Under Construction - March 2015

Letter from the Editor

Welcome to the spring edition of our Under Construction newsletter. There have been some interesting legal changes that have taken place recently with the potential to significantly impact the construction industry.

Our feature article on transaction privilege tax (TPT) reform in Arizona is one such issue. TPT reform has now become law. We will discuss this complex saga and the impact it will have on your business.

Getting paid is obviously the lifeline of the construction industry. One way to put pressure on your upstream owners and/or contractors is to suspend work. While this is one of the many tools in the toolbox, is this option effective?

Delay and disruption claims are big ticket items that can make or break a company. You cannot afford not to be knowledgeable about them.

Changes are happening and all of these articles can be valuable to anyone in the construction industry interested in keeping up with the industry. We hope we are able to inform and enlighten you. Have a happy spring and a prosperous year ahead!

Jim Sienicki

2015 Arizona Prime Contracting Transaction Privilege Tax Reform: Will This Third Annual Legislative Enactment (SB 1446) Bridge the Gap Until Complete Repeal is Politically Viable?

For three years in a row, the Arizona legislature has enacted significant changes to the Arizona state and local tax on construction activity, known as the “prime contracting” transaction privilege tax (TPT). If anything, this saga is a testament to the complexity of the construction industry and its economic significance at the state and local levels.

The intent throughout all three legislative sessions has been to simplify the industry’s TPT compliance burdens, but true simplification – repeal of the prime contracting TPT altogether – has not yet been politically viable. In 2013, as part of a larger effort to streamline the TPT structure generally, then-Governor Brewer sought to repeal the prime contracting TPT altogether. If successful, TPT revenues relating to construction activity would have been generated at the retail level as contractors would purchase their materials. But the municipalities were very concerned about the shift in revenues from growing jurisdictions where the construction activities are relatively significant, to the more established jurisdictions where the materials suppliers are located. The result was a last-minute political compromise (enacted as part of House Bill 2111) that created a hybrid industry by splitting it into two categories of projects: (1) maintenance, repair and replacement (MRR) projects, with retail TPT on the cost of materials at the point of sale, and (2) all remaining projects affecting real property, with prime contracting TPT on the contract price paid to the contractor by the owner.

Recognizing some of the challenges created by the rushed compromise in 2013, House Bill 2389 was enacted in 2014 as a clean-up measure. In reality, it was a complete re-do, as it entirely repealed the changes made to the prime contracting TPT laws enacted in 2013. Notably, the term “alteration” was added to the treatment of MRR projects, thereby expanding the scope of materials-tax projects to “MRRA” even though the legislative effort had been billed merely as a technical fix to the 2013 legislation. Thus, while the 2014 legislation did include some clean-up items, it added to the controversy without providing answers to significant open issues directly impeding the industry’s ability to comply with the tax laws directly impacting it. The industry also attempted to convince Governor Brewer to call a special legislative session last fall to postpone the effective date of the prime contracting TPT changes, but that effort was flatly rejected by the Governor’s office.

With the January 1, 2015 effective date for the 2014 legislative changes looming over the industry and attempts to postpone implementation of House Bill 2389, a comprehensive group of stakeholders started working to craft the many missing pieces to the new hybrid prime contracting TPT framework. The result of these efforts is Senate Bill 1446, which was signed by Governor Ducey on February 24, 2015 with an emergency clause and retroactive application to January 1, 2015. This third consecutive legislative effort brings about much-needed clarification for the industry.[1] That said, while this new legislation has filled in many of the gaps created by the prior legislative efforts, it is really just a stop-gap measure to prevent total anarchy within the industry until the complete repeal of prime contracting TPT can become a political reality. To be sure, Senate Bill 1446 includes the following statement of intent: “to clarify and simplify the transaction privilege tax reform measures enacted [by House Bill 2389] until such time as the prime contracting transaction privilege tax classification can be repealed.”

Don’t forget to contact your legislators about the need to complete this reform effort as soon as possible – the intended repeal of prime contracting TPT may not happen without your input.

A summary of Senate Bill 1446’s key provisions is provided below, along with insights about some forthcoming changes to administrative procedures necessary to fully implement these recent changes to the law.

  1. Contractors Maintaining TPT License Can Once Again Purchase All Project Materials Tax-Exempt with Blanket Form 5000
    • Contractors maintaining their TPT license can purchase all materials tax-exempt, as they always did before 2015, for both:
      • Prime contracting TPT projects
      • MRRA projects
    • Vendors can once again rely on these contractors’ blanket Form 5000 without concern about the type of project
    • Avoids impractical “dual inventory” problem for contractors and uncertainty for vendors created by previously enacted bills
    • Exception: Contractors that have canceled their TPT license must pay tax on materials when purchased, unless hired by GC that has issued a Form 5009L for a prime contracting project
    • Note: Until Form 5000 is updated by the Arizona Department of Revenue (ADOR) to specifically cover the purchase of MRRA materials, contractors may wish to check box 19 and write “42-5061(A)(27)(a)” in the space provided – this refers to the provision in Arizona Revised Statutes authorizing these purchases to be tax-free
    • Reporting and Payment for MRRA Materials: For all MRRA materials purchased tax-exempt with a Form 5000, the contractor must pay an amount equal to retail TPT based on:
      • The cost of materials
      • The date the materials are incorporated into the project and
      • The location of the project
  2. GCs Can Once Again Issue Blanket Form 5005 to All Subs for All Projects
    • GC can once again issue a blanket Form 5005 to subs, as they always did before 2015, for both:
      • Prime contracting TPT projects
      • MRRA projects
    • Allows subs to issue blanket Form 5000 for tax-exempt purchase of materials without concern for:
      • Risk of paying tax on materials without reimbursement from GC
      • Uncertainty whether it’s reasonable to rely on GC’s determination of MRRA vs. prime contracting
      • Note: Without receiving a Form 5005, the sub will owe tax on MRRA materials purchased tax-exempt by the sub as the sub uses the materials, based on the project location, as noted in the last item in Section 1 above
    • Incentivizes GC to issue Form 5005 to assume tax liability for materials used by subs in an MRRA project by providing an offset opportunity to GC
      • If GC reports and pays the MRRA materials tax liability for the subs, then…
      • GC gets to use the amount of tax liability paid as an offset against prime contracting TPT, if the GC is audited and is found to have mis-classified the project as MRRA
    • Exception/Limitation: Form 5005 is effective only in limited circumstances for a sub that has canceled its TPT license, as follows:
      • Projects for which the sub receives a Form 5009L for tax-exempt materials purchases – the Form 5005 protects the sub from tax on materials if ADOR later determines that the project was an MRRA project and not prime contracting
      • Projects that are prime contracting, though the sub will pay tax on any materials purchased for the project without obtaining and using a Form 5009L, and the GC will not get an offset for tax
      • Form 5005 can relieve sub from tax burden for materials purchased tax-exempt before canceling TPT license, though the sub will need to provide the GC with the sub’s cost of materials
    • Note: ADOR has not finalized a revised version of the Form 5005 – GCs wishing to issue Form 5005 to apply to MRRA projects before the revised Form 5005 is updated should consult their tax advisor
  3. Change Orders
    • If the scope of work of a change order directly relates to the scope of work of the original contract, then the tax treatment of the change order follows the original contract
    • If the scope of work of a change order does not directly relate to the original contract, the tax treatment of the change order will depend solely on the scope of work of the change order
  4. Definition of Alteration
    • The scope of alteration projects has been narrowed by creating thresholds for determining the upper limit of an alteration project:
    • Residential Property: Tax on cost of materials, if the contract price for the work is 25 percent or less of the property’s full cash value for property tax purposes (31.25 percent, with 25 percent cushion described below)
    • Commercial Property: Tax on cost of materials, if all of the following are true:
      • Contract amount is $750,000 or less ($937,500, with 25 percent cushion) AND
      • Scope of work directly relates to 40 percent or less of existing square footage (50 percent, with 25 percent cushion) AND
      • Scope of work includes an expansion of existing square footage that is 10 percent or less of pre-existing square footage (12.5 percent, with 25 percent cushion)
    • 25 Percent Cushion for All Property: If project qualifies for alteration treatment at time of contract, it will continue to qualify even if the threshold is blown by no more than 25 percent (cost overruns, change orders, etc.)
    • Specifically excludes maintenance, repair and replacement, which have no thresholds (no cost limits or scope of work limits)
    • The residential property valuation should be determinable very quickly by using the County Assessors’ websites to pull the relevant data
  5. Clarifies Definition of Prime Contracting Taxable “Modification”
    • Deletes terms within the definition that caused confusion (“improvement” and “movement”)
    • Specifically excludes MRRA activities (MRRA trumps prime contracting)
    • Specifically excludes mobilization and demobilization (erection of temporary facilities, fencing, etc.)
  6. Provides Consistent Treatment for MRRA Projects with Tax-Exempt Parties or for Tax-Exempt Property
    • Materials purchased by any person (whether holding a TPT license or not) for their use in an MRRA project for certain nonprofit organizations, such as qualifying hospitals and qualifying health care organizations
    • Materials purchased by any person (whether holding a TPT license or not) for their use in on-reservation MRRA projects for tribal government or enrolled members of the tribe
    • Certain machinery, equipment and other tangible personal property purchased by any person (whether TPT licensed or not) that their owner will use in certain business activities, such as manufacturing, mining and electric generation
    • Note: ADOR is currently considering the form of exemption certificate for tax-free purchases of these items by a non-TPT licensed person
  7. Excludes Roadway and other Surface/Subsurface Projects from MRRA Treatment
    • Maintains prime contracting tax treatment for public works projects without vertical construction for:
      • Arizona Department of Transportation (ADOT)
      • Cities
      • Counties
      • Certain special taxing districts addressing surface/subsurface needs
    • Does not apply to state projects other than ADOT
    • Does not apply to most special taxing districts – those not created to address surface/subsurface needs
    • Does not apply to contracts with the Feds
  8. Persons Canceling Prime Contracting TPT License Are Protected
    • Issuance of building permit no longer conditioned on holding TPT license
    • Materials purchased tax-exempt that are on hand when TPT license canceled will be taxed as used, sold or discarded
      • Alternative: If TPT license canceled before May 1, 2015, the value of materials on hand can be calculated when TPT license canceled and associated tax spread equally over 12 months based on business location
      • First $10,000 Exempt: If TPT license canceled before May 1, 2015, no tax due on the first $10,000 of materials on hand
    • Reasonable estimation of value of materials on hand is acceptable if TPT license is canceled before May 1, 2015
  9. Safe Harbor to Protect Industry During Transition Period
    • Protection provided for good-faith bids/contracts entered into before May 1, 2015, throughout the entire term of the contract
    • Prime contracting treatment permitted for all projects started before May 1, 2015, regardless of when completed

Tips for Suspending Work for Non-Payment without Getting Fired

All work and no pay making you crazy? A temporary suspension of work may be an appropriate self-help remedy for an owner’s or contractor’s non-payment. Although termination of the contract for the material breach of non-payment by the owner or contractor may be warranted in certain circumstances, suspension may be more appropriate if the reasons for non-payment can be cured and the parties can, following suspension, payment and resumption of work, achieve the goals and realize the mutual benefits of the completed contract or subcontract.

Suspension of work may involve pulling crews off the site, and, for longer suspension periods, actually demobilizing from the work site. Suspension is an actual stoppage of work, albeit a temporary one. This is different from reducing crew sizes or otherwise a slower pacing of the work.

To be clear, although suspension of work is not as severe an action as termination of the contract or subcontract, the consequences can be significant. Before suspending work, or even threatening to suspend work, the contractor or subcontractor should review and understand the applicable contract provisions and law affecting such action, communicate with the owner or contractor as applicable and document the reasons for the suspension in advance, and seek out experienced and knowledgeable construction counsel to evaluate whether the benefits of suspension outweigh the risks. This article expands on each of these tips.

Know Your Contractual Rights

Some, but not all, contracts and subcontracts provide that the contractor or subcontractor has the right to suspend work for non-payment. For example, ConsensusDocs Form 200, Agreement and General Conditions Between Owner and Constructor (Lump Sum) (© 2011, Revised 2014), provides that if for any reason not the fault of the constructor, the constructor does not receive a progress payment from the owner within seven days after such payment is due, then the constructor, upon giving seven days’ written notice to the owner, and without prejudice to and in addition to any other legal remedies, may stop Work until payment of the full amount owing to the constructor has been received, including interest for late payment. The contract price and contract time shall be equitably adjusted by a change order for reasonable cost and delay resulting from shutdown, delay and start-up (§ 9.5). Similarly, ConsensusDocs Form 750, Standard Agreement Between Constructor and Subcontractor (© 2011, Revised 2014), provides that if the constructor has received payment from the owner and does not make payment to the subcontractor for any reason not the fault of the subcontractor, or if the constructor has failed to pay the subcontractor within a reasonable time for the subcontract work satisfactorily performed, the subcontractor may, upon giving seven days’ written notice to the constructor, stop work until payment of the full amount owning to the subcontractor has been received (§ 8.2.6). Form 750 further provides that the subcontract amount and time shall be adjusted by the amount of the subcontractor’s reasonable and verified cost of shutdown, delay and startup (§ 8.2.6).

The foregoing and similar language grants powerful rights to contractors and subcontractors to suspend work for non-payment. However, without such language, a contractor or subcontractor who stops work for non-payment may be at grave risk of breaching its contract or subcontract, unless the applicable law allows the contractor or subcontractor to do so.

Know Your Statutory Rights

Many jurisdictions have enacted prompt pay laws for public works and/or private construction projects. Contractors and subcontractors should familiarize themselves with the applicable laws in the states in which they perform work, as well as the laws made applicable by virtue of subcontract choice-of-law clauses. For example, in Arizona, for private construction projects, A.R.S. § 32-1129.04 provides that a contractor may suspend performance if the owner fails to pay the contractor, and a subcontractor may suspend performance if the owner fails to pay the contractor and the contractor fails to pay the subcontractor, or if the owner pays the contractor for the subcontractor’s work but the contractor fails to pay the subcontractor for the subcontractor’s work (the statute does not authorize suspension if the owner timely and properly objects to payment for the contractor’s or subcontractor’s work). The statute further provides that a contractor or subcontractor shall not be deemed in breach of the contract or subcontract for suspending performance pursuant to the statute, and that a contractor or subcontractor that suspends performance is not required to resume until it is paid the amount approved, together with any costs incurred for mobilization resulting from the suspension.

Communicate and Document

A contractor or subcontractor that has not received timely payment for its work should promptly investigate the reasons for non-payment. Timely communication is the key. Also, in some instances, the squeaky wheel gets the grease. Whatever the reasons and whatever the communications, it is important to contemporaneously document the circumstances, project status and communications. Write to the owner or contractor to recite what work was performed, what billings were submitted, what payments were due, what reasons, if any, were given for nonpayment and what needs to be done to address the situation. If suspension is anticipated, document the status of the contractor’s or subcontractor’s work as well as the other ongoing (or suspended) work, the anticipated schedule for the contractor’s or subcontractor’s work if not suspended, the anticipated suspension period (if known), the costs of demobilization and remobilization and other costs related to the suspension that may be sought in addition to the regular payments owed. The more information the subcontractor, contractor and, if appropriate, the owner have regarding the reasons for, and the anticipated effects of, the suspension, the more informed decisions each affected party can make as to whether suspension is an appropriate action in response to non-payment.

Get a Second Opinion Before You Suspend Work

Contractors or subcontractors who believe they have the right to suspend work and that a suspension is the best course of action should … take a deep breath and contact knowledgeable and experienced construction counsel before taking that action. Counsel can quickly review the facts, analyze the applicable contract and/or statutory language, and evaluate the pros and cons of suspending work compared to other action or no action. Even though suspension is different from, and less final than, termination, suspension can still prompt an aggressive and adverse response from the owner and/or contractor, and should be used sparingly.

Delay and Disruption Claims: Big Impacts on Your Bottom Line

“Time is money” in construction. Owners, design professionals and contractors use time to calculate the impact of lost performance. Yet delay and disruption can be commonplace in construction projects. The reasons for the delay or disruption may vary, but both are major concerns in the construction industry and have a major impact on any project. Indeed, delay and disruption claims can be some of the most expensive, difficult and time-consuming disputes to litigate.

Delay arises when the project is not completed within the agreed deadline. Disruption emerges when an owner causes a change in the method of construction upon which the contractor based its bid. Although delay and disruption often go hand-in-hand, they are distinct claims with distinct damages. Disruption of the contractor’s planned sequence and method of construction typically causes a loss of productivity. This loss of productivity, however, does not necessarily mean that the overall contractual completion date will be delayed as a result of the disruption.

Over the years, the construction industry has developed various methods of contractually allocating the risk of project delay and disruption. Some of these methods include liquidated damages provisions, “no damages for delay” clauses, mutual waivers of consequential damages, limitation of liability provisions, claims notice provisions and provisions addressing responsibility for the adequacy of the construction plans and specifications. Parties frequently litigate the sufficiency and enforceability of these risk-shifting efforts in conjunction with the underlying merits of delay and disruption disputes. Understanding these claims and the contractual provisions that relate to them can be critical. All parties may wish to attempt to enter into contracts that clearly and adequately address the risks imposed by project delays and disruptions.

The contractor’s responsibility for delay and disruption may arise from improper planning. A contractor’s obligations center on proper planning, which ensures that the work is adequately scheduled, sequenced and coordinated. Schedules are typically based on “critical path” methodology. Critical path scheduling is used to plan, sequence, forecast and resource level the start and finish of work or scheduled activities. On the other hand, the owner’s responsibility for delay and disruption may arise from differing site conditions, changes made by the owner during construction and design deficiencies.

Delay Claims

Many events may increase the time of performance of the overall project or affect any given activity. Common examples include contractor/subcontractor management and performance problems, differing site conditions, changes in requirements or design, unanticipated weather, unavailability of labor, material or equipment, defective plans or specifications and owner interference. Delay can either be excusable, thus justifying an extension of the contract performance time, or non-excusable, where the delayed party assumes the risk of the costs and consequences of delay. Whether a delay is excusable or non-excusable is usually addressed in the contract. The contract will usually enumerate various types of delay that will entitle the contractor to an extension of time (i.e., an excusable delay). Typical extension provisions cover labor disputes, unanticipated weather, unusual delay in deliveries and a catchall for any unforeseen causes beyond the control and without the fault or negligence of the contractor. The fight for the contractor will usually be whether the delay was foreseeable (non-excusable) or unforeseeable (possibly excusable).

Excusable delays may be further classified as compensable or non-compensable. Again, the contract is usually controlling. Compensable claims are those where the claiming party is entitled to additional compensation for the costs of the delay in addition to the additional time for contract performance. These are usually delays that could have been avoided by due care of the non-claiming party. The claiming party must not usually contribute to the delay. Non-compensable delays are those that are not the fault of the owner or contractor, but are due to events outside the control of the parties such as acts of God or labor strikes.

In order to be excusable, the delay must be critical – i.e., extend the overall project completion date. A time impact analysis – a thorough examination of the various activities on the project, pinpointing deviations from planned performance and then quantifying the delay – aids in this determination. Contractors making delay claims may wish to provide a time impact analysis, particularly if it is required by contract. A scheduling consultant may evaluate the delay activities, the contract schedules, and the critical path and the effect the delay activities have on the project milestones. They may determine, along with the contract requirements, if any time extension is merited.

Often times there is not a single cause of, or single party responsible for the delay. These “concurrent delays” – two or more unrelated delay periods occurring simultaneously, each independently affects the project end date – are hotly contested in litigation and can be difficult to analyze. The concurrent delays can differ as to responsibility (e.g., owner vs. contractor), duration, impact on critical path, compensability and the ability to substitute other work activities for the precluded activities. Thus, the analysis and apportionment of concurrent delays may involve analysis of the contract provisions defining concurrent delay, if any, and legal principles in the controlling jurisdiction. It is usually fact intensive and involves multiple parties (owner, contractor, subcontractors, material suppliers).

If compensable, delay damages come in several forms and can be calculated in various ways. Again, depending on the contract, a successful claimant may recover direct job costs (general conditions costs such as jobsite payroll, costs of supervision, cost of job trailer and telephone and rental value of idle equipment), overhead (home office, rent and utilities) and labor and material increases (wage increases and impact of inflation on the cost of materials).

Establishing damages is often a fact intensive and expert intensive exercise where the burden to prove the damages rests squarely with the claimants. It goes without saying that the better and more complete the proof, the better the chances for claimant recovery.

A party defending against a delay claim may not be without recourse. And that recourse is usually found in the form of a contract provision. For example:

  • No Damages for Delay Clause: These are exculpatory clauses that preclude damages for delay. Generally, a contract may provide that the contractor’s sole remedy is only a time extension. These provisions may be generally enforceable except in cases of fraud or owner interference or if a statute prevents it from being enforced.
  • Liquidated Damages: An owner might be awarded damages based on contractor’s delay.
  • Concurrent Delay: One party may argue that any delay was also caused in part by the other party.
  • Written Notice: Construction contracts typically require claims for delay and additional compensation to be preceded and confirmed by specific written notice. Failure to follow the contract may result in waiver of the claim.

In sum, key contractual provisions may include provisions relative to the schedule of work, provisions regarding your ability to manage and modify your work plan, schedule and sequence, provisions regarding your ability to seek relief from changes to and impacts upon your work plan and schedule, notice and claims provisions and “no damages for delay clauses.”

Disruption Claims

A contractor’s disruption claim arises when an owner changes the method and/or sequence of construction from that upon which the contractor based its bid. When the planned method of completing the project is disrupted, contractors incur increased labor costs because it takes them more time to complete the task than originally contemplated. When this occurs, contractors usually either allege a breach of an express contract provision that requires cooperation between the owner and the contractor, or a breach of the implied duties of the owner to cooperate with the contractor or to refrain from hindering the contractor.

To counter a contractor’s disruption claim, owners often argue that they had the right in the contract to change the schedule and therefore, the sequence of construction because of the terms of the contract. Owners often urge that these express terms trump the implied duty to cooperate, thereby undermine the legal basis for a contractor’s disruption claim.

Disruption damages are the result of the timing or sequence of the flow of work (e.g., lost productivity) and not necessarily an extension beyond the originally anticipated project completion. Loss of productivity claims may be difficult, but vitally important and almost always require expert testimony. Productivity is a measurement of rate of output per unit of time or effort, usually measured in labor hours or equipment hours. A loss of productivity, also sometimes known as “disruption” or “loss of efficiency,” can have significant negative effects on a contractor’s bottom line. There can be many causes of disruption on a project such as differing site conditions, design deficiencies, or lack of access to the work. Quantifying the loss of productivity is often the difficult part. Knowledgeable construction counsel and knowledgeable experts may be resources during that process and on delay and disruption generally.

Construction Law Developments in 2015 Colorado Legislative Session

In the first two months of its 2015 session, the Colorado General Assembly has introduced two bills that could have a significant impact on construction law in Colorado.

Senate Bill 15-177, introduced on February 10, 2015, by a bipartisan coalition in both chambers, amends the Colorado Common Interest Ownership Act’s requirements for an owner’s association to file a construction defect action in five significant ways. First, mediation or arbitration provisions contained in the original governing documents of a common interest community must be enforced even if those provisions are later amended or removed. Second, mandatory mediations must take place before a construction defect action can be filed. Third, an association board must provide advance notice to all unit owners of construction defect litigation and the notice must include projected costs, duration and financial impact of the construction defect litigation. Fourth, association boards must obtain the written consent of a majority of the owners of units to proceed with construction defect litigation. Finally, prior to the purchase and sale of a property in a common interest community, the purchaser must receive notice that binding arbitration may be required for certain disputes. The bill has been assigned to the Senate Committee on Business, Labor, and Technology.

On February 2, 2015, the General Assembly introduced House Bill 15-1197, which expands Colorado’s anti-indemnity statute, which currently only applies to private construction contracts, to apply to public construction contracts as well. The bill clarifies that public agencies cannot be indemnified by design or construction firms for the public entity’s own negligence, nor can design or construction firms be required to provide defense for such claims. Rather, indemnification and defense obligations are limited to the percentage of fault attributable to the design or construction firm. Under the bill contracts that violate these requirements are unenforceable. The bill has been assigned to the House Judiciary Committee.

Utah Clarifies Lien Amounts and Bonding Requirements

The Utah Supreme Court recently clarified that the only permissible amounts to claim under Utah’s mechanic lien statutes are those “equivalent to the value of the services rendered, labor performed, or materials or equipment furnished or rented.” Not included in amounts that a party may claim as part of the mechanic’s lien, and thus also may not be included towards calculating the amount necessary to bond around a mechanic’s lien, are the attorneys’ fees and costs the liening party may incur along the way.

In 2 Ton Plumbing, LLC v. Thorgaard, 2015 UT 29, decided earlier this year, the Utah Supreme Court considered whether multiple amendments to a lien, adding attorneys’ fees that were incurred during foreclosure of the lien, continually modified the amount necessary to bond around the lien. In this case, the contractor/liening party originally recorded a mechanic’s lien for plumbing, materials and installation in the amount of $7,470.72. Subsequent to the lien recording, the subject property was conveyed and encumbered multiple times. Subsequently, the contractor filed suit and thereafter, recorded an amended notice of mechanic’s lien raising the amount to $20,983.42. That amount included claims for interest, late fees and attorneys’ fees that had been incurred subsequent to recording the original lien. To clear title, the lender for the last purchaser of the property filed a statutory notice of release of lien and substitute alternate security with a cash deposit of $14,942, which purportedly satisfied the statute’s requirement of bonding for 200 percent of the original lien amount. Unphased by the notice of release of lien, the contractor filed yet another amended mechanic’s lien raising the amount to $38,714.98, again adding fees and costs incurred in the litigation. At the same time, the contractor argued that the cash bond was inadequate, because it was only a fraction of the current lien amount of over $38,000.

Ultimately, the latest purchaser stipulated that the value of the original services, labor and materials was $7,147.41. The parties then submitted their disputed claims for attorneys’ fees and contested the issue whether the notice of lien release and bond amount were valid. The trial court entered judgment for the stipulated value, $1,300 in costs, $4,600 in interest, and nearly $45,000 in attorneys’ fees. The trial court also ruled that the bond amount was inadequate because of the later lien amendments.

On appeal, the Utah Supreme Court reversed the trial court and held that the Utah code does not allow a lien claimant to include attorneys’ fees or costs incurred in prosecuting the lien claim in the “amount of the lien claim” set forth in the notice of lien. It stated that an award of attorneys’ fees is a conditional award, depending upon the outcome of the action to enforce the lien. If the contractor’s argument were the law, the Utah Supreme Court rightly noted that “a party seeking to post alternate security would be chasing a moving target, because as the lien amount increased, the amount required for alternate security would correspondingly increase.” The Utah Supreme Court clarified, however, that once a judgment had been rendered enforcing a mechanic’s lien, which judgment would be permitted to include a reasonable attorney’s fee in favor of the successful party, that total amount would and could constitute a valid judgment lien against the property, and in that instance the attorneys’ fees would be part of the encumbrance. Also helpful to parties seeking to bond around liens, the Utah Supreme Court clarified that even if a party is served midway through a lien foreclosure action, as here, the amount that that party need pay to bond around and provide alternate security for the subject lien is limited to the value of the services, materials and improvement, exclusive of any attorneys’ fees that may have been incurred during the lien foreclosure process. Under the statute, alternate security must be 150 percent of the amount claimed in the notice of lien if the claim exceeds $25,000, 175 percent of the lien claim if the amount is between $15,000 and $25,000, and 200 percent of the lien claim if it is less than $15,000. These clarifications are welcome, given the previous uncertainty surrounding Utah’s lien laws.


[1] A big “thank you” is owed to Mark Minter and the Board of Directors of the Arizona Builders’ Alliance for taking the lead with drafting, negotiating and seeking legislative approval of Senate Bill 1446, which ABA pursued for the benefit of the construction industry as a whole.

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Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

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