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Recent News & Blog Posts
Pittsburgh Business Attorney Julian Neiser to Present Litigation Seminar
By Julian Neiser on G+ Pittsburgh business and construction attorney Julian Neiser will be presenting a seminar for the National Business Institute on “Advanced Trial Tactics” on April 30, 2015. Attorney Neiser will be presenting sections on effective cross examinations, handling expert witnesses, and use of technology at trial. This is an advanced-level course that will be presented to other attorneys. Attorney Neiser is an experienced business and construction litigator who has tried many cases in state and federal courts and before arbitration panels. In addition to his practice, he is an adjunct professor at Duquesne University School of Law in the Trial Advocacy department. A link to the seminar, which will be held in Pittsburgh, Pennsylvania, is here.
Pennsylvania’s Home Improvement Consumer Protection Act
By Julian Neiser on G+ The Pennsylvania Legislature several years ago passed a law called the Home Improvement Consumer Protection Act (the “Act” or the “HICPA”). The purpose of the law is to establish rules and govern conduct of home improvement contractors who primarily work with residential customers. This article is a brief overview. However, if any of this is new to you, then you need to talk with a lawyer sooner rather than later to ensure you are protected. The reality of the law is that home improvement contractors must follow a number of administrative requirements or put their entire business at risk. Contractors who do no understand the Act can fall into a fatal cycle of customer problems and lawsuits. In fact, if you are not absolutely sure that your contracts and your practices comply with the HICPA, you need to contact an attorney immediately for a review. A copy of the Act can be found here. The first step for all contractors is to register with the Attorney General’s office. A link to the registration site is here. This is mandatory. If you are not registered, do so immediately. Do not perform any work in Pennsylvania without being properly registered. If you are not incorporated, do so immediately. The next step is to ensure that your contracts comply with the Act. The requirements range from ensuring that the contract is signed and has an estimated start and end date to a prohibition against certain types of damages. It also requires the contractor to list their registration number, the 800 number to the attorney general’s office and a statement that the contractor will maintain at least $50,000 in insurance coverage for property damage. If you perform work under a contract that does not comply with the Act, your customer may be able to declare the agreement as “void” and you could have serious problems getting paid. You could easily be in a position where you do great work, perform as promised, and have a customer throw up roadblocks to payment because of a “technical” default of the HICPA. Additionally, you cannot include contract clauses that allow you to collect attorney fees or that prohibit certain types of customer claims. The Act isn’t entirely one-sided. It doesn’t apply if the customer fails to pay or if you have performed as promised. Also, the Pennsylvania Superior Court has ruled that contractors are entitled to be paid for work performed even if the contract is “voided” due to noncompliance with the HICPA requirements. Here’s a real world example. A customer hires a contractor. The contractor gives an estimate and provides a contract that everyone signs, except, the contract doesn’t include the 1-800 number for the Pennsylvania Attorney General’s office. There are some issues between the customer and contractor, and the customer decides he doesn’t want to pay a remaining balance of $5,000, even though the contractor performed the work. The customer hires a lawyer, who says that the contract is voided and no further payment will be made. The contractor sues and says that the violation of the HICPA is of no issue, it’s a pure technicality and he is entitled to be paid for work performed on the customer’s behalf. Under the current law — and without saying this is a certainty — I believe the contractor can be paid for the work that was completed regardless of whether the contract was missing a term required under the HICPA. Recent rulings by the Pennsylvania Superior Court suggest that the doctrine of quantum meruit, which provides a right to payment for work done in the absence of a contract, requires payment for any value conferred by a contractor to an owner. The idea is simple. If a contractor improves property by performing $10,000 in work, and the work is good, the contractor should be paid. The problem for the contractor under the HICPA is that he has to defend a claim based on a technicality because his contract wasn’t complete. The contractor easily could have avoided the claim if one additional line were included on the agreement. There is no way to prevent someone from suing. However, because the HICPA does not allow for recovery of attorney fees against consumers, the only “teeth” a contractor may have is to seek sanctions against a consumer who files a frivolous law suit. As always, the best defense is a good offense. Make sure you contracts are in compliance with the HICPA. –Julian
Pennsylvania’s Real Estate Seller Disclosure Law
By Julian Neiser on G+ Selling a home is a major milestone that can mark the end of a long and time-consuming process for everyone involved. However, without full disclosure — prior to closing — of problems with a home, the buyer and seller could find themselves at odds long after the sale. Being “at odds” really means engaged in a lawsuit that could involve tens of thousands of dollars. Under Pennsylvania law, a home seller must disclose known defects and problems prior to the sale. This law, the Pennsylvania Real Estate Seller Disclosure Act (“RESDA”), provides the rules and penalties in the event that a seller is aware of a defect but fails to disclose the problem in writing. For example, the closing documents for every real estate sales transaction includes a seller disclosure form that the seller must complete and every buyer must receive prior to sale. A sample form can be found at http://www.parealtor.org/clientuploads/StandardForms/Sample_Forms/SPD.pdf. The form requests information about a number of key areas of any home. For example, it inquires into structural issues, whether the home is sitting on fill, and if there has been water damage or leaking. The rule should be to “check the box” and disclose anything and everything that could potentially be a liability under the Pennsylvania Real Estate Seller Disclosure Act. For example, if you experienced a wet basement once after a major thunderstorm, you might not think that this single instance warrants disclosure — after all, it could jeopardize your sale. However, if flooding in the basement occurs within months after the sale and during the remediation, evidence of the prior damage is uncovered, your buyers can sue you for the repair costs. If they win, the court can award attorney fees. Simply, a flick of a pen to disclose the condition along with an explanation that it was a limited, contained event can save you thousands of dollars and a significant amount of aggravation. The statute of limitations for Pennsylvania RESDA claims is two years from the date of closing. If the home inspector also is to blame for not discovering a defective condition on the property, you need to move very quickly. The statute of limitations for those cases is one year from the date of the inspection. Also, it is my suggestion that neither the sellers nor the buyers should opt for mediation through the multi-list system. The process can be expensive and not result in a final resolution in a timely way. A better option is to sue — if absolutely necessary — in the Courts of Common Pleas. –Julian
Default Judgments in Pennsylvania
By Julian Neiser on G+ I’ve been seeing a rash of judgments taken by default against small businesses. This means that a lawsuit was filed, no response or defense was made and a judgment was taken without a fight. Then, months — and even years — later, clients need to fix these problems. The reasons range from a failure to open mail to a neighbor signing for a hearing notice and not delivering it, and even service to an incorrect address. Fortunately, I’ve been relatively successful in helping my clients. But it’s always a very shaky proposition to obtain a second chance in defending a lawsuit or even filing a late appeal. In fact, it’s a pretty high legal burden to meet. Granted, there are very limited occasions when a default makes sense (e.g., at a magistrate hearing when you know an appeal will be taken or against a company with zero assets). Otherwise, they are usually avoidable, troublesome, expensive to fix and can be completely irreversible. How Default Judgments Are Taken A default occurs in different ways depending on the court. At the Pennsylvania district justice or magistrate level, a default occurs by not showing up at a hearing or by failing to tell the court that you will be defending a claim. So, a plaintiff who files a complaint, obtains a hearing, and is the only party who shows up will win by default. A plaintiff who doesn’t show up for the magistrate hearing will be subject to a dismissal of their case, which means no appeal can be had. A defendant can file an appeal from the default judgment within 30 days to the Court of Common Pleas, Arbitration Division. If a case is appealed within this period (it must be, otherwise the judgment may be permanent), then the process starts over — but with a few new rules. The filing of an appeal from a district justice suit also results in the issuance of a “rule to file a complaint” on the Plaintiff. This means the Plaintiff needs to file a new complaint within 20 days of the appeal. The Defendant then needs to file an answer (or objections) within 20 days from the date of service of the Complaint. If the Defendant does not respond in time, the Plaintiff must give what is known as a “10-day notice,” which informs the Defendant that if no response is filed within ten days, then a default may be entered. If, after 10 days following the notice the Defendant fails to file and serve a response, then the Plaintiff can enter a default judgment. But wait! There’s more… The Defendant, within 10 days from the entry of default, can petition the court to open the judgment and allow a reasonable period to file a response. The Court must do so if the Petition is filed within 10 days of notice of the default judgment. After that 10 day period, the Court may deny the request or issue a rule to show cause to demand proof why a judgment should not be entered. This puts the burden on the defendant to explain why the default occurred, demonstrate a meritorious defense and establish that the late filing is reasonable. Also, a default can be taken if a party fails to show up for a scheduled arbitration (from which there is no appeal except in extraordinary circumstances). Confused? Don’t feel bad. Avoid the Hassle and Expense of a Default Judgment I know the details on how to appeal, open judgments, and take defaults through years of practice and an understanding of the rules. If you are a small business owner and are attempting to collect a small debt or defend against a customer who has an unresolved issue, attempting to navigate these waters can be dangerous and result in a waste of time and money. Court personnel will be happy to help you understand what needs to be done to file and bring a claim, but they only can do so much. Some offices are more cooperative than others, and no court personnel can give “legal advice.” The problem occurs when a small claim becomes a complete nightmare due to administrative errors or neglect. Then attorney fees are compounded because a lawyer needs to fix the default, open a judgment and still has to mount a defense. Here are the main causes for default judgment and how you should fix them 1. Open your mail! Seriously. Open your mail. I’m always surprised how many business owners let mail accumulate or ignore critical letters. All business owners have at least one period where market conditions, customers and other issues create stressful times where the only thing that comes in the mail is bad news. No one is immune from this. However, no good ever comes from failing to open your correspondence. Some people also think that if they don’t open hearing notices then no one can say they were received. That is incorrect. 2. Use one good business address. Don’t use your home and a business address, or a business address and a P.O. box. Or some other combination. Use one address. If you move, ensure your mail is forwarded. I have seen lawsuits valued at significant amounts of money that ended in a default judgment because mail was sent to an improper address (another topic for another day). 3. Mail that is not returned to sender is assumed to be delivered and read. The courts assume infallibility of the postal service. If you receive a letter from a court, it is assumed to be read — whether you do or not. 4. Do not allow anyone to sign for your mail. If you share space with another business or have a neighbor who always is home and sometimes collects your mail, please tell them to never, ever sign for certified mail on your behalf. In fact, put it in writing and email it to them. A well-intended neighbor can forget to give you important court documents and the next thing you know, you have to pay an attorney to undo a mess of which you may not even be aware. Even if you have to “undo” a mess because mail was not handed over to you, at least the argument can be made that any failure on your part was due to interference by an outside agency who was specifically instructed to not sign for your mail. 5. Deal with problems head on. In a lawsuit, a tree that falls in the woods with no one around always makes a sound. There are no excuses for ignoring trouble spots or tough arguments. All litigants need to understand that they are not perfect, they never will be perfect and it is OK to accept mistakes made on your own behalf. Ignored problems never go away. Never. Timely, decisive responses are your best option — always. — Julian
Employment Law Tips for Small Businesses
By Julian Neiser on G+ Employment costs are usually among the largest for businesses of all sizes. Employment issues also can be among the most problematic, invasive and disruptive — whether the business has two employees or 500. Many small-and-mid-size businesses leave themselves open to employment-related problems by not taking precautions through policies, contracts and other tools. The reasons range from perceived high cost to owners not wanting to be overly-rigid or formal — after all, many people launch their own businesses to be free of such a mindset. However, staying ahead of potential employee disputes and issues isn’t necessarily about control or being “corporate.” It’s about protecting your business, money and time. I can tell you from personal experience — as an owner — and attorney that few things are more exhausting and resource-consuming than employment issues. This especially is true in smaller businesses where employees tend to work closely with ownership and are closely tied to every aspect of the company. Sometimes employees and owners are close friends, they know their families and their existences are often mutually-dependent. When an employee must be laid off or fired — or they quit — the psychological impact can be similar to a couple breaking up. Conversely, many times employees in small companies will feel, after time, they have an elevated status and are irreplaceable. There are always exceptions but for most owners and managers these issues are a matter of when, not if. The following are a few tips that can make a real difference when the time comes to end an employment relationship: Employee Handbook. This is a must for businesses of all sizes — and it doesn’t cost nearly as much as most owners think. A handbook should cover everything from discipline to vacation policies. It should specify that all employees are “at will” and can be terminated at any time. It also should require employees to sign an acknowledgement that they have read and understand the handbook. An employee handbook is an excellent place to communicate social media and Bring Your Own Device policies — both of which every single company should have. Employment Reviews and Records. Reviews are mandatory and deficiencies must be documented, even if the business has only a few employees. The mandatory aspect cannot be emphasized enough. If and when it is time to fire an employee, having proper documentation can save the day if a discrimination or unemployment claim is filed. All employees must be subject to the same process and program without fail and policies must apply to everyone equally. A failure to do so can be fatal if an employee in a protected class is terminated (more on this later) and it is found that he/she was not disciplined in the same way as non-protected employees. Please keep in mind that any employee can file a claim with the EEOC or the PHRC claiming discrimination against your business. This process triggers an investigation by the government that will demand your time and attention, even if you’ve done nothing wrong and the claim is clearly flawed. A lack of attention to detail during the employment relationship definitely can make such an investigation more stressful and time-consuming than necessary. Execute Non-Compete and Non-Solicitation Agreements Prior to Employment. Restrictive covenants must be executed prior to or on the day of employment or you can run into serious enforceability problems. Pennsylvania law is very clear on this subject. The problem with executing agreements after employment is that the employee must be given additional compensation, benefits, or the like for the restrictions to take hold. For example, an employer who waits a week after an employee’s start date to have a non-compete executed can find that the entire agreement is invalid. Such an issue can be corrected, but it must be done carefully. Be Decisive, Yet Compassionate. Act immediately when there are disciplinary issues. There is never a good time to fire or discipline an employee. It is a traumatic experience for the employee and can effect every aspect of their lives. However, it must occur immediately once a decision is made. For whatever reason, there are always personal issues for the employee that arise between the time the decision to terminate/discipline and the date on which it might that may give an owner pause, such as a parent becoming sick, an engagement, etc. Remember, it’s business, not personal. Handle the matter professionally, politely, and compassionately — just do it immediately. Maintain the At Will Relationship. There are very few circumstances where an employee should be under “contract.” Unless they are high-level employees or are making an equity contribution to the business, all other workers need to be employed at will. This means they can be terminated at any time and for any legal, non-discriminatory reason. Never, ever promise — orally or in writing — any employee a term of employment or any benefit they don’t normally get in their paychecks. Use Separation Agreements. These agreements can mean the difference between success and failure if an employee decides to file a discrimination claim. These must be done with strict compliance with the law and with adequate review periods for the employee. The legal requirements for separation agreements are stringent, so be wary. Maintain Professional Distance. This is a problem for many small business owners and managers. Maintaining an employer/employee relationship is difficult when working in close quarters. It’s very easy to share too much information or confide in subordinates when there are only a few employees in a company. However, the more personal or confidential information that is share, the greater the likelihood that a termination will be taken more personally. The employee, by serving as a confidante, will begin to feel as if they are equals to ownership. It’s impossible to anticipate every possible employment law issue or stay ahead of issues that might possibly arise. Taking a few simple, consistent steps that are applied to all employees as a matter of policy is the best way to maintain flexibility and legal compliance. –Julian
Pa. Mechanics’ Lien Law Update
I’m a member of council for the Allegheny County Bar Association Construction Law section, and we had an interesting discussion yesterday about a proposed bill to change portions of the Mechanics’ Lien law. Subcontractors must keep an eye on the law and understand how to comply, otherwise they could lose their rights to file a lien for nonpayment. Simply put, the law (House Bill 473 in its current form), would authorize creation of a website where owners would initiate an online “Notice of Commencement” process to “identify” the universe of subcontractors working on projects. To be fair, I’ve seen many projects where there are many layers of subs and owners might never know who all is working on the job — unless something goes wrong. The proposed website would be called a “State Construction Notices Directory.” An owner would have to file on the Directory — prior to the commencement of work or furnishing of materials for an “improvement” — a listing of information including: (1) name, address and telephone number of a contractor; (2) and name, address and email address of the legal owner of the property. The owner would also have to conspicuously post a copy of the notice at the project site at the time that the physical work commenced. Here’s where subcontractors need to be cautious… If the owner files a Notice of Commencement (it would be optional for the owner to use the website as the law currently is written), then a subcontractor would be required to file and serve a “Notice of Furnishing” on the owner 20 days after first performing work or first providing materials AS A PRECONDITION TO RETAIN LIEN RIGHTS. The Notice of Furnishing would have to be served upon the owner: (1) via certified mail to the owner’s address; (2) personal delivery to the owner; and (3) filing of the notice on the proposed web site. This means a contractor’s failure to file and properly serve a Notice of Furnishing can result in a complete barrier to filing a mechanics’ lien. Any time a law is written this way, you can assume that notice and service requirements will be strictly applied and any failure, regardless of how slight, to follow the letter of the law will result in a waiver of rights. It is expected that there will be more public hearings on this issue, according to a memorandum by Representative Thomas Killion (R-168) who sponsored the bill. This proposed change is not unprecedented, as several other states have similar requirements. I had a case several years ago in Ohio involving a mechanics’ lien and compliance with a notice or commencement/notice of furnishing issue. These requirements are neither forgiving nor are they optional once in place. I will continue to follow the status of this bill and will post updates as they happen. I would like to thank the attorneys of the firm of Meyer, Unkovic & Scott (of which I am a proud alum) for an excellent briefing on the topic. Sina Cera
You’ve Incorporated. Now What?
By Julian Neiser on G+ Incorporation alone isn’t enough to protect your assets or prevent personal liability. As with everything, there are rules and exceptions. It’s true that incorporation is mandatory for most businesses. In most circumstances, incorporation will create a complete barrier between your personal and business finances. Sometimes, however, mismanagement and neglect can cause that barrier to falter. There is a legal theory called “piercing the corporate veil” that every business owner should understand. The idea is that incorporation creates a veil that separates a business owner’s personal and corporate assets. If suit is filed against the corporation and there are inadequate business assets, then the plaintiff or creditor cannot usually reach through the veil to take the owner’s personal possessions or money. The existence of a corporate veil is not absolute, however. It can be torn down in certain circumstances, thus exposing the owner personally. So, an understanding of veil piercing can help avoid significant — if not fatal — problems. Fixing deficiencies before they fester are relatively easy. The most common argument in veil piercing is called the “alter ego” theory. The idea here is that the veil should be pierced because the corporation is merely a sham and is an alter ego of the owner. A court will consider whether: (1) the owner or officers followed corporate formalities, such as holding board meetings, using the corporate name properly, and doing business in the name of the corporation instead of the owner; (2) solvency of the corporation; (3) siphoning of funds from the corporation; (4) a lack of corporate records; (5) whether it would be unjust to not pierce the veil of a corporation. Assume that a small carpentry business incorporates. The company business cards have the owner’s name on them — not the business. Some of the invoices and letters are in the owner’s name, others use the company name. The owner has only one bank account, and he pays personal debts from the same account that he pays business obligations — and the balance is always hovering near zero. In fact, the owner uses money from the business to pay his debts before he pays the business debts. The business is not well insured. Under those facts, can the owner be held personally liable if a customer sues for shoddy work? I’d say it is likely the owner would be individually liable. Under those facts, it’s hard to tell whether a customer is dealing with the business or the the owner as an individual. The owner doesn’t consistently use the corporate name. The payments go to him directly. It would also be just to go after the owner as an individual if the business was devoid of assets (because the owner spent them on himself) and a harmed customer couldn’t recover against the company. This is a pretty straightforward example (that actually isn’t uncommon). But what if the business is in compliance with some rules, but not others? What will happen if suit is filed, the owners are named individually, and proof has to be made in support of keeping the veil intact? Indeed, this could turn in to an expensive mess. Here are some guidelines to follow: First, use your business name on everything. Everything. Business cards, flyers, invoices, checks — you name it. If you don’t have a fictitious name registered, use the actual name with the corporate designation, e.g., Home Repairs, LLC. If you are an owner, make sure you don’t sign for anything under your name. Make sure the word “By:” is above your signature line. Get an Internet domain that features your company’s name and create a simple corporate web site. Don’t use personal email addresses. Second, keep your business and personal expenses separate. Once you receive your incorporation documents, go to your local bank and open an account. You will need the actual documentation due to restrictions under the Patriot Act. If you need money from that account, write a check to yourself or do a transfer with a description in the ledger. Third, do everything possible to communicate your corporate name to your customers. This includes having a web site, vehicle lettering, and a separate business address. This way, there should be no question in anyone’s mind that they are dealing with a business and not an individual. Finally, do your best to be “adequately capitalized.” Maintain adequate insurance levels (it’s fairly inexpensive to do so), and put money aside in a savings account. I know this can be difficult, especially when times are lean. However, do your best and make your best effort. Doing all of the above cannot protect you from being sued as an individual. Anybody can sue anyone for anything. Ensuring that corporate formalities are maintained can allow you and your attorney to make short work of any such bogus claims. As with any defense strategy, the stronger your evidence, the less money (usually) you have to spend. Veil piercing is an extraordinary measure and it is something that courts are loathe to do. But it does happen and it’s easily preventable if you follow the rules. Julian
What is an "Outside" General Counsel?
Many companies would be well served with an in-house attorney. However, this is a luxury most small businesses cannot afford. This is a short blurb about how the relationship can work and be structured. I’ve served as general counsel and have been the attorney of record for a many businesses and can tell you that I was used in ways most wouldn’t expect. Sure, there was the typical contract review, an occasional lawsuit and for employment-related tasks. But an experienced business lawyer is more of a “consigliere” than a technician (and I am a wartime consigliere). After trust has been established, I was generally asked to consult on every significant business decision — and lots of seemingly minor ones that were actually very important. Despite the jokes, most business owners know a good lawyer is a trusted adviser who isn’t beholden to anyone and can be spoken to in absolute confidence, within reason, of course. We are objective and have a nose for details, while keeping in mind the big picture. Generally, we’re a pretty good final station for any idea before it goes live — and not just to ensure legal compliance. Yes, small-and medium-sized businesses would benefit from a GC — but this probably isn’t a 40-hour-a-week position at most companies. That’s why there is such a thing as “outside” general counsel, which is a business attorney who gets to know a company and is on a flat fee retainer in exchange for a set amount of service hours per month. It’s almost always less expensive for the company and the flat-fee arrangement allows for a more free-flow of information due to the lack of “clock watching.” For example, I will work in blocks of time (5, 10, or 15 hours) on a discounted rate. In exchange, I’m available for anything my clients need and in any way: on-site, telephone, email, Skype, etc. Clients call on my experience as a business owner, a former big firm attorney and as someone who they know will look out for their best interests and give honest answers. This is just one example of how the relationship can work. There is always a creative way to structure an outside general counsel engagement that can fit any need while avoiding the expense and overhead of having an employee. Sina cera, Julian
The Prompt Payment Act: Know the Rules
Pennsylvania law permits contractors and subcontractors to recover interest and attorney fees if they aren’t paid on time. Actually, the law doesn’t just permit these penalties — it mandates them under certain circumstances. And there are tricky requirements and payment milestones imposed by this law. This law (fully named the Pennsylvania Subcontractor/Contractor Payment Act) was designed to help contractors get paid on time — even if their contracts aren’t very good. It applies to all construction projects other than improvements to real property consisting of six or fewer residential units under construction simultaneously. So, a contractor working on a single residence cannot sue under the act but it could if the construction involved an office building. It is vital that both sides to any construction contract know the rules of this law. For contractors, it’s a powerful tool that can tip the balance in your favor if there is a dispute. And owners must know when — and if — payments can be withheld if there are performance issues. The following are some highlights: Owner Payment Obligations: The act requires “strict” adherence to contract payment terms. If there are no governing payment terms, the contractor can invoice the owner for progress payments at the end of the billing period and through a final invoice upon completion of the work. This generally applies to substantial completion of the work. Unless otherwise agreed, payment of invoices shall be due 20 days after the end of a billing period or 20 days after delivery of the invoice, whichever is later. The act imposes 1 percent per month (or fraction of the month) interest if a progress or final payment is not paid within 7 days of its due date. The owner can withhold payment on any deficiency items, but it has to provide notice to the contractor of which items are deficient within 7 days of the date the invoice on that item is received. Also, the owner has to pay the contractor for any line items that are satisfactorily completed. This means an owner cannot hold back payment on an entire invoice if only one or two items are deficient. Owners beware: Any payment withholding has to be based upon a “good faith” claim. Proving good faith requires solid documentation and clear communications to the contractor. The burden on the owner is not very high, but it is necessary to demonstrate some reasonable basis for withholding payment. Contractor and Subcontractor Payment Obligations: Contractors and subcontractors — who hire subcontractors — also have payment obligations. They must disclose the due date for receipt of payments from the owner to subcontractors before executing any contracts . Any failure to do so obligates the contractor to make payment to its subs as if the payment due dates mentioned above were met by the owner. Change orders, design changes and impacts due to weather conditions can exempt these provisions from being imposed. A sub that has performed shall be paid 14 days after the contractor has received a progress or final payment or 14 days after the contract receives the sub’s invoice, whichever is later. Interest applies if payments are not timely made. Also, a contractor can withhold payments to subs based upon good faith claims under the same general rules as owners. Attorney Fees and Interest: This section provides the act with teeth. The provisions are straightforward and rigid. If arbitration or litigation is filed to recover payment due under the act and it is determined that an owner, contractor or subcontractor has failed to comply with the payment terms, the arbitrator or court shall award, in addition to all other damages due, a penalty equal to 1 percent per month of the amount wrongfully withheld. Good faith claims are not considered to be “wrongfully withheld.” The act’s attorney fee provisions are equally as onerous. It states, “Notwithstanding any agreement to the contrary, the substantially prevailing party in any proceeding to recover any payment under this act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses.” This means that the attorney fee provision of the act can apply even if an underlying contract does not contain an attorney fee provision. Whatever party the court or arbitrator deems to be the “substantially prevailing party” can get an attorney fee award. Assume a dispute over $100,000. The arbitrator finds in favor of an owner for a $50,000.01 offset. The owner could be considered a substantially prevailing party and entitled to reasonable attorney fees. Final thoughts: The act also has provisions that apply to retainage and prepayments, so beware of those situations. As with every construction contract, it’s necessary to pay attention to the details, document everything and ensure clear communications on every possible issue. Remember that certain payments can be withheld if there is a good-faith basis for doing so, but it’s incumbent upon owners and contractors to maintain sufficient documentation. Sina cera, Julian
Don’t get stiffed…
Few people actually go into a business transaction with the intention of not paying the other side. But sometimes things happen, and it’s not uncommon for one business to “stiff” another because of a change in circumstances. There is an untold number of things that can kill cash flow and make AP a complete nightmare, to include your largest client deciding (unilaterally) to change payment terms, rework to fix a large project, and unexpected vendor/materials costs. Then there are pesky nuisances like recessions, labor strikes, natural catastrophes, etc. As anyone whose been in business for a while can attest, fixing cash flow issues does not happen overnight without a major influx of no-strings cash. The effects of these tough times can take months — if not years — to correct. The stress level while it’s happening can be extraordinary, which often is accompanied by lots of second-guessing and soul searching. The problem is that a company experiencing cash flow issues is infected with a sickness, which it then spreads to other businesses by being delinquent on everything from cash payments to the delivery of goods. It’s like an outbreak of bad finances. There are a few things all businesses can do to inoculate themselves and avoid paying for the mistakes of others — or at least not suffering as much when those issues happen. Here are a few affirmative steps to consider: Use engagement letters or other agreements that set forth payment terms/remedies. A solid contract can help you secure an advantage when things go bad. These advantages can include recovery of interest on unpaid amounts, attorney fees for collection efforts, and even the ability to take judgments on delinquent accounts. You can eventually be made whole if those things can be recovered. Conversely, you are paying out of pocket for the mistakes of others if you can’t. Reaffirm penalties and remedies in your invoices. Statements such as, “All sales final,” “Interest of 1 percent per month will be applied to any unpaid balances after 30 days,” and “Buyer understands that seller disclaims any warranties” can make a difference if a lawsuit need be filed. Ensure contracts have forum and jurisdiction clauses. There is nothing worse than being sued in another jurisdiction on a relatively small amount of money — and being helpless to prevent it. Occasionally, having to fight in an unfavorable venue can force a settlement in a case that otherwise could be won. Make sure your contracts allow you to resolve any disputes in your area, under your law, and in a more favorable way. Use credit applications on customers seeking terms. Credit applications and agreements are a simple and useful way of setting forth the parameters of any financial agreement. They also provide opportunities to obtain a credit card backup for any unpaid balances and to get credit references. Don’t be shy about checking references. That’s what they are for. Stay on top of AR. It may sound silly, but there is no shortage of businesses that are dilatory and sheepish in asking to be paid. They are late on invoicing and don’t assert their right to be paid for one reason or another. If your personality doesn’t allow you to be effective at this end of the business, find someone who is better suited. I always said my moods as a business owner were dictated by cash flow. Take a few steps early this year and you’ll stay smiling and cheerful. Happy hunting. Julian