Most construction professionals regularly file or dispute mechanic’s liens and feel fairly comfortable dealing with them. However, this experience is often concerning a single building constructed under a single contract. Professionals don’t regularly deal with contracts covering multiple buildings. Therefore, professionals often try to follow the same rules they use to file a single lien on multiple buildings constructed under one contract. Unfortunately, by following the same rules, they often inadvertently give up their lien rights on at least one building.

For example, a general contractor may be asked to construct under one contract two buildings kitty-corner to one another at an intersection. During construction, materials delivered to the project site are jointly used on the two buildings and workers work on both buildings interchangeably. The general contractor completes construction on the first building on Jan. 1, 2019, and completes construction on the second building on Jan. 1, 2020. Based on the completion date of the second building of Jan. 1, 2020, the general contractor provides notice to the owner that it intends to file a mechanic’s lien on the two buildings. The owner refuses to pay and the general contractor files a mechanic’s lien covering both buildings within the necessary statutory period based on the completion date of the second building. Does the general contractor have valid lien rights on both buildings in Missouri or Illinois?

Unfortunately, the general contractor has inadvertently forfeited its lien rights on the first building in Missouri and Illinois. However, the reason for the forfeiture is different for each state, and a prime example of why it is so important to check the state’s mechanic’s lien statute when dealing with multiple buildings on multiple lots.  

In order to have mechanic’s lien rights on multiple buildings on multiple lots in Missouri, Missouri requires that those buildings be “united together and situated upon the same lot or contiguous lots, or separate buildings upon contiguous lots” and that they are erected under one general contract. Mo. Ann. Stat. § 429.040. The main question in Missouri is whether the lots are contiguous. Missouri courts have defined contiguous as lots that share a common side. Lots that share only a single corner are not contiguous under Missouri law. Stewart Concrete & Material Co. v. James H. Stanton Const. Co., 433 S.W.2d 76, 80 (Mo. App. 1968). Therefore, in the above example, the general contractor’s lien fails because the lots are not contiguous in that they share only a single corner. In order to have lien rights on both buildings, the general contractor needed to file a mechanic’s lien on the first building within six months of its completion and a separate mechanic’s lien on the second building within six months of its completion.

In order to have mechanic’s lien rights on multiple buildings on multiple lots in Illinois, Illinois requires only one lien statement as long as it is “shown that such material was in good faith delivered at one of these buildings for the purpose of being used in the construction of any one or all of such buildings, or delivered to the owner or his or her agent for such buildings, to be used therein[.]” 770 Ill. Comp. Stat. Ann. 60/7. As Illinois does not require that lots be contiguous, the main question in Illinois when filing a blanket lien is whether the mechanic’s lien was timely filed. Unlike Missouri, which calculates the statutory period for filing a single lien on multiple lots on when the last building was completed, Illinois requires that one file a mechanic’s lien within the statutory period following the completion of the first building and each subsequent building. Barker-Lubin Co. v. Unknown Heirs or Devisees of Barker, 106 Ill. App.3d 89, 90, (4^th Dist. 1982). Therefore, the general contractor’s lien on the first building fails because the lien was not timely filed. In order to have lien rights on both buildings, the general contractor needed to file its mechanic’s lien within four months of completion of the first building and then file an updated mechanic’s lien within four months of completion of the second building.

The above example shows the importance of checking mechanic’s lien filing requirements. Midwest contractors likely work in Missouri and Illinois regularly, yet the requirements for filing a blanket mechanic’s lien are different in each state and one could inadvertently give up one’s lien rights if not fully informed. Given the value of lien rights, particularly on projects involving multiple buildings, construction professionals must be sure to check the mechanic’s lien requirements on each project to which it provides labor or materials.

The United States’ recent imposition of a 25 percent tariff on imported steel has been problematic for contractors and subcontractors alike. The increased cost of steel means increased costs on projects, and in many occasions, on projects for which parties have already entered into contracts. In fact, benchmark U.S. steel prices have risen almost 40 percent since the beginning of the year, according to an Engineering News-Record report. In these situations, can a contractor or subcontractor find relief from additional costs in the force majeure clause of their contract? While Missouri courts have not addressed the relationship between increases caused by tariffs and force majeure clauses, extra-jurisdictional courts have offered some guidance on how tariffs could be treated under such a clause.

Generally, a force majeure (or “escape”) clause is a contract provision that relieves parties from performing their contractual obligations when an unforeseen event or act of God beyond their control arises, making performance of the contract commercially impracticable or impossible. It is common for force majeure clauses to be phrased as a catch-all, though occasionally they will also enumerate specific types of occurrences that will be deemed “unforeseen” when they occur. A catch-all clause will typically suspend performance for incidents beyond the parties’ control.

Are tariffs imposed on steel imports to the United States considered a qualifying occurrence under the usual force majeure provision? Not likely. The United States Court of Appeals for the Fourth Circuit has held that fluctuating market conditions making performance of a petroleum-supply contract unfavorable for one party did not fall under the force majeure clause in the parties’ contract. Langham-Hill Petroleum, Inc. v. S. Fuels Co., 813 F.2d 1327 (4th Cir. 1987). Although the clause was worded broadly to include “any act or omission beyond the control of the party having the difficulty, and any restrictions or restraints imposed by laws, orders, rules, regulations or acts of any government or governmental body or authority, civil or military,” the court found that Saudi Arabia’s attempt to acquire market share and the subsequent collapse of the world crude oil market was a risk of the market and an unfortunate reality of the business world, not an occurrence covered by the parties’ force majeure clause. It appears from the law available on the issue that economic hardship (including increases or decreases in the market price for a good) is typically not a force majeure event. See also Hemlock Semiconductor Corp. v. Kyocera Corp., No. 15-CV-11236, 2016 WL 67596, at *7 (E.D. Mich. Jan. 6, 2016) (holding that the bargained for force majeure clause did not excuse the defendant’s performance simply because of an unfavorable market fluctuation in the global solar market conditions).

While the more typical force majeure clauses may not offer the protection a contractor seeks after a price increase caused by a tariff, a prudent contractor could try to negotiate for a provision that addresses fluctuating market conditions (assuming negotiation is possible — something not available in most public bidding scenarios).

In negotiating for relief from unusual market price fluctuations such as price increases due to a unforeseen tariff, contractors should use specific language, as a force majeure clause including the language “acts of government,” without more, likely will not cover government acts that merely make performance of the contract unprofitable. Some courts have indicated that more specificity in the force majeure clause might have saved a contractor or subcontractor from performance. See Seaboard Lumber Co. v. United States, 308 F.3d 1283 (Fed. Cir. 2002) (holding that although a contract allowed for term adjustment if “acts of government” prevented performance under the contract, it lacked the necessary specificity by not defining what should constitute an “act of government”). Therefore, while the usual force majeure clauses may not be the answer to today’s steel contractor’s pricing issues, negotiating specific language to account for tariffs or market changes should afford the desired protection.

Greensfelder summer associate Emily (Jaeger) Hermreck contributed to this blog post.

The author has practiced construction law for nearly 40 years and continues to be amazed or disappointed, as the case may be, by the frequency of one type of problem: Non-compliance with what are usually simple contract terms for giving notice of a claim for additional compensation, damages or time.

Why does this happen? Sometimes, it amounts to inattention. It can also be attributed to unawareness of the governing notice clause. And frequently, the contractor or subcontractor prefers the personal touch by informally discussing or negotiating the matter rather than providing a “cold,” seemingly formal notice of claim. While the author appreciates the dynamics of a good relationship and that a claim can be seen to muddy a good rapport, one must be mindful that contractual notice provisions are part of the bargain that was struck. The parties agreed to this procedure for handling claims, and therefore no one should be surprised or shocked over a contracting party that honors the contract terms. In today’s construction world, “claim” is not a four-letter word, and one can present a notice of claim in a persuasive, and yet not necessarily adversarial or confrontational, manner.

A notice of claim can serve a valuable purpose. By way of example, suppose the general contractor believes a revised drawing to “clarify” the work to be performed actually amounts to a change that will increase construction costs. The owner may be unaware of the contractor’s position absent notification. Once notified in writing, the owner may elect to take steps to eliminate or reduce the change, or to choose a less expensive alternative.

Unfortunately for the contracting party wishing to preserve its claim, many courts and arbitrators will strictly enforce a notice of claim clause even when enforcement has adverse, even dire, economic consequences for the claimant. Enforcement is even more likely when the claim provision warns the prospective claimant that the claim is deemed waived if the notice of claim is untimely or omits the necessary content. Reported cases from around the country are replete with claim denials based on the failure to honor a notice provision.

Depending on the circumstances, the lack of the notice can sometimes be overcome. Examples of defenses to lack of proper notice are: (1) no prejudice — the other contracting party was not prejudiced by the lack of strict compliance; (2) substantial compliance — notice was effectively given by another means (such as discussion recorded in meeting minutes); and (3) waiver — the parties proceeded to discuss the merits of the claim notwithstanding a lack of timely or proper notice, or the parties have adopted a course of conduct in handling claims that varies the contractual terms. But why risk forfeiting a claim on what could be argued to be a technicality?

Know your contract — this fundamental principle cannot be overemphasized. It may be worthwhile to prepare a matrix or table identifying the different notice clauses by: contract citation; subject matter (e.g., claim for a differing site condition, claim for changed work, claim for a time extension, etc.); deadline for notice; and a summary of the content needed.

Standard forms of construction contracts and design-build contracts include notice clauses. Where contract negotiation is possible, change the notice provisions to meet your expectations.

Two key notice clauses in the 2017 edition of the AIA A201 General Conditions are summarized below (but beware!—the actual notice terms and conditions should be reviewed and followed, not this summary): (1) Notice of a “Claim” (for time and/or money) shall be submitted within 21 days after the later of: (a) the event that gave rise to the Claim or (b) the claimant first recognizes the condition giving rise to the Claim (section 15.1.3); and (2) Notice of a claimed differing site conditions shall be given promptly before the conditions are disturbed and in no event later than 14 days after their observance (section 3.7.4).

Key notice provisions in the 2014 edition of the Consensus Docs 200 Standard Agreement and General Conditions Between Owner and Constructor are summarized below: Notice of a concealed or unknown site conditions shall be given promptly after stopping the affected work (section 3.16.2); Notice of a delay must be promptly given to the Owner (section 6.3.3); and Notice of a claim for additional compensation or time, including a notice of a delay claim (see sections 6.4), shall be submitted before commencing the work involved unless it is an emergency, and, in any event, the notice shall be given within 14 days after the later of: (a) the event that gave rise to the claim or (b) the claimant first recognizes the condition giving rise to the claim (section 8.4). In addition, the claimant under section 8.4 shall submit the supporting documents for its claim within 21 days after the notice of claim (section 8.4).

Both of the above-referenced standard documents include other notice provisions affecting the right to formally submit the claim to dispute resolution.

Timeliness: Meet the notice of claim deadline. Be aware of short-notice deadlines and don’t let them slip. Do not procrastinate.

Content: In addition, the content should comport with what the notice clause specifies. Insufficient content within the claim notice may be met with a refusal to consider the claim. So, a claimant should ensure that not only is the deadline for notice honored, but so, too, is the requisite substance and support.

Sometimes, a claim notice clause asks the impossible or near impossible. This can occur when the provision calls for a notice soon after an event or condition or action causing delay or disruption, and the contract terms specify that the notice include then-unknown details such as the full impact cost and time-wise. Suffice it to say that the law does not expect the impossible. Although specific legal advice is probably warranted, the claimant should furnish whatever claim-related information is available and commit to following up when more is known.

Delivery of the notice: Comply with the contractual provision, if any, which identifies the means by which a notice under the contract shall be given. While courts and arbitrators tend to be more sympathetic with a claimant who can prove the notice was actually received by the intended recipient regardless of the means of delivery, why risk it? If one of the authorized methods for notice delivery affords proof of receipt, use that method to avoid any later contention of non-delivery.

A timely, proper and persuasive notice of claim is the gateway to the claimant preserving the claim for ultimate resolution on the merits. Without compliant passage through that gateway, the route to claim resolution is uncertain and risky.

Subcontractors and suppliers performing work in Illinois do not have the right to file a mechanic’s lien on publicly owned property. Despite this, the “lien against public funds” provides a useful tool for subcontractors that have performed work on public projects in Illinois and have not been paid.

Per 770 ILCS 60/23, any person furnishing labor, materials, services, fixtures, and machinery to any contractor having a contract for public improvement with any county, township, school district, city, municipality, municipal corporation, unit of local government, or the state of Illinois shall have a lien for the value of the work provided on the amounts due or to become due to the contractor from the public entity. In short, the claimant may claim a lien on the money owed to the contractor by the public entity, rather than on the property itself as with traditional mechanic’s liens.

To claim a lien against public funds, the subcontractor must deliver written notice of the same to the clerk or secretary of the county or unit of local government via registered or certified mail, or by hand delivery. If the project’s owner is the state of Illinois, notice shall be given to the director or other official responsible for contract administration. The notice must contain a sworn statement identifying the claimant’s contract, a description of the work performed or materials provided, and the total amounts due and unpaid. Upon receipt of the notice, the clerk, secretary, or state official must withhold from the prime contractor an amount sufficient to pay the claimant until the final adjudication of the lien or unless otherwise instructed by the claimant.

Ninety days after serving the notice, the claimant must commence a lawsuit for an accounting of the lien. Importantly, the claimant’s failure to commence the proceedings shall terminate the lien.

The lien against public funds, along with the ability to make a claim against the project’s payment bond, can be a useful tool for subcontractors with claims on public projects in Illinois.