Lamson, Dugan and Murray, LLP, Attorneys at Law

Know Your Obligations Under Both the Prime Contract and Subcontract

Posted in Construction Contracts, Uncategorized

A recent case out of New Mexico highlights the importance for subcontractors to review iStock_000003390628XSmall[1]their contract with the general and the contract between the general and the owner.  In Centex/Worthgroup, LLC v. Worthgroup Architects, L.P, the architect claimed that the limitation of liability clause in the prime contract trumped the provisions of the subcontract.  The court disagreed and ruled that the specific provision in the subcontract controlled.

In the case, a general contractor was hired to expand and renovate a resort.  The general contractor subcontracted with an architect to design a mechanically stabilized earth wall.  The prime contract contained a limitation of liability clause that states:

general contractor shall require its design professional Subcontractor(s) to obtain insurance in an amount not less than $3,000,000. Owner agrees that it will limit general contractor’s liability to Owner for any errors or omissions in the design of the Project to whatever sums Owner is able to collect from the above described professional errors and omissions insurance carrier.

The subcontract with the architect included two important provisions, an order of precedence clause and a flow down clause.

The order of precedence of the documents, … shall be: (1) the most current approved edition of the construction documents; (2) modifications to the subcontract; (3) the subcontract, unless the prime contract imposes a higher standard or greater requirement on the parties, in which case the prime contract; (4) the prime contract, unless the provisions of (3) apply.

In respect of the design work, Architect shall . . . have all rights toward general contractor which general contractor has under the prime contract towards the Owner and Architect shall, to the extent permitted by applicable laws and except as provided herein, assume all obligations, risks and responsibilities toward general contractor which general contractor has assumed towards the Owner in the prime contract with respect to the design work.

The wall the architect designed failed causing $6 million in damages.  The architect’s insurer paid its $3 million policy limits. The general contractor then sued the architect to recover the remaining $3 million in damages.  In an interesting twist, the architect claimed that the limitation of liability clause contained in the prime contract limited the architect’s liability to $3 million.

The court reviewed both contracts and found that the subcontract controlled the extent of the architect’s liability.  The court reached this conclusion by applying the contractual interpretation rule:

if the specific provisions of the subcontract conflicts with the prime contract, the terms of the subcontract prevail.

Here the subcontract required the architect to shoulder specific liability for redesign work and damages, while the prime contract generally limited the architect’s liability to the limits of insurance.  So, the subcontract with specific language controlled, not the prime contract.

Take Away: Contractors are well advised to review both the subcontract and prime contract to determine whether conflicts exist and the extent of potential liability.


Location, location, location—even in construction liens

Posted in Construction Lien

We all know the importance of filing a construction lien within 120 days of your last work.Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLP Nebraska Construction Lien Act,  § 52-137.     But, equally, if not more important is filing the construction lien on the correct property.

Often times on a construction project, the exact address of the project may not be known.  And, if there are a few buildings going up on the same general site, it is difficult to determine which property or building address you are working on.

Sometimes you can look at the contract.  For example, the AIA family of documents lists the address on the first page.  But, what if the wrong address is listed?  What if the wrong owner is listed?

A good place to start your property search is the County Register of Deeds or the County Assessor.  These county offices can usually be accessed through the internet.  From their websites, you should be able to find a map of the general area, identify the parcels that are involved in the project, and the specific owner of each parcel.  You may then be able to determine the legal description of the property you are working on and the proper title and address of the entity that owns that property.

The importance of filing your lien on the correct property cannot be overstated.  If you file your lien on day 119 and find out on day 122 that you filed on the wrong property, your lien rights are probably gone.

Take Away: Take the time to research the legal description and ownership of the property on which you are filing your lien well before the deadline, or you may find yourself out of time to file your lien.

Be Careful When Requiring Fitness for Duty Examinations

Posted in Employee Safety


Fitness for Duty examinations can be an important part of an employer’s hiring and

Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLP

retention protocol.  The Nebraska Supreme Court recently clarified when an employer may require applicants and employees to undergo fitness for duty examinations.  In Arens v. Nebco, Inc.,  the court ruled that an employer must have a legitimate, nondiscriminatory reason for its demand that a current employee submit to a fitness for duty examination.

In this case, Lenard Arens suffered two significant injuries over the course of his 25 years of employment with Nebco.  The second injury, a closed head injury, limited the type of work he could do and required written instructions due to short term memory loss.  Arens was assigned to drive tractor-trailer trucks.  Several years after returning to work, Arens had two minor accidents with his truck within a matter of days.  Arens supervisor required him to undergo fitness for duty examination.  Arens failed the fitness for duty examination and was terminated.  Arens filed suit, claiming that Nebco discriminated against him by making him take a fitness for duty test.

The case went to trial and the jury returned a verdict in favor of Nebco.  Arens appealed and the Supreme Court reversed, finding that the trial court applied the wrong standard as to when an employer could require a fitness for duty examination.

The Supreme Court clarified the two standards applicable to fitness of duty examinations under the Nebraska Fair Employment Practices Act; (1) for new employees, and (2) for current employees.

New Employee Fitness for Duty Examinations

An employer may require job applicants who have been conditionally offered a job to undergo post-offer medical examinations to determine their ability to perform the job if the employer:

  1. Subjects all newly hired employees to the same exam;
  2. Keeps the exam information confidential and in a separate medical file, and
  3. Doesn’t use the exam results to discriminate on the basis of a disability.

Current Employee Fitness for Duty Examinations

An employer may require a current employee to undergo a fitness for duty examination only when it is shown to be job related and consistent with business necessity.  To establish business necessity, an employer must show:

  1. The reason for the examination is vital to the business;
  2. The employer has a legitimate, nondiscriminatory reason to doubt the employee’s ability to perform the essential functions of the job; and
  3. The examination is no broader than necessary.

Take Away: Employers may still require fitness for duty examinations, but employers must be able to show that an exam for a current employee is based on solid, nondiscriminatory evidence.

Following My Own Advice

Posted in E-Verify


I often advise clients on the use of E-Verify and the importance of getting policies and Craig Martin, Construction Attorney, Lamson Dugan and Murray, LLPprocedures in place to ensure compliance.  This is particularly true for clients that do federal and state work.  Now it’s my turn to follow my own advice.

I was recently appointed to represent the Nebraska Board of Engineers and Architects.  As such, I am a contractor for the State of Nebraska.  That means I have to use E-Verify.

Here is a refresher of “our” E-Verify obligations as a contractor for the State.

Nebraska adopted an E-Verify law in 2009.  Nebraska statute section 4-114 requires all contractors that are awarded a contract by a state agency or political subdivision to register with ta federal immigration verification system. Although not explicit in the statute, the Department of Labor has indicated that the obligation to E-Verify applies only to new employees that will be working on the project.

If you have yet to enroll in E-Verify, the Department of Labor has information an E-Verify website that should answer all of your questions.  Here is a summary of an employer’s obligations under E-Verify:

Overall, enrolling in E-Verify is not difficult. But, it does bring about a fundamental change to the way you on-board new employees.  If you plan on, or are already doing, work for the State of Nebraska, it’s time to get enrolled in E-Verify.

The Importance of Providing Notice to a Surety

Posted in Bond Claims, Uncategorized

A recent case out of Missouri emphasizes the importance of providing notice to a surety when a bonded subcontractor is in default.  When the question of whether a surety will be obligated under the bond is in the balance, notice is crucial.

Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLP

In CMS v. Safeco Insurance Company, Safeco provided a performance bond to a subcontractor for the benefit of CMS.  The bond specifically provided:

PRINCIPAL DEFAULT. Whenever the Principal [Subcontractor] shall be, and is declared by the Obligee [CMS] to be in default under the Subcontract, with the Obligee having performed its obligations in the Subcontract, the Surety [Safeco] may promptly remedy the default, or shall promptly:



4.3 PAY OBLIGEE. . . .


Several months into the project, CMS informed Safeco, through a Contract Bond Status Query, that the subcontractor’s work had not progressed satisfactorily, that the contract was 9 months past due and that liquidated damages would be assessed.  Importantly, as least according to the court, CMS did not declare that the subcontractor was in default.  A few months later, the subcontractor walked off the job and the president of the subcontractor filed for bankruptcy.   CMS completed the work and submitted a Notice of Claim on Subcontract Bond to Safeco, demanding $65,449.93, the amount CMS incurred as a result of the subcontractor’s default.  Safeco refused to pay the demand, asserting that it was not provided with timely notice of the default.

CMS sued Safeco, asserting that it was not obligated to provide notice of default, and even if a notice of default was required, the Contract Bond Status Query was sufficient notice.

The court disagreed.  Reviewing the language in the Principal Default section, the court fund that CMS was obligated to provide specific notice of the subcontractor’s default.  In essence, CMS had to specifically inform the surety that the subcontractor was in default.  Because CMS never informed Safeco that the subcontractor was in default, Safeco’s duties under the bond were never triggered.

Take Away:  When your subcontractors provide a bond on a project, you should be reviewing the bond to determine whether it contains any notice obligations.  Otherwise, you run the risk of losing your claim under the bond.

What To Do When the Government is Slow to Decide a Claim?

Posted in Government Contracting

iStock_000017987518XSmallYou may know this situation all too well.  You’ve submitted your certified claim to the contracting officer and there it sits.  You ask for a decision and they say soon, but it’s not soon.  And pretty soon, several months have gone by.  Since the Court of Federal Claims’ decision in Rudolph and Sletten, Inc. v. U.S., the government may have to decide in 60 days or your claim will be deemed denied which would allow you to file your claim in the Court of Federal Claims.



Rudolph and Sletten (R&S) were awarded a contract to construct the La Jolla Laboratory.  On August 20, 2013, R&S submitted a certified claim seeking $26,809,003 as compensation for costs due to alleged government-caused delays and disruption, additional consultant costs and extra work.

In October, 2013 the contracting officer informed R&S that a decision would be made in 9 months.  R&S wrote the contracting officer stating that the 9 month extension was excessive and unreasonable and demanded a detailed explanation for the delay or a work plan.  The contracting officer explained the reason for the delay and said the claim would be decided by July 15, 2014.

R&S filed suit in January, 2014.  Even though the lawsuit had been filed, the contracting officer sought to extend the deadline for its decision to March, 2015.  The government then filed a motion seeking to dismiss the claim, arguing that R&S failed to obtain a final decision from the contracting officer before filing its complaint.  The government alternatively asked the court to stay the case and remand it to the contracting officer for a final decision.

The Court’s Decision

The court made two interesting rulings in this case.  First, the court decided that the contracting officer was deemed to have denied the claim when it failed to decide the claim within its initial estimate.  Second, the court remanded the claim back to the contracting officer, but provided a deadline by which to decide the claim.

On the first issue, the court cited to the Contract Dispute Act and the language that required the contracting officer to issue a decision within 60 days or notify the contractor when the decision would be issued.  The court found that the contracting officer was within its rights to extend the deadline by which to decide the claim to July 15, 2015. But, the contracting officer had no authority to extend the deadline to March, 2015.  Because the contracting officer did not decide the claim by July 15, 2015, it was deemed a denial.

On the second issue, the court remanded the case back to the contracting officer for a decision, but with strict instructions that the decision must be made within 30 days of the court’s order.  The court also sent a parting shot over the contracting officer’s bow:

While the Court believes a decision from the contracting officer will be beneficial to this case, the contracting officer’s findings of facts are not binding upon the parties and are not entitled to any deference.

Take Away: A contracting officer may extend the time by which a decision may be made beyond the 60 days allowed by the Contract Dispute Act, but the deadline may not be extended again.  If the decision is not made during the first extension, it will be deemed denied, allowing a contractor to file suit.

Workplace Safety–the Unpreventable Employee Misconduct Defense

Posted in OSHA

I just attended an Associated Builders and Contractors meeting during which Lueder Craig Martin, Construction Attorney, Lamson Dugan & MurrayConstruction discussed a fatality on one of its worksite.  OSHA fully investigated the incident and did not issue a single citation.  This is a testament to the safety plan and training Lueder had in place well before this incident.  One defense to an OSHA citation is unpreventable employee misconduct.  However, proving this defense requires substantial planning, well before an incident or investigation.

Unpreventable Employee Misconduct Defense

OSHA requires that an employer do everything reasonably within its power to ensure that its personnel do not violate safety standards. But if an employer lives up to that billing and an employee nonetheless fails to use proper equipment or otherwise ignores firmly established safety measures, it seems unfair to hold the employer liable. To address this dilemma, both the Occupational Safety & Health Review Commission and courts have recognized the availability of the unforeseeable employee misconduct defense.

The OSHA Field Operations Manual provides that to establish this defense in most jurisdictions, contractors must show all the following elements:

  • A work rule adequate to prevent the violation;
  • Effective communication of the rule to employees;
  • Methods for discovering violations of work rules; and
  • Effective enforcement of rules when violations are discovered.

Work Rule

At a minimum, a contractor will need a companywide safety plan.  If there is certain conduct that requires heightened safety, specific safety rules should also be implemented.


Contractors must also train its employees on its safety plan.  It is equally important to document that training, such as through a sign-in sheet for all attendees.  And, keep a copy of the presentation handouts.

Safety Compliance Inspections

Contractors must also make efforts to discovery safety violations.  This may be through a safety manager conducting safety compliance inspections. Again, these inspections must be documented, such as on a daily report.


Contractors must be able to prove that they enforced the safety rules, such as through a progressive discipline policy.  And, like a broken record, contractors must have documentation showing that they disciplined employees or subcontractors for violating safety rules.

Take Away: The unpreventable employee misconduct defense is an effective tool to defend against OSHA citations, but contractors must lay the groundwork well ahead of time to show that they have a safety plan, that they provide training on that plan, monitored safety practices on the job site and disciplined those that failed to abide by it.

Suing the Lowest Bidder on Public Construction Projects

Posted in Public Contracts

Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLPThe California Court of Appeals has allowed the second lowest bidders on public construction projects to sue the lowest bidder where it appears that the lowest bidder was only the lowest because it paid its employees less than the established prevailing wage.  This is a novel theory for recovery, but may provide for an opportunity to challenge improperly low bids.


Between 2009 and 2012, American Asphalt outbid two asphalt companies on 23 public works projects, totaling nearly $15 million.  The two asphalt companies sued American Asphalt alleging that they were the second lowest bidder all 23 construction projects and they would have been the lowest had American Asphalt paid its employees the required prevailing wage.  Importantly, the municipality awarding the contracts was not sued by the second lowest bidders.  Instead, the second lowest bidders alleged that American Asphalt intentionally interfered with a business expectancy and sought damages from American Asphalt, specifically the profit that they lost by not performing these contracts.

 Court’s Ruling

The court ruled that a second lowest bidder may sue the lowest bidder where, but for the wrongful conduct of the seemingly lowest bidder, the second-place bidder would have obtained the contract.  The court specifically rejected American Asphalt’s argument that a disappointed bidder has no legally protectable expectancy interest in being awarded a contract.

This case has been appealed to the California Supreme Court and it will take a few months to work its way through the system.  But, in the meantime, the case provides a novel argument to challenge a low bidder whose bid fails to comply with the requirements of the bid package.

Take Away: If you lose out on a bid, take a look at the winning bid to confirm that the winning bid complied with all requirements of the bid package, including wages.  It may also be of benefit to see whether the winning bid uses employees or a bunch of misclassified independent contractors.

NLRB Broadens the Joint Employer Standard

Posted in Unioin Campaign

nlrb-logoPerhaps in anticipation of Labor Day, the National Labor Relations Board issued its ruling in Browning-Ferris Indus. of Cal. d/b/a BFI Newby Island Recyclery, establishing an easier standard for unions to prove that a joint employer relationship exists.  This will make it easier for unions to make the upstream company, like a parent company, liable for unfair labor practices, even if the upstream company had no direct involvement.

Some Background

BFI runs a recycling plant and contracts with Leadpoint to provide workers to sort garbage in the recycling plant.  The staffing agreement specifically stated that Leadpoint was the sole employer of the personnel it supplied and Leadpoint handled supervision of the employees, not BFI.

Leadpoint’s employees sought to unionize and an election was held.  The union filed a petition seeking a determination that Leadpoint and BFI were a joint employers.

How the NLRB Ruled

The Board found that BFI and Leadpoint were joint employers and BFI and Leadpoint would both be obligated to bargain with the union.  Under the Board’s ruling, two or more entities will be joint employers if they jointly govern the essential terms and conditions of employment.  Specifically, the Board will be looking to see if a common-law employment relationship exists, and if it does, whether the upstream employer possesses sufficient control over employees’ essential terms and conditions of employment.  These essential terms include hiring, firing, discipline, supervision and direction.

What this Means for Employers

The NLRB greatly expanded those entities that will be treated as employers.  For example, the typical staffing agency will be deemed a joint employers with the entity contracting with the staffing agency.  For the entity contracting with the staffing agency, it will now be subject to the obligations of the NLRA.

Another real concern is for those now employers with contract employees on-site that have already unionized.  The union may demand that the now joint employer come to the bargaining table or the union may claim that the now joint employer is subject to a bargaining agreement that it had no part in negotiating.

This decision will also make it easier for unions to bring in a franchisor as a joint employer.  So, be prepared for a lot of McDonald’s type claims against national franchisors.

Liquidating Agreements—Bridging the Privity Gap for Subcontractors

Posted in Construction Contracts

Craig Martin, Construction Attorney Lamson Dugan & Murray, LLPWhat is a subcontractor to do when the owner has demanded additional work, but has refused to pay for it?  Typically, a subcontractor cannot sue the owner because the subcontractor doesn’t have a contract with the owner.  Perhaps the subcontractor and general contractor should enter into a liquidating agreement through which the general contractor can pursue the claim on behalf of the subcontractor.

Liquidating agreements bridge the privity gap between owners and subcontractors who sustain damages because of the others actions.  Liquidating agreements or pass-through agreements grant the general contractor a release of its liability to the subcontractor after the general contractor prosecutes the subcontractor’s pass-through claim against the owner and gives the subcontractor any recovery.

The benefit to liquidating agreements is that when they are properly drafted, they avoid the application of the Severin doctrine. This is the doctrine established in Severin v. United States, a 1943 case, in which the court held that a subcontractor could not recover against the Government if the general contractor was not also liable to the subcontractor on the same claim. This means that the general contractor must be obligated to pay the subcontractor regardless of whether the subcontractor claim is ultimately paid by the Government.

A well drafted liquidating agreement provides that the subcontractor will release all claims it may have against the general contractor in exchange for the general contractor’s promise to pursue the subcontractor’s claim against the Government.  Liquidating agreements should have three basic elements:

  1. the imposition of liability upon the general contractor for the subcontractor’s increased costs, thereby providing the general contractor with a basis for legal action against the owner;
  2. a liquidation or set amount of liability in the amount of the general contractor’s recovery against the owner; and
  3. a provision that provides for the pass-through of that recovery to the subcontractor. 

In addition to these basic elements, the covenant of good faith and fair dealing will be implied.  This covenant requires the general contractor to take all reasonable steps so that the subcontractor’s rights to an eventual recovery, if any, from the owner will be protected. Courts have held that this means that the general contractor has a duty to make a good faith effort to present the subcontractor’s claim to the owner in a fair and serious manner.

Take Away: When a subcontractor is owed money by an owner, negotiating a liquidating agreement with the general contractor may provide an excellent opportunity for recovery.