Continuous Cessation of Labor on Construction Projects Can Trigger Statutory Remedy Deadlines

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Luke Nicholas Eaton

This article was originally published in the April 2020 issue of ConsensusDocs Construction Law. It is republished here with permission.

State and local governments throughout the country continue to issue orders in response to the novel coronavirus (COVID-19) outbreak. Many states have ordered the shutdown of all businesses, with various exceptions such as businesses that are “essential” and/or “life-sustaining.” Each jurisdiction has provided a list and/or guidance on what kinds of businesses must close and what can remain open. Pepper Hamilton continues to monitor these orders and update its “COVID-19 – State Business Impact Tracker” map, an interactive tool that shows shutdown orders by state. The Business Impact Tracker can be accessed at https://covid19.pepperlaw.com/.

Whether construction projects can continue is an ever-changing issue. In some jurisdictions, such as Boston, all construction projects were shut down. In other locations, whether construction can continue may depend on the county, or even city, where the project is located and/or the type of project. However, those supplying labor, materials and/or equipment to construction projects should closely monitor how their projects are being impacted, including whether and when to exercise statutory remedies available, e.g., ‘ lien, stop payment notice and/or bond rights. In many states, the statutory deadlines to assert these rights are triggered by “completion” of a project.

In Arizona, California, Colorado, Montana and Nevada, “completion” can be satisfied by the cessation of labor for a continuous period (e.g., 30-90 days), triggering the deadlines to assert statutory remedies — or risk waiving them. Below is a summary of the relevant deadlines for these five states. As many contractors are aware, these deadlines are strict and come very quickly.

In California, for example, a project is considered complete if there has been a cessation of labor for 60 continuous days. On day 61, your deadlines to record a lien, serve a stop payment notice and/or serve notice of a claim on a payment bond (if available) are triggered. Even worse, if the project restarts, it is considered a new project and all the statutory prerequisites for these remedies (such as a preliminary notice) need to be satisfied, just as if it were a completely new project.

Due to COVID-19, we are likely to see project suspensions and cessation of labor on projects throughout the country. While the economic impact of COVID-19 is unknown, it seems inevitable that funding for some construction projects may dry up and/or owners, developers and contractors may be forced to seek bankruptcy protection. Given these uncertain times, the importance of statutory remedies cannot be overlooked.

Even if the project itself is not complete, it may be worthwhile to determine what rights are available to you and to preserve your claims. In some jurisdictions, the deadlines to assert statutory remedies run from the date a party completes its work on the project, not completion of the project. If a project never restarts following a suspension under COVID-19, your deadlines may have already been triggered.

Should you have any questions regarding the statutory rights available to you, or the deadlines associated with these rights, please contact Luke N. Eaton at eatonl@pepperlaw.com. See our Continuous Cessation of Labor on Construction Projects Can Trigger Statutory Remedy Deadlines Chart.

Developments across the country are quickly changing, including what projects can continue and what projects must be suspended. We are monitoring and will continue to provide relevant updates on issues impacting the construction industry. In addition, Pepper Hamilton and Troutman Sanders maintain a COVID-19 dedicated Resource Center to help guide clients through the challenges presented by COVID-19.