The New Jersey Legislature passed a new law regulating home improvement and home elevation contractors, which Governor Murphy signed into law on January 8, 2024. The regulations governing home improvement contracts and home elevation contractors were already draconian, but the new law is a sea change, greatly expanding the regulatory requirements for New Jersey contractors, including a new requirement that they be licensed.
New Jersey construction litigation often involves claims against contractors for improper construction or delay. Contractors, in turn, often argue as a defense, counterclaim or cross-claim that any delay or improper construction was the fault of the licensed professional on the project, such as the engineer or the architect. Owners may also make these claims against architects and engineers directly. A trial judge in the Superior Court of New Jersey in Morris County recently addressed what is required to maintain such a claim in the case of Township of Parsippany-Troy Hills vs. Thomas Controls, Inc.
Background: The Lawsuit
The Township of Parsippany-Troy Hills sued Thomas Controls, Inc. over its work on construction improvements to the Township’s wastewater management treatment plan project. The Township had separately contracted with Keystone Engineering Group to act as engineers on the project. Thomas filed counterclaims against the Township and filed a third-party complaint against Keystone, suing it for alleged negligence, delay and professional malpractice. Keystone filed a motion to dismiss Thomas’s third-party complaint, arguing that the New Jersey Affidavit of Merit Statute requires that an affidavit of merit must be filed within 120 days of a defendant filing an answer when the defendant is a licensed professional and the claims are for negligence or professional malpractice. As a licensed engineer, Keystone argued that this law protected it because Keystone did not file an affidavit of merit within the required time frame.
An appellate court recently examined the covenant of good faith and fair dealing in New Jersey construction contracts in the case of Konopka vs. Brown’s Heating, Cooling, Plumbing.
Konopka hired Brown’s as a contractor to install a Carrier gas furnace in his home. Brown was to supply labor and materials in exchange for the homeowner paying $19,800. The contract provided that change orders had to be in writing. One-third of the contract price was payable on signing, one-third when work started, and one-third upon completion. The homeowner paid the first installment. The job started on August 26, 2015. The homeowner had not yet paid the second installment, but the contractor wanted to work with him. However, on September 9, 2023, Brown’s sent an email which terminated the contract. The Court explained that:
One of the most difficult problems in New Jersey construction law for contractors and subcontractors is getting paid. Fortunately, a powerful remedy exists in the New Jersey Prompt Payment Act. A recent appellate court decision examined the New Jersey Prompt Payment Act in the case of Jo-Med Contracting Corp. vs. City of Linden.
The City of Linden contacted Jo-Med to submit a bid for emergency repair work on approximately 20 feet of sewer repair, together with approximately 30 feet of related curb replacement. Jo-Med submitted a bid for $25,000 based on the job description provided by the City engineer; the bid stated that the cost would be higher if Jo-Med ran into unforeseen problems not apparent in the City’s description, in which case it would bill the City on a time and materials basis. Jo-Med was awarded the contract. The City’s engineer told Jo-Med’s owner that he would “work with him for additional charges to finish the work.”
The Problem: Getting Paid
One of the most important considerations for construction contractors and subcontractors is getting paid for the work they perform. A recent construction law opinion examined some of the issues which contractors and subcontractors face under New Jersey construction law when seeking to get paid for their work.
The J&M Interiors Case
Complex New Jersey construction law cases can be extremely expensive to litigate in court because of the amount of documents involved, the number of witnesses, and the need for experts. Therefore, many construction contracts contain arbitration provisions. The view is that arbitration can save money in the litigation process, but still provide an enforceable dispute resolution process.
However, it would not be accurate to call construction arbitration “cheap” or “inexpensive.” Essentially, arbitration is a private litigation process with limited discovery and appeal rights. By limiting discovery, particularly depositions, a significant source of expense is eliminated, and by limiting appeal rights, arbitration can provide more finality. However, there is still discovery. Documents are generally exchanged before the hearing, so there is still expense, but costs are saved because arbitration rarely involves depositions. Likewise, while experts are not normally deposed, they are still required and must prepare pre-hearing reports about their expected testimony. All of this entails significant expense. In addition, while there are minimal filing fees and the services of courts are generally free, the use of an arbitration forum in construction law disputes entails significant fees, and in addition the parties have to pay the arbitrator for all his or her time.
Under New Jersey construction law, each county must establish a construction board of appeals. A construction board of appeals hears the applications of any “person who is aggrieved by any ruling, action, notice, order or decision of a local enforcing agency that enforces either the New Jersey Uniform Construction Code or the New Jersey Uniform Fire Code, including, without limitation, any refusal to grant an application or any failure or refusal to act upon an application, but not including any order requiring the taking of emergency measures….” This is an important tool under New Jersey construction law to challenge wrongful denials by local authorities of building and construction applications.
Most county construction boards of appeals have websites with information about their locations, hours and local procedures. For example, the Passaic County Board of Construction Appeals can be found here. The Essex County Board of Construction Appeals can be found here. The Bergen County Board of Construction Appeals can be found here. The Monmouth County Board of Construction Appeals can be found here. The Morris County Board of Construction Appeals can be found here.
Appeals must be filed and received by the local county construction board of appeals within 15 days of receipt of the written notice of the action, ruling, notice or order which is to be appealed. While the law states 15 days from receipt, we recommend that appeals be received by the construction board of appeals within 15 days from the date on the notice to avoid any later dispute over the date of receipt and the possible rejection of the appeal as untimely.
Contractors’ Problems With Getting Paid
Our construction attorneys represent New Jersey contractors and subcontractors in construction litigation, arbitration and mediation. One of the things we see over and over again, is that one of construction companies’ biggest worries is that they will perform all the work they agreed to and then not get paid, despite the fact that they met all the project’s specifications and did a great job. It is a well-founded worry. Companies or people who don’t want to pay devise many different schemes, sometimes claiming defects with the work, delay damages, failure to do proper paperwork, the excuses are as varied as is human imagination. To be clear, sometimes these claims are legitimate, but sometimes they are not, and good contractors need to get paid to do the work and to stay in business.
Fortunately, however, New Jersey construction law provides remedies for these schemes. Recently, the Appellate Division of the Superior Court of New Jersey issued a decision on these construction law remedies in the case of Petric & Associates, Inc. v. CCA Civil, Inc. Although the decision was unpublished, it is important because it explores many of these remedies and lays out a roadmap for subcontractors’ remedies against unscrupulous contractors which don’t want to pay them, particularly some of the trickier issues under New Jersey’s Prompt Payment Act.
In October 2019, the Appellate Division of the Superior Court of New Jersey issued an opinion in the case of Becker v. Ollie Solcum & Son, Inc., examining the enforceability of an arbitration clause in a construction project. The decision continued the trend in New Jersey of limiting enforcement of arbitration agreements, particularly where one party is a customer.
The case arose from a dispute over a residential construction project. Robert and Catherine Becker entered into a contract with Ollie Slocum & Son, Inc. (“Slocum”) to build a new home for them for $1,850,000. Under the contract, the project was to be completed in no more than 52 weeks after excavation work started. Substantial completion was actually about one and a half years late. The Beckers sued Slocum in the Law Division of the Superior Court of New Jersey over the delay and alleged construction defects including water penetration and deterioration of the outdoor decking, siding, and finishing.
The contract, which contained a clause requiring arbitration of disputes, stated:
Disputes over construction projects can be costly, time-consuming, complex and unpredictable endeavors. Arbitration is a mechanism often used to avoid these pitfalls by many in New Jersey construction law. Attorneys from our firm have significant experience in litigating and arbitrating construction disputes. One of the most contentious areas is whether a dispute is subject to arbitration or whether it may be litigated in court. Even more complex is trying to figure out which parts, if any, are covered by an arbitration in multi-issue disputes. New Jersey’s courts recently faced just this problem and issued an important precedential decision.
Arbitration is an alternative dispute resolution process which is popular in the construction industry. It is voluntary, so it can only occur when the parties agree to use arbitration. In New Jersey’s construction industry this generally occurs in the contract for the construction project. Agreements to arbitrate are favored under New Jersey construction law, and courts normally enforce them.