Amendments to Building Construction and Payment Statute
Governor Markell recently signed into law House Bill No. 109, which amends Delaware's laws regarding Building Construction Payments. The legislature summarizes the changes to the statute as follows:
The primary purpose of this Act is to provide a party (a contractor, a subcontractor or a material supplier) with the right to file a legal action against a contractor or an owner who has improperly withheld the payment of money to force settlement or for other reasons unrelated to a lawful dispute. Often the value of these claims and the cost of litigation do not justify filing litigation. Moreover, the current statute is often unclear and confusing, which has resulted in difficulties for the Courts in applying the statute and overseeing the related litigation.
The Act further seeks to provide clear language that will allow parties to pursue claims under the statute and recover an amount equal to the amount wrongfully withheld plus attorneys fees, if it is determined that the contractor or owner withheld payment in bad faith. Additionally, this Act seeks to expand the applicability of the Chapter to encompass various construction services offered on present day projects which may not have been offered when the Chapter was originally enacted.
In sum, the revisions to the Chapter are primarily focused on three areas: (1) applying the Chapter to all services provided on construction projects; (2) coordinating the various sections so they work cohesively, making such sections easier to apply; and (3) addressing relevant issues that the Courts have historically struggled with in applying the statute.
Two notable revisions which may be of interest to construction litigants:
1. The amendments clarify when fees and costs may be awarded and the standard for awarding fees. Specifically, the revised statute provides,
§ 3508. Attorneys' fees and litigation costs.
(a) If arbitration or litigation is commenced to recover payment and it is determined that the owner, contractor or subcontractor has failed in good faith to comply with the payment terms of the contract or this title, the arbitrator or the Court, whichever applicable, may award the amount determined to have been wrongfully withheld, plus an amount equal to the amount wrongfully withheld, as additional damages. An amount shall not be deemed to have been wrongfully withheld to the extent that it bears a reasonable relationship to the value of any disputed amount or claim held in good faith by the owner, contractor or subcontractor against whom the contractor or subcontractor is seeking to recover payment.
(b) The party commencing arbitration or litigation shall have the burden of proof that payment has been wrongfully withheld.
(c) Absent any agreement to the contrary between or among the parties, the arbitrator or the Court in any proceeding arising under this chapter may award to the substantially prevailing party its reasonable attorneys' fees, arbitration or court costs and expenses, and expenses for expert witnesses if applicable. Any award of attorneys’ fees shall not be limited by 10 Del. C. § 3912.
2. The amendments add a clause which prohibits construction contracts from requiring that the parties litigate in a foreign jurisdiction or apply the law of a foreign jurisdiction. Specifically, the revised statute provides,
It shall be against public policy and shall be void and unenforceable for any provision of a construction contract to ... [r]equire the contract, subcontract, agreement or understanding between a contractor and subcontractor to be subjected to the laws of a State other than Delaware or require litigation, arbitration, mediation or other dispute resolution procedures to occur in or be governed by the laws of a State other than Delaware.
Seth Niederman is an attorney with the law firm Fox Rothschild LLP. Seth practices in Fox Rothschild's Wilmington, Delaware office. You can reach Seth at 302-622-4238, or firstname.lastname@example.org.