A Fresh Look at Force Majeure for Supply Chain Fallout

It seems as though supply chain issues have been never-ending these last few years. Although supply congestion has ebbed and flowed, it remains unpredictable. "One positive thing about our current supply chain situation is that the NY Fed Global Supply Chain Pressure Index fell for the third straight month in July 2022, reaching its lowest point si...
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Lack of Skilled Construction Workers Could Cause Slow Payment

According to the 2022 Construction Business Report from Foundation Software, 37% of respondents said they hope to see an addition of skilled labor for their businesses in the next 12 months. This is up from 24% last year who had the same concern. Due to lack of qualified help, the contractor may not be able to bid on the same type of jobs or comple...
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Lien Waivers: Why should you treat them like contract documents? Because they are.

Lien waivers at their core are testament documents used primarily by title companies, banks, property owners and general contractors to assure funds have moved through the ladder of supply. Although each state is different, there are 4 basic types of waivers: unconditional partial, unconditional final, conditional partial and conditional final. For...
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The Nuts and Bolts of Indemnity Clauses in Construction

The construction process is, by its nature, an inherently risky venture. As a result, construction contracts are generally drafted to allocate such risks among the various parties to the project. These risks may include claims for personal injuries, property damage, project delays, lost profits and a myriad of other financial harms.Indemnity may be...
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White-Collar Crime Underscores Importance of Customer Verification

A federal judge in Missouri sentenced a former construction operations manager to eight years in prison for his role in a fraud scheme that won the company $335 million in government contracts for which it was not eligible.WHY IT MATTERS: According to the FBI, white-collar crimes can destroy a company, cost investors billions of dollars and erode t...
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Virginia to Ban Pay-if-Paid Clauses in Effort to Protect Subcontractors

Pay-if-paid clauses in general contracts commonly appear in the construction industry. But while these agreements protect the general contractor, they leave subcontractors and material suppliers at risk of not getting paid for their share of the work. These clauses state that "the general contractor on a project does not need to pay the subcontract...
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Rebuilding After Hurricane Ian Expected to Cost More Time and Money

Hurricane Ian made landfall in Florida last week as a Category 4 storm with 150 mph winds, just shy of classifying as a Category 5. Insured losses are estimated at anywhere from $30 to $70 billion, but it is still too soon to know the exact economic damage. Florida's tourism and hospitality sectors, citrus production and phosphate mining businesses...
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How to Analyze Repayment Ability of Construction Contractors

When lending to construction contractors, credit professionals should carefully review financial performance and cash flow. The main concerns of bankers are within areas related to how contracts are managed and how contractors expand their businesses. If suppliers who sell to construction companies are unable to receive the materials needed, it can...
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Monthly Construction Input Prices Dip in August, but Are Up 17% from a Year Ago

Construction input prices decreased 1.4% in August compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index data. Nonresidential construction input prices fell 1.4% for the month as well.Construction input prices are up 16.7% from a year ago, while nonreside...
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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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