Tuesday, May 5, 2020
It was in late March that workers for Lone Star Paving needed to bring an attorney’s letter to the job site to avoid a citation and potential arrest.
As Lone Star’s General Counsel Josh Condon tells it, there was a bit of the old Wild West in Texas in the wake of several stay-at-home orders issued by cities and counties. Part of the issue, Condon says, was confusion. Counties and cities couldn’t agree on what it meant to be an essential worker, or what was an essential job, or even what work could be done in certain locations.
A great rift divided Austin’s Travis County in central Texas with other jurisdictions to the north and south. Austin even attempted to establish a regulatory office to sort which construction projects could be continued. But with the perception of additional red tape, Gov. Abbott put the matter to rest with an executive order that applied statewide.
Now, the initial chaos has subsided, at least from the perspective of Condon. It’s no longer debated that most construction can continue. Paving is even up as some cities and towns take advantage of empty streets. But the Wild West feel is still there, and not just in Texas.
“Since the governor’s executive order, my focus has shifted from advising our division presidents on what projects could proceed, to looking at the impact COVID-19 might have on our cash flow and the volume of business we have going forward,” Condon says.
Public versus private
Among attorneys, he’s in good company. Texas is home to the Mechanics Lien Law in Construction—one of 34 states to use legislation that goes back to the days of Thomas Jefferson. Under its terms, there’s usually a guarantee of payment to builders, contractors and construction firms.
Unpaid invoices invoke a lien process, which puts a cloud, or encumbrance, on the property until the bill is paid. For commercial projects, that means if a bill isn’t paid four months after the work is completed and the pre-lien requirements have been met, then the contractor can place a lien on the property. For residential projects, the hammer is dropped on the third month.
“Some delays are excusable if caused by forces outside of our control, but it depends entirely on the language in the particular contract. One would expect that with everything going on people would understand … but you don’t know that’ll be the case.”
In April, Lone Star recorded only one lien, which was less than what Condon predicted. However, it was for a $2 million contract.
“The reason it hasn’t been paid as far as I know, unfortunately, is due to economic hardships associated with COVID-19,” he says.
Cases like these can be unsettling, Condon says, particularly with insurance coverage uncertain. Sometimes, an owner might think a subcontractor has been paid by the general contractor until they receive a pre-lien notice, which is generally sent three months after the subcontractor performed the work.
“It’s a cashflow crisis waiting to happen,” he says. “When things go awry there’s a lot of uncertainty.”
Legal fine print
For attorneys—and not just in the construction industry—an additional complication is deciphering when their clients are on the hook for services specified in contracts, even if workers can’t make it to the job site.
For instance, Condon says when essential work was first defined throughout Texas, many private jobs were considered non-essential while public paving projects were allowed. That has since changed, but the original orders caused a lot of attorneys to pull out their contracts.
At issue, Condon says, is the Force Majeure clause—the fine print embedded in most contracts that seeks to remove liability in the wake of natural catastrophes—be it an Act of God or an asteroid. A pandemic seemed to fit the bill. But does it?
“Some delays are excusable if caused by forces outside of our control, but it depends entirely on the language in the particular contract,” he says. “One would expect that with everything going on people would understand … but you don’t know that’ll be the case.”
To a degree, tensions and uncertainties have eased, at least with state projects.
Worksites must now have appropriate signage, shifts are staggered, there’s social distancing, hand sanitizing stations are in place, and people are wearing face masks. Texas, like other states, may soon start getting back to business. But will it be “as usual?”
“We’re doing all we can to get paid in an industry where people have known each other forever,” Condon says. “It’ll be interesting to see what happens in the next three to six months.”