Snell & Wilmer
Under Construction
 

Letter from the Editor

California Senate Bill 50: California’s Rejection of Addressing Restrictive Zoning Policies

In Utah, It's Obvious What's Open and Obvious

2019 Amendments Affecting Residential Construction

Nevada Legislature Provides Flexibility for Complex Construction Projects

Arizona Senate Bill 1397: What You Should Know About the ROC’s Legislative Update

Construction Industry Update Regarding Marijuana: Arizona and Nevada Laws Continue to Evolve

The Impact of Assembly Bill 136 and Senate Bill 231 on Nevada Contractors

Can Unapproved Change Orders Form the Basis for a Lawful Mechanics’ Lien Encumbering the Project?


James J. Sienicki
James J. Sienicki
602.382.6351
jsienicki@swlaw.com
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Y. Rubi Bujanda
Y. Rubi Bujanda
602.382.6295
rbujanda@swlaw.com
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Justin Carley
Justin L. Carley
702.784.5250
jcarley@swlaw.com
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Creighton Dixon
Creighton P. Dixon
602.382.6408
cdixon@swlaw.com
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Richard G. Erickson
Richard G. Erickson
602.382.6540
rerickson@swlaw.com
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Cary D. Jones
Cary D. Jones
213.929.2501
cjones@swlaw.com
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Jenna Le
Jenna Le
213.929.2519
jle@swlaw.com
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John F. Lomax, Jr.
John F. Lomax, Jr.
602.382.6305
jlomax@swlaw.com
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Mark O. Morris
Mark O. Morris
801.257.1904
mmorris@swlaw.com
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Swen Prior
Swen Prior
702.784.5262
sprior@swlaw.com
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Brett J. Rufer
Brett J. Rufer
602.382.6332
brufer@swlaw.com
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Amanda Z. Weaver, Ph.D.
Amanda Z. Weaver, Ph.D.
602.382.6535
aweaver@swlaw.com
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Marian Zapata-Rossa
Marian Zapata-Rossa
602.382.6355
mzapata-rossa@swlaw.com
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Snell & Wilmer
Past Issues
Construction Practice

     

July 2019

Letter From the Editor

Welcome to the summer edition of our Under Construction newsletter.

In this issue, we start off with an article that discusses California Senate Bill 50, which failed to pass. As a result, California failed to address restrictive zoning policies. California is suffering from a housing crisis with a shortage of 3.5 million homes. The bill, which was proposed as a solution, was surprisingly postponed until 2020.

Next, we address Utah’s open and obvious danger rule and how the Utah Supreme Court recently affirmed and embraced the rule. The case explores what is, or should be, obvious.

In Arizona, a buyer of a new residential dwelling unit must follow recent changes in Arizona’s Purchaser Dwelling Act when noticing a construction defect. The next article examines these changes and the right to repair alleged construction defects.

Nevada’s legislature has eased some of the restraints against multiple general contractors working together on complex construction projects. Assembly Bill 29 has provided some flexibility. Nevada also passed Assembly Bill 136, which changes the minimum wage for laborers on certain public works projects, and Senate Bill 231, by which the government can limit eligibility for its public works projects to contractors who employ union workers beginning July 1. Two Nevada articles dive into these issues.

Following, we have an article about Arizona’s newly signed Senate Bill 1397, referred to as the “registrar of contractors omnibus,” which will cause the construction industry to change in three major ways, as explained in the article.

With new marijuana laws continuing to evolve in Arizona and Nevada, the construction industry evolves with it. The new legislation in Nevada prohibiting employers from rejecting a job seeker for testing positive for marijuana may also impact the industry. The employment law article addresses these issues.

Next, we have an article looking at the impact of two bills passed in Nevada that will have an impact on contractors.

Lastly, we take a look at mechanics’ liens and if unapproved change orders can form the basis for a lawful mechanics’ lien encumbering the project.

We hope you find these articles informative and enlightening. Please let us know if you want us to address a specific construction issue in a future newsletter. Hope you enjoy your summer and have a restful vacation with your family.

Regards,
Jim Sienicki

California Senate Bill 50: California’s Rejection of Addressing Restrictive Zoning Policies

by Cary D. Jones and Jenna Le

California Senate Bill 50, introduced by Senator Scott Wiener, proposed significant changes to the state’s zoning laws with hopes of relieving California’s housing crisis. California is currently experiencing a shortage of 3.5 million homes, according to the California Housing and Community Development Department. However, to the surprise of many, the bill was stalled in the Senate Appropriations Committee and postponed until 2020.

The bill was strongly supported by California construction trades including the State Building and Construction Trades Council of California, which represents 400,000 construction workers in 14 building trade crafts across California. Supporters of the bill expected that it would accelerate the pace of new construction and alleviate high housing costs. The bill was defeated by a coalition of suburban groups who opposed the notion of increasing density in residential areas. The bill also faced resistance from local governments concerned about losing control over local zoning laws.

Most California cities have largely prohibited higher density or multifamily housing developments. As a result, such single-family zoning restrictions have contributed to the shortage of affordable housing for both renters and owners. If enacted, this bill would have prevented cities from prohibiting such development near transit and employment centers.

The generation of multifamily housing development would have been implemented under the bill with the following provisions:

Streamline Process for Multifamily Structures

The bill would establish a ministerial review and approval process to streamline the construction of multifamily structures on vacant land, or to convert existing structures, consisting of up to four residential dwelling units. The bill would limit the authority of local agencies to impose parking standards on a streamlined development and exempt such projects from the CEQA approval process.

Equitable Communities Incentive

Local jurisdictions would be required to grant an “equitable communities incentive” for qualifying projects near transit or employment opportunities. In exchange, projects would have to allocate a portion of the units as affordable. These projects would still have to comply with CEQA and local restrictions but would be exempt from maximum height requirements less than 55 feet and any minimum parking requirements.

Sensitive Communities

The bill would delay implementation for five years in potentially sensitive communities at risk of gentrification and displacement. Sensitive communities may satisfy its requirements by developing a community plan that encourages multifamily housing and complies with minimum affordability standards found in the bill.

Similar provisions have already been enacted in Minneapolis, which was one of the first major U.S. cities to do away with single-family home zoning. We expect to continue to see a growing trend of states that now seem to favor ending single-family home zoning. The failure of SB 50 highlights California’s need for more policies that incentivize the production of denser housing near transit-served and employment-rich areas.

In Utah, It's Obvious What's Open and Obvious

by Mark O. Morris

There is good news for contractors in Utah who take care to appropriately mark, sign and warn of hazards. Of course it does not mean they will avoid being sued. But in Coburn v. Whitacker Construction Co., 2019 UT 24, the Utah Supreme Court recently reaffirmed Utah’s embrace of the open and obvious danger rule, affirming a summary judgment in favor of a contractor whose warning signs and orange netting were consciously ignored by a plaintiff who tripped over them and suffered injuries.

In July 2018, a woman and her husband went for a walk on a trail in a recreational area. At the trail head, a contractor had posted a sign warning that there were construction activities in the area and that portions of the trail were closed. The contractor had also placed orange netting across the trail to deter people from accessing the construction site. The woman and her husband saw both the sign and the netting strung between two orange barrels. The woman chose to try to step over the netting, tripped, fell and injured her arm and shoulder.

The woman sued the contractor for negligence. After obtaining admissions that the woman had seen the sign, the barrels and the netting, the contractor filed a motion for summary judgment, claiming that the open and obvious danger rule in Utah barred such a suit. The trial court granted the motion for summary judgment, and on appeal the Utah Court of Appeals affirmed it. On a petition of certiorari to the Utah Supreme Court, the Utah Supreme Court affirmed Utah’s adoption of Section 343 and 343A of the Restatement (Second) of Torts. In short, “[a] possessor of land is not liable to his invitees for physical harm caused to them by any activity or condition on the land whose danger is known or obvious to them, unless the possessor should anticipate the harm despite such knowledge or obviousness.” Resisting arguments that only a jury could decide what is open and obvious, and finding that the arguments to overturn precedent were unpersuasive, the Utah Supreme Court let the ruling stand. Of some import to the Court was the fact that the plaintiff and her husband were able to safely traverse the netting on the way back to their car, thus demonstrating that a “reasonable person exercising ordinary attention, perception and intelligence” could avoid the danger.

Construction can create hazards that may be unavoidable and thus need to be warned against. The irony in the Coburn case is that it was the warnings themselves, and not the dangers, that led to harm. But it is heartening that a contractor who conscientiously takes reasonable and visible steps to warn of those hazards can avoid liability, even if getting there may ultimately require three levels of judicial review.

2019 Amendments Affecting Residential Construction

by Brett J. Rufer

Under Arizona law, when a purchaser of a new residential dwelling unit alleges a construction defect, the purchaser generally is required to first provide notice of the defect to the homebuilder prior to filing a formal action against the homebuilder. This procedure, and the other “rules” that must be followed with respect to construction defect claims, is outlined in Arizona’s Purchaser Dwelling Act (the “Act”).

In 2015, the Act was amended to grant homebuilders the right to repair alleged construction defects. Prior to the amendment, the Act required notice to homebuilders of alleged defects, but a purchaser was not obligated to afford a homebuilder the opportunity to make repairs. Rather, after providing notice, the purchaser was free to pursue construction defect litigation. The 2015 amendments to the Act required purchasers to allow the homebuilder to repair or replace the defective item. While homebuilders were not obligated to make repairs, this change was viewed as a benefit to homebuilders, allowing them to address legitimate construction defect items in an effort to avoid formal litigation.

During the most recent legislative session, the Legislature adopted additional amendments to the Act. Governor Ducey signed SB 1271 into law in April 2019. The primary components of SB 1271 that relate to the Act include the following: (i) subcontractors (in addition to homebuilders, as described above) now have the right to repair alleged construction defects; (ii) a two-phased “trial system” is mandated, where the trier of fact is charged with apportioning liability between builders and subcontractors based on responsibility if it is determined that a construction defect exists; and (iii) a court may now award attorneys’ fees to the prevailing party on each contested issue in a litigation proceeding.

In the 2015 amendments to the Act, the homebuilders’ right to repair was not extended to benefit subcontractors or other construction professionals who were often responsible or involved in the building of a new home. Since 2015, many subcontractors or construction professionals who continued to become involved in construction defect litigation without having the right to repair or replace defective work. SB 1271 now requires that each homebuilder receiving notice of an alleged construction defect provide that notice to each subcontractor or construction professional that may be responsible for the defective work. Similarly, each subcontractor or construction professional now has the right to inspect the alleged defective work and to elect to repair or replace the alleged defect, but without any obligation to do so.

SB 1271’s two-phased trial system for any formal construction defect litigation is described in more detail herein. In the first phase, the trier of fact will determine whether a construction defect actually exists and, if so, the amount of damages to which the purchaser/plaintiff is entitled. If a construction defect is determined to exist, the trier of fact, in the second phase, is required to assign fault to one or more construction professionals involved in the defective work. This second phase is designed to allocate responsibility, and liability, to the responsible party or parties, rather than merely the homebuilder who may not have been responsible for the defective work. In this second phase, the homebuilder has the burden of establishing that another construction professional (i.e., a trade or subcontractor) was responsible or partially responsible for the defect and therefore should be responsible for the liability and damages associated therewith.

Lastly, SB 1271 includes provisions with respect to how a court may award attorneys’ fees to prevailing parties in construction defect litigation. Under an Arizona statute governing contract disputes, A.R.S. § 12-341.01, the court may award the prevailing party “reasonable” attorney fees in any contested action arising out of a contract. SB 1271 clarifies that with respect to dwelling actions involving construction defects, the court may award reasonable attorneys’ fees to the prevailing party with respect to each contested issue raised. Where there are multiple issues raised, and both the plaintiff and defendant have prevailed on distinct issues, a court could award attorney fees to both parties. The new law also prescribes factors to consider in determining what are considered reasonable attorneys’ fees. These new rules are generally anticipated to prevent what many in the homebuilding industry believe are frivolous and overly broad claims, as plaintiffs could be liable for payment of attorneys’ fees, even if they prevail on one or more issues.

These changes, along with other provisions incorporated into the new law, are generally viewed as industry favorable and were the result of meetings with various stakeholders. Homebuilders, subcontractors and other construction professionals should closely review these changes to fully understand the implications of the new Act, to ensure compliance, to protect their rights and to utilize the favorable provisions of SB 1271.

Nevada Legislature Provides Flexibility for Complex Construction Projects

by Justin L. Carley and Christian Ogata

As the 80th Session of the Nevada Legislature comes to an end, so too do the days of broad and sometimes confusing restraints against multiple general contractors working together on complex construction projects. Under NRS 624.215, the “contracting business” is divided into three categories — general engineering contracting, general building contracting and specialty contracting. NRS 624.215 defines each of these categories and the definition of “general building contractor” includes a requirement that it is the prime contractor. Relatedly, under NRS 624.6086, a “prime contractor” is defined as one that contracts directly with the owner of a project to provide work, materials or equipment for a work of improvement. In some minds, this created confusion about whether a general engineering contractor or a specialty contractor could be used as a prime contractor or if only a general building contractor could be used as a prime contractor. Moreover, a general building contractor could arguably not hire another to assist with management of a project. While this may have had a less significant effect during times of economic downturn, recent trends in Nevada have increased the demand for large-scale projects. Stadiums, infrastructure, cutting-edge hotels and casinos and other sizeable and high-tech projects could benefit from having multiple general contractors working together.

Assembly Bill 29 tries to provide some flexibility in this setting by adding its own definition of prime contractor to NRS 624.215(10) that allows all three categories — general engineering contractors, general building contractors and specialty contractors — to serve as prime contractors, in certain circumstances, while leaving the general definition of prime contractor in NRS 624.6086 intact. But, every eligible project must have one and only one prime contractor, whether it be a general engineering, general building or specialty contractor.

The bill also permits agreements between multiple general contractors. For example, if a general engineering contractor is hired as the prime contractor, it may hire one general building contractor to provide work, materials or equipment. Further, a general building contractor may contract to provide management and counseling services for a project. If so, it may also hire a general building contractor to provide work, materials or equipment. So, the statute now expressly allows two general contractors to enter into an agreement to work with each other on a single construction project.

But with this new ability, owners, general contractors and subcontractors should be cognizant of the risks. For example, all should be aware that this change could impact an already highly technical mechanic’s lien process, especially if different general contractors are hiring different subcontractors. Although Assembly Bill 29 will likely have a positive impact in providing more flexibility, it is unclear exactly what other risks this amendment might create. Owners and contractors of all types should approach these relationships with caution and consult with counsel to ensure compliance with all statutory, regulatory and contractual requirements on a case-by-case basis.

Arizona Senate Bill 1397: What You Should Know About the ROC’s Legislative Update

by Creighton P. Dixon

During this most recent session, the Arizona Legislature passed and the Governor signed new legislation affecting contractors throughout the state. The legislation, Senate Bill 1397, was referred to as the “registrar of contractors omnibus” in the Governor’s signing letter. Because SB 1397 significantly revises Title 32, Chapter 10, it is worth reviewing in its entirety. There are at least three categories of changes that industry members should consider before it takes effect on August 27, 2019.

First, one theme of the changes is a streamlined licensing process. Along with House Bill 2569, which offers greater recognition of workers’ out-of-state experience for the purposes of licensing, SB 1397 reduces one procedural barrier: the posting list. Previously, an applicant needed to wait for a period of time to pass, typically 20 days, before they were allowed to obtain a license. Now, if the other requirements are met, the “registrar shall issue a license…” Previously, this had the potential to be a significant issue when entities, perhaps unexpectedly and at the last minute, determined that they needed a contractor’s license. This often occurred when an out-of-state contractor was considering bidding on an Arizona project and realized it needed a contractor’s license before bidding because of A.R.S. § 32-1123. Now, assuming that the rest of your materials are ready, there is one less time constraint to obtaining a license. Relatedly, the license requirements for joint ventures are clarified with a new specific statutory section. It clarifies that the joint venture does not need its own license, but that, along with other caveats, the member doing the contracting work needs to have a license. There are several other revisions on the licensing front, including clarifying the ability to allow one-year licenses, that you may want to review.

Second, SB 1397 also has important information for homeowners as the Residential Recovery Fund statutes have been updated. A major change is the clarification of who is eligible to recover. A new section, A.R.S. § 32-1132(B), explains when individuals, limited liability companies, trusts, planned communities and lessees are eligible to recover. If you are considering pursing a claim on the Recovery Fund, you may want to review how you fit into this revised scheme.

Finally, there are a few changes regarding how the Registrar will investigate contractors and how contractors need to respond. For example, a change to A.R.S. § 32-1154(A)(6), which is a part of the list of acts licensees may not commit, now provides a specific definition for a “fraudulent act.” Likewise, pursuant to A.R.S. § 32-1154(A)(10), which covers the failure to pay materialmen or service providers, the burden of proof is now more clearly on the contractor. Perhaps most interestingly, A.R.S. § 32-1154(B) was clarified to explain that the Registrar has the authority to investigate contractors on the Registrar’s own motion, as opposed to waiting for a complaint.

These are just three examples of the changes presented by SB 1397. The bill itself is nearly 60 pages and has many nuances that will require individual analysis for individual businesses and their situations. It is worth taking the time now, before the legislation takes effect, to review and consider how it will affect your business.

Construction Industry Update Regarding Marijuana: Arizona and Nevada Laws Continue to Evolve

by John F. Lomax, Swen Prior, Marian Zapata-Rossa and Y. Rubi Bujanda

Employers in the construction industry, particularly multi-state operators, may face challenges with new legislation in Nevada and a new case interpreting Arizona’s medical marijuana law.

New Nevada Legislation

Effective January 1, 2020, employers in Nevada will no longer be able to reject applicants for employment who test positive for marijuana in a post-job offer drug screen. The Nevada law, known as Assembly Bill No. 132, was signed into law on June 5, 2019. The new law provides an exemption for employers who screen applicants seeking positions that are safety-sensitive. The Bill specifies that “safety-sensitive” positions include: firefighters; emergency medical technicians; employees that operate a motor vehicle (for which federal or state law mandates the employee submit to screening tests); and a broad category including employees that “could adversely affect the safety of others.” The contours of what jobs are safety-sensitive will likely be fleshed out in future litigation. In general, ironworkers and heavy equipment operators and most employees working day-to-day on an active construction jobsite are likely in safety-sensitive positions. But office-based workers may not be deemed to hold safety-sensitive positions.

Additionally, employers can still test employees for drugs post-accident, under a random testing program, and if the employer has a reasonable suspicion of an employee being under the influence. Employees cannot use marijuana on the job or work under the influence. Nevertheless, the new Nevada law further evidences the ongoing state-by-state expanding tolerance of marijuana use. This evolution is occurring while federal law remains unchanged (it is a criminal offense under federal law to manufacture, distribute, dispense or possess marijuana, even where state law authorizes its use and despite the federal government’s current position on enforcement). As such, the new law may not impact or apply to federal contracts if drug testing is required under the contract. In general, the new law does not alter parties’ obligations under existing collective bargaining agreements, but depending on the provisions in the labor contracts, some pre-employment testing provisions in construction industry labor contracts may need to be revised.

New Arizona Case

Can an Arizona employer terminate the employment of a medical marijuana card holder who tests positive after a work-related injury? While this case arose outside the construction setting, it provides some important guidance on Arizona’s medical marijuana laws. In Whitmire v. Wal-Mart Stores Inc., a Customer Service Supervisor sued her employer, Wal-Mart, for various employment law claims, including discrimination under the Arizona Medical Marijuana Act (“AMMA”). At the time the employee was hired, she signed an acknowledgement form confirming her receipt of Wal-Mart’s drug and alcohol policy, which stated that she could be terminated if a drug test evidenced any detectable amount of illegal substances.

After sustaining a work-related injury, the employee was given a drug test for which she tested positive for marijuana metabolites at the highest level the test could record. Even though she was a valid medical marijuana cardholder, her employment was terminated based on the positive drug test. As part of its defense, Wal-Mart’s Personnel Coordinator signed a declaration stating that, upon her reasonable belief, the high level of metabolites detected by the drug test indicated the employee was impaired during her shift that day.

The Whitmire court, however, called into question the employer’s decision and considered how Arizona’s Drug Testing of Employees Act (“DTEA”) comes into play in a medical marijuana case. That law provides employers immunity from liability for taking any adverse actions against employees who receive a positive drug test, or whom the employer reasonably believes have used, possessed or were impaired by drugs or alcohol while on the employer’s premises or during work hours. The employer’s good faith belief may be based on the results of a drug test. To avail themselves of immunity under the Act, employers must maintain a proper drug testing policy and a drug testing program that complies with the DTEA.

While the anti-discrimination provision of the AMMA, which prohibits adverse employment actions against valid medical marijuana card holders, and the employer immunity provision under the DTEA appear to be at odds, the Court in Whitmire v. Wal-Mart Stores Inc. reconciled the two statutes as follows:

  • “An employer cannot be sued for firing a registered qualifying patient based on the employer’s good-faith belief that the employee was impaired by marijuana at work, where that belief is based on a drug test that sufficiently establishes the presence of ‘metabolites or components of marijuana’ sufficient to cause impairment.’”
  • Ultimately, because Wal-Mart did not present any evidence establishing that the employee was impaired at work, such as scientific expert testimony opining on the sufficiency of the metabolite levels revealed by the employee’s drug test, or evidence of any symptoms of impairment, such as affected speech, walking, coordination, irrational or unusual behavior, the Court ultimately ruled in favor of the employee on her discrimination claim under the AMMA.

Takeaways for Construction Employers

  • Employers may want to consider revisiting their drug and alcohol and drug testing policies to ensure they are not violating Arizona and Nevada law and are properly availing themselves of the protections under those laws.
  • Employers may want to have a reasonable method of designating what jobs are safety-sensitive and whether pre-employment testing for marijuana will be conducted, and if so, for what positions and in what states.
  • In Arizona, a positive drug test for marijuana, alone, may be insufficient to insulate an employer from liability under the AMMA and establish a good-faith belief that an employee was impaired at work. If a termination is based on a positive drug test, employers may want to be prepared to hire an expert to prove that the presence of marijuana metabolites sufficiently caused the employee to be impaired at work or be able to produce other evidence of impairment.
  • Employers may want to train managers and supervisors on recognizing and documenting symptoms of impairment.

The Impact of Assembly Bill 136 and Senate Bill 231 on Nevada Contractors

by Justin L. Carley and Skylar Arakawa-Pamphilon

Last month, Governor Sisolak took to Twitter to celebrate signing two construction-related bills that he claims will “right anti-worker wrongs”: Assembly Bill 136 and Senate Bill 231. While Sisolak predicts that the bills will “strengthen our working families,” his tweet does not address the effect such legislative changes may have on those who employ construction workers. The following article recognizes that Assembly Bill 136 may have offsetting implications for Nevada contractors with public works contracts: the bill will increase their wage labor costs, but could also generate financial benefits for them. Further, the article predicts that SB 231 will negatively impact Nevada contractors by limiting who can bid on public works contracts in the state.

Assembly Bill 136

On May 28, 2019, Governor Sisolak signed Assembly Bill 136, which makes two important changes to Nevada’s prevailing wage laws for public works projects. First, the bill changes the minimum wage for laborers on any Nevada school district or Nevada System of Higher Education (NSHE) public works project. Existing Nevada law requires contractors with school district or NSHE public works contracts to pay their labor force 90 percent of the prevailing wage in the project’s county. Now, section 2 of Assembly Bill 136 eliminates that wage discount. To comply, contractors with school district or NSHE public works contracts will have to pay employees 100 percent of the applicable county’s prevailing wage. Second, the bill lowers the threshold for requiring a contractor to pay his or her employees the applicable prevailing wage. Under existing Nevada law, any contractor whose public works project costs less than $250,000 does not owe his or her workers the applicable prevailing wage. Now, to comply with Section 4 of the bill, any contractor, whose public works project costs more than $100,000, will have to pay workers the applicable prevailing wage.

One upside to these pro-employee provisions, which become law on July 1, is that they should positively impact the skill level of Nevada’s public construction workforce. Foremost, higher wages attract more skilled applicants. Additionally, when more public construction projects are subject to prevailing wage laws, more construction workers have the opportunity to develop their skills through apprenticeships. Contractors who must meet prevailing wage requirements are more likely to offer employees apprenticeships, because contractors lawfully may pay apprentices less than the prevailing wage. Therefore, expanding employee coverage under prevailing wage laws could lead to a more skilled public construction labor force in Nevada.

Although more expensive, a more skilled labor force may create offsetting financial benefits for Nevada contractors. First, adept construction workers are more productive. And greater productivity means construction workers can complete work in less time, which may increase the likelihood of receiving early completion or other performance-based bonuses or improve a contractor’s chances of winning future bids. Additionally, skilled personnel are statistically less likely to be injured on the job. The national average cost per on-the-job injury is approximately $27,000 in the construction industry. As a result, a more skilled labor force may lead to some cost savings for contractors to offset the prevailing wage increase in this context.

Senate Bill 231 

On May 28, 2019, Governor Sisolak also signed SB 231, which eliminates several provisions from Nevada’s law governing public works and planning. Under existing Nevada law, the government cannot require contractors to employ unionized workers as a condition of eligibility for public works contracts. Section 7 of SB 231 eliminates this prohibition. Put simply, when SB 231 becomes law on July 1, 2019, the government will be free to prohibit non-union contractors from bidding on public works projects.

Although this bill will not retroactively affect Nevada contractors with existing public works contracts, it could prevent Nevada contractors from bidding on public works projects in the future. Beginning July 1, Nevada’s pro-labor government can limit eligibility for its public works projects to contractors who employ union workers. Approximately 80 percent of Nevada’s construction workforce is not unionized. By extension, most Nevada contractors do not employ unionized workers and, therefore, will not be eligible for such union-only contracts.

Conclusion 

“Righting anti-worker wrongs” may be a legitimate legislative interest, but Assembly Bill 136 and Senate Bill 231’s impact on Nevada’s contractors is no less important. Assembly Bill 136 may have counteracting effects on Nevada contractors with public works contracts, increasing their labor costs while financially benefitting them in other ways; however, under Senate Bill 231, the Nevada government will be allowed to disqualify the non-union contractor majority from the public works bidding process altogether. It is not certain that the government will exercise this power or, if it does, to what extent. Nevertheless, Nevada contractors may want to prepare for potential industry changes because of these two bills.

Can Unapproved Change Orders Form the Basis for a Lawful Mechanics’ Lien Encumbering the Project?

by Richard G. Erickson and Amanda Z. Weaver, Ph.D.

Contractors and suppliers are sometimes challenged to secure a claim for past due payment with a lien on the project, all subject to lien laws that vary throughout the United States. In Arizona, as in most states, the contractor must have a sound legal basis to record a lien. More specifically, the contractor cannot record a lien while “knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid.” A.R.S. § 33-420(A).

From this sensible premise governing lawful liens, a question often arises concerning what amounts the contractor can include in the total lien amount. In particular, a lien is usually necessitated by a dispute over what the contractor is actually owed, even when there may be no dispute over the work actually completed. In some cases, this dispute may center upon change order work that the contractor completed, but without first obtaining proper written approval as required by the contract. In other words, the issue often arises regarding whether a contractor can include extra-contractual, additional and unapproved change work in the lien.

No published Arizona case has expressly addressed this issue. However, a combination of the lien statutes and cases interpreting lien law may be used to argue that a contractor cannot legally encumber the project with amounts it has billed for change order work that has not yet been approved. On the other hand, because lien statutes are liberally construed to favor contractors and suppliers broadly including “materials furnished or value provided,” sufficient backup for the change order claim may prove that the corresponding lien was legally valid and reasonable despite the owner’s refusal to pay. See, e.g., Allstate Utility Constr., LLC v. Town Bank of Ariz., 228 Ariz. 145, 149 ¶ 21 (App. 2011) (“We have repeatedly held that the mechanics’ and materialmen’s lien statutes are remedial and are to be liberally construed in favor of materialmen.” (internal quotation marks and citation omitted)).

There is, nonetheless, an argument that only approved written change orders can form the basis of a lien. For example, A.R.S. § 33-981(A) states that each person providing labor, materials, etc., has lien rights “whether the work was done or the articles were furnished at the instance of the owner of the building, structure or improvement, or his agent.” Under rules of statutory interpretation, this arguably means lien rights should be defined by the work specified in the governing contracts and what has been approved. A contractor or supplier cannot simply lien for any materials or work furnished, even if the owner or agent did not approve the work. Furthermore, A.R.S. § 33-993(A)(3) focuses on the terms and conditions of the contract, and unapproved change orders are not part of the contract. See also Tech. Constr., Inc. v. City of Kingman, 229 Ariz. 564, 569 ¶ 14 (App. 2012) (recognizing that, based on a contract providing for changes to the contract price, change orders modify the contract amount). However, the sticky issue is where the owner or his agent has orally approved the work, but a change order required by the contract has not been executed.

In one unpublished Arizona case, a trial court found “expressly disapproved” change orders were not owed. Farwest Dev. & Constr. of the SW, LLC v. St. Joseph Realty, LLC, 2009 WL 838262, at *2 ¶ 11 (Ariz. App. Mar. 31, 2009). However, the appellate court reversed the trial court on other grounds, specifically concerning remaining factual issues on a grant of summary judgment regarding whether the parties waived the contractual requirement to sign change orders. Id. at *4-5 ¶¶ 19-20. Other jurisdictions have more expressly ruled that the contractor or supplier risks recording a wrongful or invalid lien when including unapproved change orders. See, e.g., Roy Zenere Trucking & Excavating, Inc. v. Build Tech, Inc., 65 N.E.3d 340, 349 (Ill. App. Ct. 2016); Stroud-Hopler, Inc. v. Farm Harvesting Co., Inc., 2005 WL 3693342, at *9 (N.J. Super. Ct. App. Div. Jan. 24, 2006) (relying on the New Jersey lien statute’s definition of a “contract” and allowing liens only for work or materials furnished “in accordance with the contract.”)

Therefore, without any Arizona case law directly on point, contractors and suppliers have risks when recording liens that include amounts for unapproved change orders. While the lien statutes will be liberally construed in favor of the lienholder, there may be consequences including treble damages and attorneys’ fees unless the lienholder can show by credible testimony or evidence that the change order was approved and, therefore, amended the contract which would buttress the lien’s validity.

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