your business. These strategies won’t just help you sleep better at night—they’ll significantly strengthen your position against claims that arise long after you’ve completed a project. When drafting contract clauses and implementing risk management strategies, consulting with experienced construction lawyers, accountants, and insurance experts is best.
May 6, 2025
Construction
An Update on Federal and Pennsylvania Corporate Reporting Requirements
Much confusion has surrounded the Federal Corporate Transparency Act and the new Pennsylvania annual reporting requirement. Many have asked: what is the status (and deadlines) for compliance? Federal Corporate Transparency Act The Federal Corporate Transparency Act (CTA) was enacted in 2021 with the purpose of combatting money laundering, terrorism financing, and other financial crimes. The gist of the CTA is a requirement to submit a Beneficial Ownership Information Report (BOI Report) that identifies the owner(s) of the business. The CTA is administered and enforced by the newly created Financial Crimes Enforcement Network (FinCEN), which is a bureau within the U.S. Department of Treasury. In December 2024 the U.S. District Court for the Eastern District of Texas issued an injunction that paused the CTA. On January 23, 2025, the U.S. Supreme Court removed the pause. There is still ongoing litigation as to the constitutionality of the CTA, however, while that litigation unfolds, the CTA will be enforced, which means that the BOI Reports must now be filed. On February 18, 2025, FinCEN issued a Notice that BOI Reports must be filed by March 21, 2025. For more information on filing BOI Reports, please see the Offit Kurman informational webpage. Pennsylvania Annual Reporting Requirement In Pennsylvania, starting January 1, 2025, an annual report must be filed with the Pennsylvania Department of State for all domestic and foreign filing associations conducting business in Pennsylvania. This requirement replaces the “ten-year filing” with a yearly filing specific to Pennsylvania. Filing of the federal BOI Report under the CTA to meet federal requirements is not sufficient to meet this Pennsylvania Commonwealth requirement. The Annual Report filing fee is $7 (this fee is waived for non-profit organizations). For each calendar year, corporations must file by June 30; LLCs must file by September 30; and LPs, LLPs, business trusts, and professional associations must file by December 31. There are exceptions to this requirement, including fictitious names, general partnerships that are not LLPs, financial institutions, trademarks and insignias. All other entities conducting business in Pennsylvania must submit this annual report. A failure to report will result in dissolution, termination, or cancellation and a loss of the protection of the entity’s name. If a domestic entity, LLP or electing partnership is administratively dissolved, it will have the opportunity to be reinstated by filing an annual report, paying a reinstatement fee and paying any back fees for delinquent annual reports. If a registered foreign association has been terminated for failure to report, it will be required to submit a new Foreign Registration Statement and will receive a new entity number from the Department of State. Additionally, because a failure to report will result in a loss of protection of the entity’s name, an entity that fails to report may have its name appropriated during its delinquency. The annual reports will include general identifying information including the business name, office address, names and titles of principal officers, and the entity number issued by the Department of State. This information will be publicly available on the Department of State’s website. While these reports may be submitted by mail, it is strongly recommended that they be filed through the Pennsylvania Department of State website. First, the online form will populate any details currently on file with the state to avoid mistakes and delays. Second, and most importantly, an Annual Report that has been submitted online will be automatically approved. For further information on the Annual Report requirements, visit the Pennsylvania Department of State website.
March 4, 2025
Construction
How Should Construction Contracts Approach Potential Tariffs?
As an initial primer: tariffs typically work as a tax, charged on goods purchased and imported to the United States from a foreign country. The tariff is charged as a percentage on the price paid for the foreign good. Tariffs are collected at the ports where the goods enter the country. Typically, the tax is paid by the importer directly to the US Customs and Border Protection Service. And, typically, the tax is required to be paid to release the good from the port, although there are some methods to slightly adjust that timing by satisfying certain conditions. A tariff on construction materials would likely result in additional costs for the project. Intuitively, a tax on the imported materials simply causes the goods to cost more. Also, tariffs on imported goods might cause increased demand for specific alternatively sourced materials (whether that be domestic or non-tariffed foreign sources), which then leads to increased costs for those alternative sources. As a general rule of thumb, and reflected in most standard construction contracts, the contractor is responsible for providing the labor and materials for the construction project at the agreed upon contracted price, and the contractor is not entitled to any adjustment to the price on the basis of changes in taxes or laws, unless there is a contract clause specifically affording such relief. For example, the AIA A201-2017 section 3.6 General Conditions provides that the contractor is responsible for all taxes on the work. In most standard contracts, there is no specific clause that affords the contractor relief or adjustments in the event of changes in taxes, laws, or tariffs. Depending on the specific contract, perhaps one could argue that a tariff is an unforeseeable event beyond the control of the contractor; however, most contract clauses would afford limited or no relief, typically an extension of time at best, but not compensation. An example of this difficulty is the force majeure clause that might exist in a contract. Under most contracts, tariffs are not specifically identified in the force majeure clause, and most force majeure clauses provide an extension of time as the remedy and do not afford additional compensation to cover the costs. Some contractors might be tempted to argue that relief should be afforded under the doctrine of commercial impracticability. That too, is a difficult path. Commercial impracticability sometimes affords relief to a contractor when circumstances on a project have changed so drastically that the performance of the contract is commercially impractical. Theoretically, if a tariff increased the costs so astronomically to make the job financially impossible, there could be an argument under the doctrine. But these circumstances are relatively rare, and courts are rather critical of this argument. On public federal projects, an argument could be made that a contractor is entitled to equitable relief and an adjustment to the contract price under FAR 52-229.3, which provides for an equitable adjustment for new taxes that arise during a project. It is unclear, however, whether this argument would succeed, because it is uncertain whether a tariff constitutes a new tax under FAR 52-229.3. There is a dearth of decisional law on this point, and a 2022 Armed Services Board of Contract Appeals decision rejected this argument. Thus, a tariff on construction materials is likely to increase the costs, and there is no obvious straightforward right to relief in most default contracts. A contractor should consider negotiating a specific clause to address the cost item. A list of potential approaches, including specific negotiated clauses, including the following: Price escalator clauses for either tariffs or specified categories of materials; Contingencies or allowances for materials of concern or tariff costs; Greater flexibility for substitutes or alternatives to allow for sourcing of differing materials; Segregated pricing by agreement for time-and-material budgets for carved-out scope packages that might be more volatile; Prompt procurement, buy-out administration, and warehousing of goods in advance to avoid potential volatility on specified goods; Value-engineering during the preconstruction phase to identify different materials; Increased buffers in the contract price to account for the risk of potential tariff impositions. When negotiating and drafting custom contract clauses to address risk on projects, or if litigating claims for equitable adjustments or change orders, best practice is to consult with trusted, experienced counsel that is knowledgeable on the intricacies of construction law. Offit Kurman construction attorneys are available to advise and counsel contractors, owners and developers, construction managers, design-builders, design professionals, subcontractors, and suppliers on construction contracts, risk, and project disputes.
January 14, 2025
Construction
How (and Why) Does a Mechanics’ Lien Cause Pressure to Pay for Work
All contractors and subcontractors have some degree of understanding that if they have not been paid for work performed on a project, they have the right to file a mechanics’ lien against the project. The details of why the lien filing often results in payment, however, are often murky to most contractors and subcontractors. This article clarifies these items. The first thing to understand about a mechanics’ lien is that it acts as a type of lien against the project property. There are numerous types of instruments that can act as liens. Tax liens can be attached to a property. So can monetary judgment liens. A mortgage acts essentially the same as a lien. For all of these instruments, the gist is that a debt is owed—whether that be a loan, delinquent taxes, or payment for work performed—and the debt is collateralized to the property. In other words, if the debt is not paid, the real property will be sold to pay for the debt. Mortgages are the type of instrument that most people have some degree of experience. With a mortgage, there is a loan of money, and if the loan is not paid, then, the mortgage can be foreclosed on to pay the debt. The foreclosure on the mortgage is the execution sale of the real estate to pay the loan debt. The mortgage typically gives priority status so that the loan will be paid from proceeds from the foreclosure sale. Mechanics’ liens function similar to a mortgage. If a laborer or supplier has not been paid for the work furnished to the project, then, the lien secures the unpaid debt to the property. In most jurisdictions, the process for progressing a lien claim to a final judgment and ultimate sale of the real estate is similar to the process for foreclosing on the mortgage and selling the real estate at foreclosure sale. From a big picture point of view, it’s the same idea: an unpaid debt is secured to the property, and the property will be sold to pay for the debt. It is for these reasons that mechanics’ liens tend to receive prompt attention when filed against a project. The mechanics’ lien acts similar to an additional mortgage against the real estate. And, if pursued to its end, the mechanics’ lien can force an execution sale of the property. This, of course, is of significant concern to the property owner and any lenders with mortgages on the property. Similarly, a mechanics’ lien is of concern if the owner intends to refinance or sell the real estate. Typically, any liens or mortgages attached to the property must be addressed or paid if a refinance or sale of the land occurs. As a last and final related point, the state specific statutory laws that govern mechanics’ liens will typically provide a method for a bond to be posted with the court, to act as substitute collateral for the lien claim, and therefore discharging the property from the lien claim. If pursuing a mechanics’ lien claim, or if managing a project that is under threat of lien claims, best practice is to consult with trusted, experienced counsel that is knowledgeable on the intricacies of construction law. Offit Kurman construction attorneys are available to advise and counsel owners, contractors, construction managers, design-builders, design professionals, subcontractors, and developers on construction contracts, risk, and project disputes.
October 31, 2024
Construction
Some Practical Pointers for Following the Claims Process in Your Contract Documents
When a problem arises on a project, it can cause significant impact to the schedule, costs, design, and sequence of work. The problem might also require significant technical analysis to determine and ascertain the cause and best cure or remediation. It’s therefore no surprise that contractors and subcontractors, in the midst of such situations, sometimes fail to properly focus on the contract process for formally noticing the issue and submitting it as a claim; they are too busy addressing the issue directly. Most contract documents have specific clauses that govern the claims process, and each project might have variations to the process. Regardless, there are certain fundamental steps that tend to be common, and all contractors and subcontractors should consider these steps when evaluating the problem because (a) your contract probably requires it, and (b) these steps tend to facilitate a proper submission, negotiation, and resolution of a claim. Notice the Issue The first step when encountering a problem is typically to issue a written notice of the issue. Most contracts require notice of delays, differing site conditions, change orders, or claims within a specified period of time. It is often confusing to initially determine if the issue is a claim or not because a claim usually indicates a dispute; meanwhile, notice of an issue could be as simple as submitting an RFI. It depends on the circumstances. Nevertheless, the first step is to notify the proper parties of the issue in writing. The contract documents may require that specific issues be noticed as an RFI, change order, or request for adjustment. The contract documents might require that the notice be submitted to the Architect of Record, owner’s representative, or a construction manager. Typically, when initially noticing the issue, the notice will take the form directed by the contract, and it will identify the issue at hand, with any supporting documentation to explain or present the issue. It should also identify whether additional time or costs are likely to result from the issue. Transitioning the Notice of an Issue to a Formal Claim Often, a problem on a project will start with notice of the issue, and it will progress and develop into a claim. For example, a sinkhole on a project will typically result first in an RFI, project meeting minute, or change order proposal that identifies the sinkhole and declares it to be a differing site condition or issue needing the attention of the owner or Architect of Record. Thus, the first discussion of the item is typically a notice, not a formal claim. Typically, in response to the notice of the issue, instruction or direction will be provided by the owner or Architect of Record on the work to be performed. The instruction might be in the form of a change order, change directive, or a response to an RFI. If the directed action is agreeable and provides an acceptable adjustment to the time or price for the work, then the issue is often resolved through this natural course of conduct. But if the parties disagree on the direction, lack of direction, or the proposed compensation or extension of time, then the matter has developed into a claim/dispute. The cautious and prudent contractor recognizes that if it fails to lodge and preserve its disagreement and instead simply signs a change order, it could potentially waive its rights to additional time or compensation, depending on the circumstances. Typically, the contract documents will provide a specific process for progressing the claim, and the first step of the claim process is to submit a written claim within a specified time period. Thus, in the hypothetical example at hand, once the issue has been noticed and developed into a disagreement, that is when the notice of claim should be submitted. I often see contractors that initially notice the issue but then fail to submit a formal claim once the issue has reached an impasse. The submission of the claim might be rather simple, or it might be complex. For example, the AIA A201 requires that claims be submitted to the “Initial Decision Maker,” who is typically the Architect of Record. The Architect of Record then responds to the noticed formal claim, and if the matter is still in dispute, the claim proceeds to either mediation, arbitration, or litigation. Some contracts have very extensive and complicated processes for submitting the claim, which require specific information or supporting documentation. And some contracts have extensive processes where the initial decisions on the claim, either from the owner or Architect of Record, may take several steps with decisions rendered at each step. It is important to properly present the claims to the correct persons, with the correct information, and if the claim is denied to promptly notice the appeal of the decision in conformance with the contract. Proper notice and submission of a claim is important because a failure to do so may result in a waiver of the claim. Thus, it is important to issue both a written formal notice of the issue and an additional notice of claim when the issue has not been resolved to satisfaction. Additionally, a properly developed and presented claim—containing supporting documentation and clear explanation of the issues with legal and expert analysis if necessary—is in a significantly better position for negotiated resolution. The best practice is to consult with trusted, experienced counsel that is knowledgeable on the intricacies of construction law. Offit Kurman construction attorneys are available to advise and counsel contractors, construction managers, design-builders, design professionals, subcontractors, and developers on construction contracts, risk, and project disputes.
September 12, 2024
Construction
Show Me the Money: The Importance of Owner's Proof of Financing
Lack of project financing can be a very unpleasant surprise for a contractor (and all players on the project). In a volatile environment — where project costs are increasing and borrowed money, credit, and leverage are increasingly difficult to obtain — what are some approaches for a contractor to address and reduce these risks upfront or during the project? The best time to address project financing concerns is at the beginning, during preconstruction, and certainly before work has broken ground. Many contractors are hesitant to probe and inquire about project finances. If, however, there is any concern about whether the project will be adequately funded, it is best to ask for the necessary information directly. Representing that it is standard practice and policy may help reduce tension on disclosure of the information. An open and honest discussion on the financing not only ensures that the project does not stall but also is reasonable because a contractor’s role in confirming the project costs, schedule, setting contingencies, experience and reputation, and qualifying the trades is a key component to the owner’s discussions with the bank to obtain financing. It makes sense that if the owner is reliant on the contractor to help obtain the financing, then, likewise, the contractor should have the ability to confirm that the financing is sufficient, too. At the start of the relationship, the contractor can communicate to the owner that it expects to receive satisfactory proof of financing that might include any of the following: Commitment letter from bank/lender or equivalent term sheet or written confirmation from a lending committee at the bank. Oral conversations with the bank/lender to confirm financing. Documentation confirming loan amount, terms for the loan and disbursements, and a commitment to a loan closing date. Documentation of disbursements, such as disbursement agreements or a disbursement summary. If the owner is self-financing the project, it is reasonable to ask that funds be set aside for the project. This could be done with the bank (or a third party) and a statement showing proof of funds. It is also reasonable to ask for financial statements, credit reports, and bank strength ratings, especially if it is self-financed by an unfamiliar owner. Depending on the circumstances, further information might be necessary, including details of the owner’s budget for the project. Such details should be set forth in the owner’s pro forma or related documents. The documents should identify proper contingencies, reserves, and budgets to cover the various issues that can arise with the owner’s land development, design, and construction. Including clauses in the prime contract that address financing issues is also useful. The contract should include a clause that entitles the contractor to request additional proof of funding or even the right to engage in direct discussions with any lender or bank. The clause should also express that the contractor has the right to suspend work in the event of slow payments or indications of problems with the owner’s financing on the project. Contractors should also pay particularly close attention to the ownership entity of the land/project. First, the owner should provide adequate information to confirm the record owner of the real estate. If the owner of the real estate is an unknown company or is a “single shot” LLC used for holding the real estate (often indicated by its name, which uses the property address, such as, for example, 35 Main Street, LLC), then, the contractor should realize that the LLC owner of the property likely has no other assets other than the project property itself. In these “single-shot” scenarios, a mechanics’ lien right is the best approach to lack of payment because it attaches to the property itself, and, other than the property, the LLC may have limited or no other assets. Also, it is best to obtain the information of the LLC owners (members) if possible because the financials of a single-shot LLC are only as strong as the loan and members backing the LLC. If the contracting party is not the record owner, that creates a few additional wrinkles that must be addressed for both proof of financing and also mechanics’ lien rights. A last point for consideration: Sureties often require disclosure of project finances. One tactic is to bond the project with a surety, which has some benefits aside from this discussion, and use the surety as the reason for all the financial questions. This shifts any tension from the contractor to a third-party surety. Handling problems with project financing can be a thorny situation at any point in a project. The best practice is to have sound internal protocols and trusted counsel for troubleshooting. Offit Kurman construction attorneys are available to advise and counsel contractors, construction managers, design-builders, design professionals, subcontractors, and developers on construction contracts, risk, and project disputes.
April 16, 2024
Construction
A Primer on Preliminary Notice of Mechanics' Liens
Most contractors, subcontractors, and suppliers know that lien claims have strict deadlines, typically measured from the last date of work. But did you know that some states also require preliminary notice of lien rights upfront, at the first time of furnishing labor or materials? In 2017, Pennsylvania created an online registry known as the Construction Notices Directory that allows owners to register private projects that exceed $1.5 million. If a project is registered, all subcontractors and suppliers must file a Notice of Furnishing within 45 days of first providing labor or materials to the project; otherwise, the lien right will be lost. Recently, more owners have been registering projects. Thus, prompting the questions: Do other states have similar early notice requirements for preserving lien claims? And what steps should be taken in Pennsylvania when dealing with the Directory? Other States' Lien Claim Process and Notice Requirements Pennsylvania’s requirement for a preliminary notice at the start of work (only when a project is registered on the Directory) is atypical in the Mid-Atlantic. Neither Maryland, Delaware, the District of Columbia, nor New Jersey require any similar preliminary notice at the start of work. The only other Mid-Atlantic state with a similar requirement is Virginia, which requires a preliminary notice to be issued within 30 days of commencing work on a one- or two-family residential dwelling if the owner has identified a Mechanics’ Lien Agent in the building permit. Preliminary notices at the commencement of work are more prevalent in other regions of the country; for example, California requires a preliminary notice to be issued within 20 days of first furnishing labor or material to the project. The point is that while preliminary notice requirements are atypical in the Mid-Atlantic, they are required in other parts of the country. It has become more popular for owners to utilize the Pennsylvania Construction Notices Directory. Thus, it is best to stay current on preliminary notice requirements if working in multiple jurisdictions. Practical Tips for Handling Pennsylvania's Construction Notices Directory If a prime contractor works directly with the owner, recognize that it is ultimately the owner’s choice on whether to register the project. If the owner elects to register the project, a Notice of Commencement is filed on the Directory, and that document should become part of the Contract Documents. The best practice is to also identify in the special conditions of the contract the Directory listing. The Notice of Commencement must be posted at the project site. Additionally, statutorily mandated language must be included in all contracts that provide notice that a failure to file a Notice of Furnishing will result in a waiver of the lien claim. The notice of furnishing is only required to be filed by subcontractors and suppliers. For subcontractors, closely review the Contract Documents to identify any indication of the project being registered. It is also recommended to include in internal standard processes that the Directory be searched at the time of signing the subcontract and also at the time of commencing work. The Notice of Furnishing can be filed prior to starting work; thus, there is no need to wait or delay in properly filing the document. Properly noticing mechanics’ lien claims and preserving rights can be a complicated area of construction law. The best practice is to have sound internal protocols and trusted counsel for troubleshooting. Offit Kurman construction attorneys are available to advise and counsel contractors, construction managers, design-builders, design professionals, subcontractors, developers, and design professionals on construction contracts, risk, and project disputes.
March 14, 2024
Construction
Avoiding Preconstruction Pitfalls (from the Contractor's Point of View)
It has become increasingly popular for private commercial construction projects to engage the contractor during preconstruction design early in the project. By doing so, the owner’s team and design professionals are able to work collaboratively and receive valuable feedback on key project details, such as constructability, schedule, early cost estimates, projected budgets, long lead items, and value engineering. This is true for any project delivery system that uses design assistance, delegated design, is a true design-build, is a CM at risk or CM as an advisor, or is a version of an integrated project delivery. But what happens if the owner tries to call an audible at the line of scrimmage and seeks to replace the contractor right before the construction phase begins? And what other pitfalls should a contractor be wary of if involved in preconstruction services? Precon, Not Freecon Some owners ask that preconstruction services be offered for free as a value-added customer service. Each project should be considered on a case-by-case basis. There might be projects and business reasons why that makes sense. Typically, however, it is best to avoid giving “freecon.” The preconstruction work is a valuable service, and there can be risk associated with it. Proper business relations should clearly define the scope, rights, and obligations regarding the preconstruction services and have an associated fee, typically done on an hourly or stipulated sum basis. Land Development, Design Assist, Delegated Design, or Design Build? The role, responsibilities, and scope of preconstruction services should be clearly identified in a contract so that there is no confusion about the exact services and risks being undertaken. Sometimes (but rarely), the contractor will assist the owner with land development, acquisition, usage, and zoning. Usually, however, the contractor is not involved in land development activities but instead will only provide services in relation to the preconstruction itself. If the contractor is only assisting and commenting on the design (design assist), that limited scope should be clearly stated. If any scope is delegated design, where the contractor will be responsible for furnishing the actual sealed/stamped design, or perhaps the contractor is responsible for a performance specification, it should be clearly stated. Furnishing of design should always be done by properly licensed professionals per any statutory laws. Intellectual Property Ownership of the Design One of the best approaches to protect the contractor from unpleasant surprises when furnishing any design is for the contractor to expressly remain the owner of the design intellectual property. If the intellectual property rights to the design will be assigned, it should be later in the project or at the end of the project. This ensures that the owner cannot receive a discounted design, remove the contractor, and then continue with the project, still using the original contractor’s design work. Similarly, whether furnishing the design or merely assisting, termination for convenience and “buyout” clauses help to protect the contractor from being unceremoniously removed from the project. Lastly, if furnishing the design, the final seal/stamp on the design should be the last thing and done very close in time with the submission of the design to the AHJ and the buyout/procurement phase. Unintentionally having a sealed/stamped design floating around without any future involvement in the project tends to lead to issues down the road. Clarifying the Guaranteed Maximum Price If using a GMP, it should be clearly defined in regards to evolving, unfinished design development. Also, it should be clear whether certain work or potential work is included in the GMP. Issues can arise when owners believe that the GMP includes the reasonably inferable, developing design (e.g., incomplete lighting package, which is often developed at the end of design), but the contractor believes that the incomplete design was not included in the GMP. For developing design, any placeholders, assumptions, budgets, qualifications, and exclusions should be clearly noted, and it should be clear how they relate to the GMP. Similarly, if using a GMP, there should always be a contingency. The contingency should be clearly defined both in terms of use and process, so that everyone is in agreement as to the type of work, issues, scope, and snafus that allow for application of the contingency. It is further recommended that the savings on the contingency be split in an agreed upon percentage ratio. By allowing the contractor to participate in the savings, it incentivizes the project to come in on budget and schedule. Assessing the risks and properly contracting for preconstruction services can be a complicated area of construction law. Best practice is to engage trusted counsel, insurance consultants, and other professionals. Offit Kurman construction attorneys are available to advise and counsel contractors, design-builders, CMs, design professionals, developers, and specialty trades on contract matters and project disputes.
February 7, 2024
