LAW: THE CONTRACTOR'S SIDE: Too much manpower

Subcontractors unable to win labor dispute

Blog Entry September 06, 2012

Larry Caudle is a principal in Kraftson Caudle LLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction.

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The prime contractor in White-Spunner Constr., Inc. v. Construction Completion Co., LLC, 2012 WL 2362637 (Ala.) was the successful bidder on an eight-building dormitory construction project at Auburn University in Alabama. As required by state law, the prime posted payment and performance bonds with the owner. The prime entered into a subcontract with Construction Completion Co. (CCC)under which CCC agreed to provide carpenters and carpenter helpers at agreed-upon hourly rates to perform framing work. Under the terms of the subcontract, the prime agreed to pay CCC on a biweekly basis from labor reports completed by CCC and signed off on by the prime every day.

Unbeknownst to the prime, CCC entered into a sub-subcontract with Buena Vista Construction LLC (BV), a Florida company, to provide CCC with the workers to meet the requirements of the project. BV’s workers were supplied CCC uniforms and it also was undisputed that BV’s workers were at all times working under the direction of CCC.
Several months into the project, a dispute arose between the prime contractor and CCC over the number of labor hours contained on several CCC invoices. Consequently, the prime made only a partial payment and CCC, in turn, made partial payments to BV. CCC continued working on the project until the prime once again reduced payments on several subsequent invoices for the same reason. At that point, CCC ceased all work, and several months later it filed suit against the prime and the payment bond surety. The court consolidated the case with litigation filed by BV against CCC for its unpaid invoices on the project because the disputes involved nearly the same facts.

CCC defended itself against BV by asserting that BV was an unlicensed contractor in Alabama and, citing the relevant Alabama contractor-licensing statute, it argued that the subsubcontract between the parties was void and unenforceable. The court did not have to decide this issue as between CCC and BV because the parties settled their dispute and BV was dismissed from the case. However, upon learning of CCC’s defense to BV’s claims, the prime amended its pleadings in the case and filed a motion for summary judgment with the court in which it argued that in light of the alleged illegal and unenforceable contract between CCC and BV, CCC’s claim should be dismissed. The trial court disagreed and awarded CCC its entire claim, along with interest and attorney’s fees. The prime contractor appealed.

The Supreme Court of Alabama was confronted with two issues: (1) whether the prime contractor, which was not a party to the alleged illegal subsubcontract, has standing to challenge the validity of that agreement; and (2) whether BV, which merely supplied workers under the supervision of CCC, was required to possess a contractor’s license in Alabama.

The court answered the first question in the affirmative and based its holding on the notion that if the CCC-BV sub-subcontract were illegal, CCC could not establish its case against the prime contractor without making reference to, or relying upon, the alleged illegal act or transaction. Consequently, the court reasoned, the prime contractor could raise the illegality of the CCC-BV sub-subcontract as a defense even though it was not a party to that agreement.

Turning to the second question, the court once again sided with the prime contractor and ruled that even though BV was essentially a labor broker that supplied workers, they nevertheless fit the broad definition of a contractor under the licensing statute.

As the White-Spunner case demonstrates, contractor licensing laws must be read carefully, and the price for noncompliance can be high. Also, as most construction lawyers realize, strategies developed in multiparty litigation must be carefully planned to avoid the unintended consequences with which CCC was faced. R&B

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