Bankruptcy in Construction: An Overview

With what appears to be an upcoming downturn in the economy, I anticipate an increase in bankruptcy filings. Those likely will not materialize until sometime in 2023 or into 2024, but keep in mind many of those projects are getting ready to start now. So, protecting your rights now ensures when that day comes, you are prepared."The customer filed b...
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Construction Labor Shortages Pose Risk to Infrastructure Projects

According to the U.S. Bureau of Labor Statistics, the unemployment rate in the construction industry was 3.5% in July 2022. The last time it was lower than this was in September 2019—about six months before the initial lockdowns from the COVID-19 pandemic in the U.S. started.Despite these low unemployment numbers, 93% of construction firms report t...
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The Tango Between General Contractors and Architects

General contractors and architects are hired by the property owner to work toward a common goal during construction projects, and yet the two sides do not always see eye to eye. One major point of disagreement is when it comes to materials."Both parties serve two very different purposes," said Chris Ring, of NACM's Secured Transaction Services. "Th...
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July Commercial Chapter 11s Down 13% from Last Year, Total Filings Decrease 5%

There were 212 commercial Chapter 11 filings registered in July 2022, a decrease of 13% from the 245 filings in July 2021, according to data provided by Epiq Bankruptcy, provider of U.S. bankruptcy filing data. Overall commercial filings decreased 8% in July 2022, as the 1,592 filings were down from the 1,723 commercial filings registered in July 2...
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Natural Disasters: A Double-Edged Sword for Construction

Natural disasters caused roughly $35 billion in insured losses (22% above the 10 year average) and $72 billion in global economic losses in the first half of 2022, according to Swiss Re. "The effects of climate change are evident in increasingly extreme weather events such as the unprecedented floods in Australia and South Africa," Martin Bertogg, ...
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Circuit Court Strengthens ‘New Value’ Defense Against Avoidable Preference Lawsuits

The U.S. Court of Appeals for the Eleventh Circuit "held that, for purposes of Section 547(c)(4)(B), 'otherwise unavoidable transfers' made after the debtor has filed for bankruptcy do not affect a creditor's new value defense," according to the Justia website.Background from Court DocumentsBeaulieu Group, LLC ("Beaulieu"), was one of the largest c...
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July CMI Drops to Lowest Reading in More Than Two Years

The July NACM Credit Managers' Index fell 1.6 points to 55.0—its lowest reading since June 2020. This is the third-consecutive month the CMI has deteriorated and could signal the start of a downward economic spiral, said NACM Economist Amy Crews Cutts, Ph.D., CBE."I think the CMI is nearing the tipping point between expansion and recession," Cutts ...
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No Damages for Delay: Maybe, Maybe Not

Delays on construction projects are as common as shells on the shore. They can arise from contractor fault, owner fault or events beyond either party's control—or any combination of these. Contracting parties contemplate the possibility of delays, and often include contract language to address them—sometimes with clauses precluding a contractor fro...
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CA Court of Appeal Affirms Bar on Recovery of Licensed General Contractor for Work Performed by Its Unlicensed Subcontractor

Most are familiar with California's harsh penalty for unlicensed contractor work. California Business and Professions Code Section 7031 (Section 7031) bars any recovery for compensation for work performed by an unlicensed contractor under any theory of recovery "regardless of the merits of the cause of action." Cal. Bus. and Prof. Code § 7031(a). I...
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Iowa Supreme Court Issues Opinion Re: Subcontractor Preliminary Notices

On June 17, 2022, the Iowa Supreme Court rendered a decision in the Borst Brothers Const. vs. Finance of America case involving a mechanic's lien, which addressed one aspect of the pre-lien notice requirement for Iowa subcontractors on residential projects. As detailed below, the Iowa Supreme Court held that the 10-day deadline for posting of a Com...
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Construction Company Settles False Claims Act Allegations for $2.8 Million

On May 12, the U.S. Department of Justice announced a $2,804,110 settlement with Hensel Phelps Construction Company to resolve allegations that it violated the False Claims Act (FCA) by circumventing federal regulations designed to encourage contract awards to service-disabled veteran owned small businesses (SDVOSBs).According to the settlement, He...
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Massachusetts Appeals Court Strictly Construes Prompt Payment Act

On June 7, 2022, the Massachusetts Appeals Court issued an opinion of first impression regarding the Massachusetts Prompt Payment Act, G.L. c. 149 § 29E (Act). In Tocci Building Corp. v. IRIV Partners, LLC, Appeals Ct. Nos. 21-P-393, 21-P-733, the Appeals Court affirmed the decision of the Superior Court, which held that when an owner objects to a ...
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Construction Input Prices Are Up 21% from a Year Ago, Says ABC

The Fed's policy of monetary tightening and raising interest rates to fight inflation will "quite likely drive the economy into recession either later this year or at some point in 2023," according to the Associated Builders and Contractors (ABC) association.The Federal Reserve raised interest rates by 75 basis points yesterday, the biggest rate hi...
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More Details about VA Changes to Newly Enacted Ban on Contingent Payment Provisions

In April, we wrote about Virginia Senate Bill (SB) 550, which sought to amend VA ST §§ 2.2-4354 and 11-4.6 to prohibit the use of contingent payment provisions in public and private construction projects. Since then, SB 550 was formally enacted and signed into law on April 27, 2022. We observed that it was still unclear as to whether this law appli...
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May CMI Shows Signs of Economic Downturn

The May NACM Credit Managers' Index has begun to show signs of economic distress as the combined score fell 1.6 points to 57.5—slightly higher than its lowest reading for the year registered in January (57.1). Overall, the combined score fell 1.6 points when compared with April (59.1). The drop is a result of high inflation and pervasive supply cha...
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Hurricane Season Could Mean Large Economic Losses

 The start of hurricane season is one week away, and the National Oceanic and Atmospheric Administration (NOAA) expects another above-average year with up to 21 named storms (winds of at least 39 mph), of which six to 10 could become hurricanes with winds of 74 mph or higher—including three to six major hurricanes with winds of 111 mph or high...
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Settlement Strategy Is More Important Than Litigation Strategy

In the world of federal government contract disputes, a great deal of time is frequently spent drafting a request for equitable adjustment (REA) or a claim under the Contract Disputes Act. Both of these actions are often a prelude to litigation and, when the parties cannot agree to an amicable resolution, lead, inevitably, to a trial. Once this pro...
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Specially Fabricated Materials Can Affect the Construction Supply Chain

Construction projects sometimes require materials that are not stocked by suppliers and that require special fabrication to make them suitable for certain fixtures. Specialized materials can be both expensive and difficult to obtain, said Sam Smith, regional finance manager at Crescent Electric Supply Company (East Dubuque, IL). In addition, these ...
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Senate’s Bankruptcy Threshold Adjustment and Technical Corrections Act Retains $7.5 Million Eligibility for Subchapter V Small Business Debtors

The Small Business Reorganization Act (SBRA) went into effect on Feb. 19, 2020, creating Subchapter V of the Bankruptcy Code. Acknowledging that a bankruptcy proceeding is not "one size fits all" and that a Chapter 11 proceeding can be prohibitively expensive and lengthy for a business, the goal of the SBRA was to reduce costs and increase efficien...
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Grand Jury Indicts Former COO of Major St. Louis Construction Firm in Alleged Fraud Scheme

The federal grand jury recently indicted Brian Kowert, Sr., former chief operating officer of HBD Construction Company, for five counts of wire fraud related to falsifying the company's participation with a minority business enterprise (MBE) on several construction and redevelopment projects from 2014 through 2022, according to the U.S. Department ...
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