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Tips from the Pros

CONTRACTORS BEWARE: SOME CONSTRUCTION IMPROVEMENTS ARE NOT LIENABLE

This construction blog post discusses whether work performed upon the Property, is either a trade fixture (not lienable) or a permanent improvement (lienable) pursuant to the Illinios Mechanic Lien Act.

In determining whether material or equipement ("Work") installed upon the Property is a permanent improvement, the Court considers three (3) factors:

1)  the nature of the attachment to the Property; 

2) the adaption and necessity of the Work to the Property; and 

3)  whether the Parties intended on the Work to become part of the Propety.

While all of the factors are all considered together, the 3rd factor, intent of the Parties, weighs the heaviest as the most important factor.  

The first factor relates to how securely or permanent the Work is installed at the Property.  However, this fact alone, whether the Work can be removed without injuring the surrounding Property does not prevent the Work from being lienable.  

The second factor relates to whether the Work can be used at other properties and is the Work necessary for the Property's operation and purpose.

Finally, in considering the 3rd factor, intent, the Court would review the agreements between all the Parties in the transaction for the Work and for the use of the Property.  In that regard, the Court will consider the following:

i)  whether the Party performing the construction had notice of the agreements related to the use of the improvement;

ii)  were any agreements recorded with the County Recorder's Office;

iii)  who paid for the Work;

iv)  who gets the benefit of the Work; and

v)  who is actually the legal owner of the Work.  

For example, if any Party besides the Property's owner, is allowed to remove the Work, then the Work is probably not lienable. 

To prevent this situation, a Contractor should ask to see the agreements between the Owner and General Contractor or Developer.  Also, structure the payment as if tge Contractor did not have lien rights. 

Finally, please contact this Firm to review and negotiate the contract with the other Party in order to provide security for payment on behalf of the Contractor or a release of liability on behalf of the Owner, the uncontested right to remove the Work if payment is not received, or be able to enforce the Contractor's lien rights.  

CONTRACTORS CAN PREVENT UNLIMITED LIABILITY BY NARROWING INDEMNITY CONTRACT CLAUSES

In a recent case involving a Public entity, a General Contractor and a subcontractor/lien claimant, the issue of an indemnity clause revealed that the General Contractor may have unlimited liability to the Public Entity.  

In the case, the Public Entity argued that the General Contractor was liable for all the damages to the Public Entity as a result of the Subcontractor's lien claim, since the General Contractor did obtain a payment bond.  However, the Public Entity's contract with the General Contractor did not require the General Contractor to obtain a payment bond.  

However, the Conract provided for a very broad indemnity provision:

The Contractor shall indemnify, defend, keep and hold harmless the Public Entity, its agents, agaisnt all injuries, losses, claims, suits, costs, and expenses which may accrue agaisnt the Public Entity as a consequence of granting the Contract. 

The Court opined that this indemnity provision could expose the General Contractor liability for failing to get teh payment bond.  Accordingly, the General Contractor could be held liable for all of the Public Entity's attorney fees and damages for any claims brought by the subcontractor/lien claimant.

While Illinois law, the Construction Contract Indemnification for Negligence Act, prevents a contractor from being liable for another person's negligence, this only pertains to negligence claims, not to contract damages.  The Court opined that the failing to obtain a payment bond could be considered a breach of the contract, not negligence.  

In order to prevent liability a Contractor should limit the indemnity clause.  A Contractor can limit the indemnity clause by:

• narrowing the types of claims that can be asserted;

• the amount of damages that a contractor can be liable for;

• the parties that the Contractor has to indemnify; or 

• requiring certain types of insurance. 

For more information about revising indemnity clauses and drafting construction contracts, please contact Corey B. Stern at [email protected]

 

What Every Contractor Needs To Know About The Illinois Employee Classification Act To Avoid Having The State Impose Severe Penalties

The Illinois Employee Classification Act, 820 ILCS 185/1, applies to all contractors who pays any person to perform any construction work in the State of Illinois.  

1) In order to avoid liability, the Contractor needs to prove that the independent contractor (party performing work) is i) free from the contractor's control and direction in performing the work; ii) outside the usual scope of work that the contractor performs;  and iii) the independent contractor regularly performs the construction work as part of its own business or trade.    

2) An oral or written contract between the Contractor and the independent contractor, which identifies the person as an independent contractor, will not prevent liability from being imposed upon the Contractor.  The contract will be just one factor the State may consider when determing whether the person is an independent contractor or employee.  However, the actual actions between the parties and of the independent contractor will control over the terms of the contract.  

3) The Act requires the Contractor to report to the Dept. of Labor any payments made to any individual, sole proprieteror or partnership (independent contractor) by April 30th of the followng year.  Failure to report is considered to be a violation of the Act. 

4) An example of a Contractor violating this Act: A painting contractor hires independent contractors to perform painting work.  To be in compliance, the painting contractor needs to pay the painters as employees.  

5) While the Illinois Dept. of Labor is the State agency that enforces this Act, any person with a reasonable belief that the Contractior is violating this Act can file a claim against the Contractor for violating the Act.  This includes a competitor of the Contractor.  The penalties include a $1,000 per day violation for each person that should have been identified as an employee and barring the Contractor from contracting with the State to perform work.  

6) In order to prevent any liability, the Act provides a list of twelve factors that the Contractor and independent contractor should perform and the Dept. of Labor will consider when determining whether the Contract is paying a person as an  independent contractor or employee.   In general,  the indpendent contractor should file its own taxes as an independent contractor, obtain its own insurance, advertise to the public, have its own tools, its profits/losses must be based upon its own actions; have the right to continue working if the Contractor terminates the contract, and performs work that the Contractor typically does not perform. 

For more information and to implement procedures to be in complaince with the Act and prevent the Dept. of Labor from imposing fines, contact Corey B. Stern at [email protected] or at 630-824-4808.  

Non-Competition Agreements Cannot Be Enforced Agaisnt Low-Wage Employees

By Corey B. Stern, Esq., Chitkowski Law Offices

Pursuant to the Illinois Freedom to Work Act, enacted by the State of Illinois this year, a private company is prohibbited from enforcing a non-competition agreement against any employee who makes less than $13.00 per hour.  A non-competition agreement is any restriction that prevents a person from working for another employer for a specific period of time; a specific geographical area; or for another similar employer. 

However, the Act does not prevent an employer from executing and enforcing a non-disclosure agreement, which protects an employer's confidential or trade secret information; or executing and enforcing a non-solicitation agreement, which prevents an employee from soliciting other employees or the employer's customers.  In that regard, not all information that the employer believes is confidential or a trade secret is actually that.  The information must meet certain requirements. 

For more information on non-competition, non-disclosure, non-solictitation and maintaining confidential information/trade secrets, contact Corey B. Stern at [email protected] 

Top 10 Clauses For Every Construction Contract

By Corey B. Stern, Esq., Chitkowski Law Offices

1) Payment Terms: Identify the amount and the date or construction event when each payment is due.  Additionally, confirm that the Owner has the funds to complete the project or if financing is being used.  

2)  Explain Allowances vs. Furnished Items by Owner:  The amount and description of the allowances and items furnished by owner should be specifically identified.  Attach an exhibit, plans or specifications, if available.  

3)  Change Order Process: Provide the procedures to be used when any of the following tems are changed: materials, construction schedule, or contract price. Additionally, attach a sample change order to the contract, identifying who has authorization to sign the change order from both parties. 

4)  Timeframe for the Construction Work:  Identify the date when the construction shall begin (i.e.: 7 days after receiving permits) and when the construction should be completed (i.e.: 4 months after receiving permits or after 90% of the contract price has been paid).  

5)  Unforseen Site Condition Clause: Whether new construction or remodeling, there should be a procedure in place when the contractor discovers work or an issue that was not previously known at the time the contract was entered into.  

6) Photos and Videos:  State that you are entitled to use photos and videos of the work you are performing for marketing purposes without compensation to the Owner.  

7)  Warranty:  A limited warranty should be provided stating what you will and will not cover; and the Implied Warranty of Habitability should be specifically waived by the owner or upper tier contractor. This provision along with the Remedy clause will limit your liability in both duration and costs. 

8)  Insurance Clause:  Identify the type (CGL/WC) and amounts/limits of insurance the contractor and owner/upper tier contractor should have.  Moreover, every owner should be required to obtain Builders Risk Insurance.  

9)  Dispute Resolution:  At the very least, every contract should require mediation before a claim is filed in Court or arbitration proceedings begin.  The selection of a mediator should be identified in the contract.  

10)  Remedy and Termination Clause:  Provide for a procedure in the event either the Owner or Contractor materially breaches a contract term (lack of payment, construction schedule, performance of work); and allow for the party time to cure the default, in the event the breach is not an emergency.  

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