As of the time this article was written, it looks like construction will come online again – in limited doses – sometime in May when COVID-19 restrictions are modified or lifted. This should come as welcome relief for a truly battered industry.
But is it?
That depends quite a bit on whether you’ve properly preserved your rights. This article discusses those, very briefly, and provides a possible “alternative” argument Washington courts may look to – but which contractors should not rely upon – as we all dig our way out of this mess.
Washington is arguably the tightest state in the country about forcing contractors to provide strict contractual notice. So first and foremost: check your contract. See what it says about providing notices relating to delay, impact and other issues that will increase the cost and / or time of a given project. The NWCB has already provided a sample notice for its members. Though this notice may need to be tailored, it is a good starting point. When it comes to delay and other disruption claims, many subcontracts force the subcontractor to provide notice within a few days of “the first event giving rise to the claim.” This is always tough to determine, but especially, during a global pandemic. That’s why, when it comes to notices, early and often is likely the best route. If the general contractor or owner tells you “hey, relax, everyone knows what’s going on,” then you’ll know you’re on the right track. You don’t want to be left holding the bag, and your contract is key. Make sure you follow it, including sending your notices as specifically mandated (i.e. certified mail). Here’s a practice tip – the contract’s requirements for sending notices are often printed in the back of the contract, not the front. We have theories on why this is typically the case. The most convincing is also the most obvious (which is called Occam’s Razor): no one ever reads that far! But you will, so don’t simply sit back and wait.
Keep tight tabs on the key date: 90 days from your last day of work on the project. This is the maximum amount of time after which you can record a claim of lien in Washington on a private project. If you did not contract directly with the prime contractor, for materials, you should also immediately (even before the job starts) send out the statutory Notice to Owner. Recording your lien and sending lien-related notices is easy. Make sure you hook up with a top-flight lien service. There are many lien services, but very few are worthwhile. Find a top-flight shop and let them take care of it. It’s wise not to try to record your own lien. Though opinions differ, having your attorney attest to and record a lien is also not the best route. And, if you try it yourself, just finding the auditor’s office, making sure it’s open, and you having the margins right (so you don’t have to return and perhaps blow a deadline) make it a difficult proposal. The few extra dollars charged by a top-notch lien service companies are well worth it in terms of timesaving alone. It also allows you to sleep at night knowing that the company will follow up with all of the required mailings in a timely manner as statutorily required. A top-notch lien service company will assist with notices and claims on public (state and federal) projects as well. But, as with contracts, sooner is always better. Don’t delay. Liens and bond claims are called “statutory creatures,” and they exist only because a statute grants this specific right. Therefore, you cannot argue you should get “extra” time or not have to provide the right notice just because it would be “unfair” not to. That argument will fail in court when it comes to liens.
As a general rule, in Washington, courts will look to who breached the contract first in order to fashion a remedy. Importantly, the breach cannot be “trivial.” For one party’s breach to allow the other to recover, the breach must be “material.” So the question then becomes what is “material?” There are numerous factors a court will look to here, but the simplest way to say it is this: a material breach “goes to the root or essence of the contract” meaning that “substantial performance has not been rendered.” DC Farms, LLC v. Conagra Foods Lamb Weston, Inc., 179 Wash. App. 205, 220 (2014).
Presently, we have no idea how Washington courts will weed through the mess they are about to face. Not only is there a massive backlog of cases, but the facts and circumstances may vary significantly. And keep in mind that judges are rarely contractors. They are almost always homeowners. This puts the contractor one leg down to start, making notices and statutory claims even more important in this time. Tracking dates and complying with all requirements has never been so “essential.”
Judges are obviously keenly aware of what’s going on out there. That’s why I’d like to end this article with two “theories” on how courts may react and why this should work to help the diligent contractor.
- Good Faith & Fair Dealing. There is an implied duty in every Washington contract called the duty of good faith and fair dealing. See e.g. Long v. T-H Trucking Co., 4 Wn. App. 922 (1971). This duty will likely be critical as judges wade through the mess they are about to face. The key concept here is “cooperation.” This is required of all parties in seeing to it that each is allowed “the full benefit of performance.” This word “cooperation” has always been important. In King County for example, the Presiding Judge, Jim Rogers, issued an Emergency Order on March 27, 2020. It states: “Compliance with [Governor Inslee’s] proclamation is the highest priority for all residents of Washington.” Therefore, if a contractor can show that it was attempting, in good faith, to comply with the Governor’s proclamation, such actions should carry great weight. I have seen at least one GC on a delayed project try to force subcontractors to re-start work, before the lockdown is lifted. These GCs are claiming that virtually everything falls under “spoliation” avoidance, in order to re-start the project prematurely. I represent a subcontractor who will likely be terminated for not re-starting work prior to the expiration of the lockdown. Though we don’t know the result of how the case will turn out, it is difficult to believe a trial court judge will claim that, in light of the Governor’s proclamation, this constitutes a material breach. Instead, my client will argue that trying to force a subcontractor to re-start, prematurely, is a classic material breach. It clearly violates the implied duty of good faith and fair dealing.
- UCC / Force Majeure. What happens if a GC’s contract is not “sophisticated” in that it is relatively simple (just an exchange of quotes and purchase orders). And, because of this, a lot is left out in the way of applicable terms and conditions – especially related to delay and impact, etc. Here, there’s another ray of light for contractors who are trying to comply with the Governor’s proclamation. The Uniform Commercial Code (“UCC”) deals with the sale of goods, not services. Note: most contractors’ work falls under the “services” category, even if it includes the use of materials. Still, I still believe it may be helpful to use the UCC by analogy in your case.
By way of an overview, the UCC has been adopted in some form in 49 states. Its purpose is to help fill gaps when contracts are silent or provide clarification on terms that might not be clear. In Washington, it is found in RCW 62A. In our case, Washington’s UCC may nicely supplement unclear or omitted force majeure clauses that may or may not even work – since what happens if both parties are claiming force majeure? Washington’s version of the UCC may therefore be helpful. Again though, it is never a substitute for actually examining your contract (see point 1 above) and making sure you lock down your statutory rights (see point 2 above). Here are two examples from the UCC in Washington that may help contractors by analogy:
- RCW 62A.2-309: If the date of delivery is not specified, this section provides that delivery shall be within a “reasonable time.” With COVID, the facts and circumstances may allow contractors “reasonable” leeway as a result.
- RCW 62A.2-609: If one party reasonably believes the other cannot perform, this section allows that party to demand adequate assurances of future performance. This includes payment to the seller. In other words, you (the contractor) should, before restarting work, seek assurances that you will be paid. And if such assurances are not provided, you may be in a much better position to stop throwing good money after bad.
Governor Inslee’s “Stay Home + Stay Safe” proclamation should allow a lot of time for contractors to review their contracts, from home. But “stay safe,” in our context, should also mean safeguarding your company’s future by being extremely diligent with notices and locking down your statutory rights. So “stay safe.” It might take a pair of good reading glasses to examine the fine print, but you’ll be glad you did when work comes online again, and the courts are packed with a wide range of construction claims.
Seth Millstein founded Pillar Law PLLC in 2010 to focus specifically on industry professionals and owners dealing with construction disputes. In 2015, Kerry Lawrence joined Pillar Law of-counsel. Pillar Law has been a member of the NWWCB since 2010, providing counsel directly to the Bureau and its members. More information can be found at pillar-law.com.