In a recent case, subdivision improvements were constructed.  However, there were two important factors that impacted the analysis.  First, no houses whatsoever had been built in the subdivision.  Therefore, the court found that the exceptions for houses and improvements auxiliary to houses could not apply.  Second, the utilities that had been constructed had not yet been accepted by the relevant public utilities.  Since ownership of utilities does not transfer until the time of acceptance, the third exception did not apply.

Thus, in this case, the mechanic’s lienholders were junior to the debt of the construction lender.  Given the depressed real estate values, it is doubtful that the mechanic’s lienholders received any payment because of a lack of equity to support their lien position.

Author: Terry G. Farmer (bio)
Phone: 812.452.3543
Email: tfarmer@bamberger.com

This new law prohibits CMV drivers (operating vehicles of 10,001 pounds or more) from holding or dialing a mobile phone while in the vehicle.  Using the hand-held device while the vehicle is not moving is also a violation.  For example, drivers should be instructed not to talk with a hand-held device while stopped in traffic or at a traffic light.

Violations of this law will result in stiff penalties against both drivers and their employers.  Drivers can be sanctioned up to $2,750 for each offense, and multiple offenses can result in disqualification from operating a CMV.  Employers can be fined up to $11,000 per offense even if the employer has a policy against the use of hands-free devices.

Employers should immediately notify drivers and implement written policies prohibiting the use of hand-held devices.  It is also a good time to remind drivers that texting is now banned.  If you have questions about the new law, please contact us.

In its claim for the local preference, J. R. Kelly stated that in 2010, it had paid over $2,000,000 to employees who were residents of Tippecanoe County and adjacent counties, employed 81 employees who were residents of Tippecanoe  County and adjacent counties, and purchased over $600,000 in construction tools and equipment from local suppliers.

The low bidder was Mattcon with a bid of $630,000.  J. R. Kelly’s bid was the third lowest at $686,000.  The bid was awarded to Mattcon at a public hearing.  J. R. Kelly objected to the bid award, advised the library that the new Indiana local preference law should have mandated the contract be awarded to J. R. Kelly, and then filed suit.

The Tippecanoe County Judge found in favor of Mattcon, affirming the bid award to Mattcon.  In its order, the Judge stated that applying the “plain meaning” local preference statute would produce “an absurdity.”  The court went on to say that interpreting the statute as written “could open the door for abuse of the rule later on” because public agencies might be “forced to either award contracts to contractors with bids indefinitely higher,” or be “faced with the prospect of rejecting all bids and starting the entire process over.”

The order was issued on November 2, 2011.  J. R. Kelly has an opportunity to appeal the decision, but as of this posting, no appeal had been filed.  Until a decision is issued by the Indiana Court of Appeals or the Indiana Supreme Court, this decision will not be binding upon other judges in their interpretation of the same statute.

If you have questions about the Indiana local preference law or this case, please contact a member of the Bamberger Construction Team.

If no work has been performed on a property in the last 90 days, there is little risk for the title insurer to delete the mechanic’s lien exception.  Title companies will typically agree to delete the exception upon the execution of an appropriate vendor’s affidavit by the seller of the property.  If the title insurance coverage is requested by a lender in a refinance transaction, a mortgagor’s affidavit will be obtained from the borrower/owner.

If work has been recently performed on the property, the title insurer is less likely to delete the mechanic’s lien exception.  In such situations, the title insurer must carefully review all risks and determine its recovery options if a mechanic’s lien is later filed by a contractor or subcontractor.

To underwrite affirmative coverage against unfiled mechanic’s liens, the title insurer will need a copy of all construction contracts in effect for the project.  The title insurer will also want financial information for the parties who will be requested to execute affidavits or indemnity agreements related to the coverage.  The owner and its contractor may be required to execute such documents.  In addition, if the property is owned by an entity such as a corporation, all individual owners or shareholders of that entity may be required to sign an indemnity or personal guaranty in favor of the title insurer.

The title insurer may require a contractor or subcontractor to execute lien waiver forms at the time that each payment is made on behalf of the owner.  Contractors and subcontractors should carefully review such documents before agreeing to waive any lien rights, especially if future payments will be due from the owner. 

Affirmative title insurance coverage against unfiled mechanic’s liens is beneficial and sometimes a “deal-breaker” issue from a lender’s perspective.  Due to the number of parties affected by such coverage, the party requesting the coverage should discuss title insurance requirements as early as possible with the title company.  It may take several days to a few weeks before all steps can be taken for this type of coverage.

Author: Jason P. Lueking (bio)
Phone: 317.464.1591
email: jlueking@bamberger.com

But disputes don’t always arise in a context where mediation or arbitration is compelled.  Many vendors and subcontractors don’t spell out dispute resolution terms in their paperwork, a three-way dispute with a party that has no alternative dispute resolution clause, and many other settings exist wherein someone can’t be compelled to mediate or arbitrate.  What then?  Are you just left to the Courts?  Not necessarily.  The construction world, like the rest of the business world, understands that coming to terms and moving on is almost always preferable to fighting to an expensive and slow
conclusion.  It is starting to discover that mediation may be the best approach even when it is not required by contract.

Mediation settles far more cases than it leaves in dispute.  It is quick (a mediator can be on site in days, or hours if necessary).  It is inexpensive (no discovery, no long trials – just informal preparation and presentation and discussion).  You are not locked into a bad decision by a judge or an arbitrator.  In mediation, if you don’t reach an agreement, there is simply no deal.  Even if no agreement is reached, you have not spent an inordinate amount of time and money to have tried.  But if it does work, you have resolution in a matter of days, not weeks or months or years.  All it takes to start mediation and see if it can produce a resolution is an agreement to try – an agreement that you can make without risk even after the dispute has arisen.  Given the success that mediation has achieved in resolving disputes, calling a mediator in, even when you have no contract saying you have to, can be beneficial to all parties, at little expense and at no risk.

Author: Frederick R. Folz (bio)
Phone: 812.452.3504
email: ffolz@bamberger.com

The library project was to renovate and remodel the technical services area in the main building and further renovations in another building.  The lawsuit was filed by J.R. Kelly which is located in Tippecanoe County.  The project was awarded to Mattcon General Contractors which is principally located in Indianapolis.

In its claim for the local preference, J.R. Kelly stated that in 2010, it had paid $2,175,657.88 to employees who were residents in Tippecanoe Countyand adjacent counties; employed 81 employees who were residents of Tippecanoe County and adjacent counties; and purchased over $600,000 in construction tools and equipment from local suppliers.

Only three bids are mentioned in the lawsuit.  The low bidder was Mattcon with a bid of $630,000.  C.F. Jones Group, Inc. (principally located in Boone County,Indiana) was the second lowest at $643,000.  J.R. Kelly’s bid was the third lowest at $686,000.

When the bid was awarded to Mattcon at a public meeting, J.R. Kelly objected and advised the library that the new Indiana local preference law had gone into effect on July 1, 2011.  The library board responded that it knew of the law, but that it believed it had the ability to award the contract to Mattcon.

The lawsuit seeks an injunction to prevent the library from entering into a contract with Mattcon.  We will continue to monitor this lawsuit and will let our readers know the outcome.  In the meantime, please let us know if you have questions or comments.

A Baker employee was injured on the jobsite and she filed a lawsuit against Hunt.  Hunt argued that because it had no contract with Baker, it did not owe Baker employees a duty to keep them safe.

The lawsuit was filed inIndianapolis, and the Indianapolis judge found in favor of the employee.  Hunt appealed this decision to the Indiana Court of Appeals.

The Indiana Court of Appeals reviewed the various contracts that were involved and concluded that Hunt was responsible to ensure safety on the jobsite.  “Hunt Construction was responsible for approving contractors’ safety programs, monitoring compliance with safety regulations, performing inspections, and addressing safety violations.  Hunt Construction had the ability to remove any employee or piece of equipment deemed unsafe.  As a result of these contractual provisions, we conclude that Hunt Construction assumed a duty to workers on the jobsite….”

Hunt then appealed to the Indiana Supreme Court.  When appealing to the Indiana Supreme Court, the court can either consider or not consider the appeal.  Parties have one absolute right to an appeal, but not an absolute right to a second appeal.  Recently,  the Indiana Supreme Court gave notice that it would give Hunt a second right to appeal.  That appeal has not been heard by the Court yet.  We anticipate a decision in the next six months or so.

We will continue to monitor this case.  If you have questions or comments in the meantime, please let us know.

The tax abatement procedure is governed by state law.  Taxes arising from new investment are reduced and phased in according to a set schedule.  In order to receive such reduction, the taxpaying investor must apply for the abatement, make the investment, and finally demonstrate the benefit from the investment by the creation of jobs, alleviation of environmental concerns, or otherwise.  Because tax abatement is meant to be an incentive— as opposed to a reward— for investment, the taxpaying investor must apply for the abatement before making the actual investment.

Property tax abatement continues to be the one of the few— but effective— economic development tools used by local government today.  Any business contemplating investment that may result in new or increased property tax assessment (real and/or personal) should consider abatement as an opportunity to facilitate the new investment.  Likewise, any local governmental entity should consider this tool if it hopes to be a serious player in an increasingly competitive world market for jobs and investment.

Generally, the bank’s mortgage has a higher priority than the later-recorded mechanic’s lien, in such an instance.  However, here the contractor argued that the bank had “unclean hands” because funds from the bank’s loan had been used to pay other contractors who performed work after this contractor.  In other words, the owner used its shrinking financial resources to pay other contractors first.  Because of the bank’s “unclean hands,” the contractor argued that its mechanic’s liens should be given first priority. 

The Indiana Court of Appeals disagreed.  The Court concluded that the bank did not have “unclean hands” because the bank did not control the disbursement of the loan proceeds.  The owner made the decision as to which contractor to pay first, and not the bank.

This case highlights the tension that frequently occurs on construction projects between contractors with mechanic’s lien rights and construction lenders when owners are unable or unwilling to pay what is owed.  If you’re wondering about the “unclean hands” doctrine, I’m pretty sure we have our British friends to thank for its name.  If you have any questions about this case, please contact a member of the Bamberger Construction Team or Banking Team.

This new legislation only applies to public works contracts awarded by a political subdivision.  The term “political subdivision” covers cities, counties, towns, school corporations, redevelopment commissions, special taxing districts, and any other local agency authorized to award public works contracts on behalf of a political subdivision. 

In order to claim the preference provided in this statute, your company must be considered a “local Indiana business” as that term is defined in Indiana Code 5-22-15-20.9(c).  A business is considered a “local Indiana business” if it satisfies any of the following criteria:

1.         It is a company whose principal place of business is located in an “affected county”.  The term “affected county” is defined in the statute to cover the county in which the political subdivision awarding the contract is located, or is adjacent to that county.  For example, if the political subdivision that is proposing to award a public works contract is located in Vanderburgh County, the term “affected county” includes Vanderburgh, Posey, Warrick, and Gibson Counties. 

2.         Your company would be considered a “local Indiana business” if it pays a majority of its payroll to residents of affected counties. 

3.         Your company would be considered a “local Indiana business” if it employs the majority of its employees from affected counties.

4.         Your company would be considered a “local Indiana business” if it makes significant capital investments in the affected counties as defined in rules adopted by the political subdivision.

5.         Your company would be considered a “local Indiana business” if it has a substantial positive economic impact on the affected counties as defined in rules adopted by the political subdivision.

If your company can satisfy any of the five criteria specified above, your company will be considered a “local Indiana business”, and will be entitled to claim the preference provided in Indiana Code 36-1-12-22. 

In order to claim the preference under this statute, your company must do all of the following when it submits its bid to the political subdivision:

1.         State in your company’s bid that you are claiming the preference provided by these statutes.

2.         Provide the following information to the political subdivision: 

a.         The location of your company’s principal place of business.  If your company is claiming the preference based on this criteria, you are required to provide a statement in your bid explaining the reasons your company considers an “affected county” to be its principal place of business.

b.         You must provide with your bid the amount of your total payroll and the amount of your payroll paid to residents of affected counties.

c.         You must include information regarding the total number of your company’s employees and the number of employees who are residents of affected counties.

d.         If your company is claiming the preference based on “significant capital investments”, you must include in your bid a description of the capital investments made and a statement of the amount of those capital investments in the affected counties.

e.         If your company is claiming the preference based on “substantial positive economic impact”, you must provide a description of such substantial positive economic impact on the affected counties.

If your company supplies all of the required information and satisfies any of the criteria in order to be considered a “local Indiana business”, Indiana Code 36-1-12-22(d) states in relevant part that “a contract shall be awarded to the lowest responsive and responsible local Indiana business that claims the preference provided by this section.” 

It is my belief that this statutory provision requires the political subdivision to award the contract to your company over any non-local company that supplies a bid on the project, even if that non-local company submits a bid that is substantially lower than your company’s bid.  The only exception to this mandatory language is if another “local Indiana business” submits a bid for the public works project, is the lowest bidder for the project, but does not claim the preference under this statute.  Indiana Code 36-1-12-22-(e) states in that circumstance “a contract shall be awarded to the lowest responsive and responsible bidder or quoter, regardless of the preference provided in this section,  if the lowest responsive and responsible bidder or quoter is a “local Indiana business”.  Therefore, under that circumstance, the low bidder that is a “local Indiana business” shall be awarded the contract over the other “local Indiana business” that claimed the preference under this statute. 

It is clearly in your company’s best interest to claim the preference provided under this statute as a “local Indiana business” any time that you can.  Please make sure that you supply all the required information in your bid in order to satisfy the requirements of this statute.  If you have any questions regarding these new “buy local” requirements recently passed by the Indiana Legislature, please feel free to contact a member of the Bamberger Construction Law Team.

Author:  Herb Davis  (bio)
Phone:  812.452.3538
email:  hdavis@bamberger.com