We’ve seen an uptick in out-of-state companies working on construction projects in New Mexico. The following is an overview of some of the nuances of New Mexico construction law about which companies may want to be aware.

Construction Contract Issues

Limitation of Liability Clauses are usually Enforceable, but Anti-Indemnity Clauses Are Not

New Mexico courts have enforced limitation of liability clauses included in construction contracts. See Fort Knox Self Storage, Inc. v. W. Techs., Inc., 140 N.M. 233, 237 (N.M. Ct. App 2006). New Mexico law recognizes the difference between contracts that insulate a party from any and all liability and those that simply limit liability. Fort Knox Self Storage, Inc., 140 N.M. 233 at 237. An exculpatory clause immunizes a party from liability, whereas a limitation of liability clause merely curtails liability. Id. A limitation of liability clause has been held not to violate New Mexico public policy because the party “still bears substantial responsibility for its actions.” Id.; see also Cowan v. D'Angelico, 2010 WL 11493789, *6 (D. N.M. Apr. 26, 2010).

On the other hand, New Mexico’s Anti-Indemnity Act prohibits parties to a construction contract from requiring one party to indemnify the other party for the indemnitee’s negligence. NMSA § 56-7-1. The Act defines a “construction contract” as a “public, private, foreign or domestic contract or agreement relating to construction, alteration, repair or maintenance of any real property in New Mexico and includes agreements for architectural services, demolition, design services, development, engineering services, excavation or other improvement to real property, including buildings, shafts, wells and structures, whether on, above or under real property.” NMSA § 56-7-1(E). An indemnity agreement violates the Act, and is unenforceable, if it requires “one party to the contract to indemnify, hold harmless, insure or defend the other party to the contract . . . against liability, claims, damages, losses or expenses . . . arising out of bodily injury to persons or damage to property caused by or resulting from, in whole or in part, the negligence, act or omission of the indemnitee.” NMSA § 56-7-1(A). The New Mexico Court of Appeals has held that, to the extent an indemnity agreement violates the Act, only the offending provision will be unenforceable, not the entire agreement. See Holguin v. Fulco Oil Services L.L.C., 149 N.M. 98, 106 (N.M. Ct. App. 2010).

Keep Liquidated Damages Provisions Reasonable

Liquidated damage provisions are generally enforced in New Mexico. Gruschus v. C.R. Davis Contracting Co., 75 N.M. 649, 655 (1965). They are generally only denied when the stipulated amount is “so extravagant or disproportionate as to show fraud, mistake or oppression.” Id. New Mexico courts also hold that an award of actual damages unrelated to delay does not preclude an award of liquidated damages for delay-related damages as long as there is not duplication of damages. Louis Lyster General Contractor, Inc. v. City of Las Vegas, 83 N.M. 138, 146 (1971).

Don’t Expect to Litigate a Construction Dispute Outside of New Mexico

A forum selection clause in a construction contract is void against public policy if it requires venue of any litigation arising out of the contract in a state other than New Mexico or makes the contract subject to the laws of another state. NMSA § 57-28A-1. As with the Anti-Indemnity Act, a “construction contract” is defined as a “public, private, foreign or domestic contract or agreement relating to construction, alteration, repair or maintenance of any real property in New Mexico and includes agreements for architectural services, demolition, design services, development, engineering services, excavation or other improvement to real property including buildings, shafts, wells and structures, whether on, above or under real property.” NMSA § 57- 28A-1(C).

Licensing

Contractors in New Mexico generally must be licensed through the New Mexico Regulations and Licensing Department. NMSA § 60-13-1 et seq. A “contractor” is broadly defined and includes general contractors, subcontractors, specialty contractors and even construction managers. NMSA § 60-13-30. Contractors who are not licensed in New Mexico may not file a claim of lien or maintain suit for payment for unlicensed work. Id. Significantly, a contractor may not maintain an action for collection against a customer if the contractor used unlicensed subcontractors to perform any part of the job. Reule Sun Corp. v. Valles, et al., 226 P.3d 611 (N.M. 2009) (general contractor who used unlicensed subcontractor to perform part of stucco job on customer’s house could not maintain action for payment against customer).

Mechanic’s Liens

New Mexico has a mechanics lien claim process for private construction projects codified at NMSA § 48-2-1, et seq. General contractors, meaning a contractor in direct contractual privity with the owner, must file their claim of lien within 120 days of completion of the project. NMSA § 48-2-6. Subcontractors and suppliers, or any other contractor who does not have a contract with the owner of the project, must file a claim of lien within 90 days after substantial completion of the building. Id. The statute does not require a specific form of lien claim to be used and generally sets out only two requirements for the contents of a valid lien: a statement of the nature of the claim against the property owner and a verification under oath. Id. While New Mexico allows a lien claimant some room to substantially comply with the requirements of § 48-2-6, an unverified lien claim is per se invalid. Sonida, LLC v. Spoverlook, LLC, 367 P.3d 854 (N.M. Ct. App. 2016).

In comparison to many other states, New Mexico law does not require prior notice of the intent to claim a lien be sent by the general contractor or any subcontractor or supplier who contracts with the general contractor. NMSA § 48-2-2.1(A). Instead, only "sub-subcontractors," those subcontractors or suppliers who do not contract with the general contractor, are required to perfect a lien claim by first giving written notice of their right to claim a lien in the event of non-payment not more than 60 days after initially furnishing work of materials or both, by either certified mail, return receipt requested, fax with acknowledgment, or personal delivery to (1) the owner or reputed owner of the property upon which the improvements are being constructed or (2) the general contractor, if any. NMSA § 48-2-2.1(B).

Prompt Payment

Generally, an owner must pay a contractor within 21 days of receiving an undisputed request for payment. NMSA § 57-28-5(A). If a submitted invoice is improperly completed, then the owner must notify the sender within seven days, detailing how the invoice was in error. Id. There is no duty to pay on an improper invoice until it is resubmitted as complete. Id.

General contractors and subcontractors must make payment to their downstream subcontractors or suppliers within seven days after receipt of payment by the upstream owner or general contractor. These payment provisions apply to all tiers of contractors, subcontractors and suppliers. NMSA § 57-28-5(C).

Final payment from an owner to contractor must be made within 10 days after a certification of completion upon presentation of (1) a properly executed release and payment voucher, (2) a release, if required, of all claims and claims of lien against the owner except those specifically excepted by the contractor or subcontractor, and (3) proof of completion. NMSA § 57-28-8.

Interest begins to accrue on the day after payment was due at the rate of 1.5% of the undisputed amount per month or fraction of a month until payment is issued. NMSA § 57-28- 5(A)

Significantly, New Mexico does not allow for retainage to be withheld. NMSA § 57-28-5(E) (“When making payments, an owner, contractor or subcontractor shall not retain, withhold, hold back or in any other manner not pay amounts owed for work performed”).