ILLINOIS  CONSTRUCTION  LAW

 

Preface and Acknowledgements ................................................................................ xi
About the Authors ................................................................................ xiii

CHAPTER 1: LICENSING REQUIREMENTS ................................................................................1
1.1 INTRODUCTION ................................................................................1
1.1.1 Illinois Law and Licensing Requirements ................................................................................1
1.1.2 Licensing for Design Professionals ................................................................................2
1.1.2.1 Regulation of Professional Design Firms ................................................................................2
1.1.2.2 Agreements with an Unlicensed Design Professional ................................................................................4
1.1.2.3 Violations and Disciplinary Actions ................................................................................4
1.1.2.4 Advertising as a Design Professional ................................................................................5
1.1.2.5 Design Professionals in Design Build Projects ................................................................................6
1.2 ARCHITECTS ................................................................................6
1.3 ENGINEERS ................................................................................10
1.3.1 Professional Engineering ................................................................................10
1.3.2 Structural Engineering ................................................................................14
1.4 SURVEYORS ................................................................................17
1.5 LICENSING REQUIREMENTS FOR PARTICULAR CONSTRUCTION ACTIVITIES ................................................................................20
1.6 REGULATION OF CONTRACTORS BY MUNICIPALITIES ................................................................................21
1.7 CONCLUSION ................................................................................23

CHAPTER 2: CONSTRUCTION CONTRACT FORMATION AND REMEDIES ................................................................................29
2.1 CONSTRUCTION CONTRACT FORMATION ................................................................................29
2.1.1 Contract Formation in General ................................................................................29
2.1.1.1 Construction Contracts and the Law of Contracts ................................................................................29
2.1.1.2 General Contract Principles ................................................................................29
2.1.1.3 Parties ................................................................................30
2.1.1.4 Time Provisions ................................................................................30
2.1.1.5 Price ................................................................................31
2.1.1.6 Construction Progress Schedules ................................................................................32
2.1.1.7 Role of the Architect/Engineer ................................................................................33
2.1.1.8 Retainage ................................................................................33
2.1.1.9 Completion and Acceptance ................................................................................34
2.1.1.10 Privity of Contract................................................................................ 35
2.1.1.11 Third Party Beneficiary ................................................................................35
2.1.1.12 Plans, Specifications, and Permits ................................................................................36
2.1.1.13 Change Orders and Extra Work ................................................................................37
2.2 TYPES OF CLAUSES ................................................................................37
2.2.1 Payment Clauses ................................................................................37
2.2.2 Pay-When-Paid and Pay-If-Paid Clauses ................................................................................39
2.2.3 Force Account/Changes Clauses ................................................................................39
2.2.4 Site Conditions Clauses ................................................................................39
2.2.5 Force Majeure Clauses ................................................................................40
2.2.6 Damages Clauses/Liquidated Damages Clauses ................................................................................40
2.2.7 No-Damage-For-Delay Clauses ................................................................................41
2.2.8 Prospective Lien Waiver Clauses ................................................................................42
2.2.9 Indemnification/Hold Harmless Clauses ................................................................................42
2.2.10 Assignment and Anti-Assignment Clauses ................................................................................42
2.2.11 Flow Down/Conduit Clauses ................................................................................44
2.2.12 Default and Termination Clauses ................................................................................44
2.3 CONSTRUCTION CONTRACT REMEDIES ................................................................................46
2.3.1 Breach of Contract ................................................................................46
2.3.2 Substantial Performance ................................................................................47
2.3.3 Waiver ................................................................................48
2.3.4 Indemnity Provisions ................................................................................48
2.3.5 Equitable Estoppel ................................................................................48
2.3.6 Promissory Estoppel ................................................................................49
2.3.7 Spearin Doctrine ................................................................................50
2.3.8 Mistake in Contract Based Upon Latent Ambiguity................................................................................ 51
2.3.9 Quantum Meruit/Unjust Enrichment Claims as Alternative to Breach of Contract Theory ................................................................................52
2.3.9.1 Remedy for Quantum Meruit and Unjust Enrichment ................................................................................53
2.3.9.2 How Damages are Computed ................................................................................53

CHAPTER 3: COMMON RISK TRANSFER CLAUSES ................................................................................59
3.1 INTRODUCTION ................................................................................59
3.2 TRANSFER OF RISK ................................................................................59
3.2.1 Indemnification ................................................................................59
3.2.1.1 Scope of the Anti-Indemnity Act ................................................................................60
3.2.1.2 Enforceability and Validity of Indemnification Clauses ................................................................................61
3.2.1.3 Anti-Indemnity Act and Insurance ................................................................................62
3.2.1.4 Form Document Indemnification Clauses ................................................................................62
3.2.2 Liquidated Damages Provisions ................................................................................64
3.3 INSURANCE ................................................................................64
3.3.1 Builders Risk Insurance ................................................................................64
3.3.2 Commercial General Liability Insurance ................................................................................65

CHAPTER 4: PUBLIC BIDDING ................................................................................73
4.1 THE BIDDING PROCESS, GENERALLY ................................................................................73
4.2 ILLINOIS PROCUREMENT CODE ................................................................................73
4.2.1 Exceptions to the Illinois Procurement Code ................................................................................74
4.2.2 Competitive Sealed Bidding ................................................................................75
4.2.2.1 Responsible Bidder ................................................................................76
4.2.2.2 Responsive Bidder ................................................................................78
4.2.2.3 Post-Award Procedures ................................................................................79
4.3 DISAPPOINTED BIDDERS ................................................................................79
4.4 BID MISTAKES ................................................................................81

CHAPTER 5: ILLINOIS PUBLIC CONSTRUCTION BOND ACT ................................................................................87
5.1 INTRODUCTION ................................................................................87
5.2 PAYMENT BOND COVERAGE ................................................................................88
5.2.1 Parties Covered Under a Payment Bond ................................................................................88
5.2.2 Types of Labor and Materials Covered by the Bond Act ................................................................................89
5.2.2.1 Covered Under the Bond Act ................................................................................89
5.2.2.2 Not Covered by the Bond Act................................................................................ 89
5.3 PAYMENT BOND NOTICE ................................................................................90
5.3.1 Claim Notice Requirements ................................................................................90
5.3.2 Information Contained in the Claim Notice ................................................................................91
5.4 PAYMENT BOND STATUTE OF LIMITATIONS ................................................................................92
5.5 INTEREST AND ATTORNEY FEES ................................................................................92
5.5.1 Prejudgment Interest is Recoverable ................................................................................92
5.5.2 Attorneys’ Fees are Recoverable ................................................................................93
5.6 SURETY’S AND ITS PRINCIPAL’S DEFENSES TO PAYMENT BOND CLAIMS ................................................................................93
5.6.1 Pay-When-Paid Clauses ................................................................................94
5.6.1.1 Enforceability Against a General Contractor ................................................................................94
5.6.1.2 Enforceability Against a Surety ................................................................................94
5.6.2 No-Damages-For-Delay Clauses ................................................................................95
5.6.2.1 Tortious Conduct ................................................................................95
5.6.2.2 Beyond the Contemplation of the Agreement ................................................................................96
5.6.2.3 Errors Caused by the Public Entity ................................................................................96
5.6.2.4 Illinois Recognizes the “Increased Cost-Of-Performance” Rather Than the “Eichleay Formula” ................................................................................96
5.6.2.5 Effect of Arbitration Clauses ................................................................................98
5.6.2.6 Other Defenses – Estoppel, Release, Accord/Satisfaction, and Duty to Mitigate ................................................................................ 98
5.7 BAD FAITH/EXTRA CONTRACTUAL CLAIMS ................................................................................98
5.8 CONCLUSION ................................................................................99

CHAPTER 6: MECHANICS LIENS ................................................................................105
6.1 MECHANICS LIENS ON PRIVATE CONSTRUCTION PROJECTS ................................................................................105
6.1.1 Introduction ................................................................................105
6.1.2 Compliance with Act’s Requirements ................................................................................105
6.1.3 What is Required in Order to Have a Valid Lien? ................................................................................107
6.1.3.1 For a General Contractor, the Following Additional Items Must Be Met in Order to Establish a Lien – Section 7 of the Act ................................................................................107
6.1.3.2 For First-Tiered and Lower-Tiered Subcontractors, Laborers, Materials, Suppliers, the Following Additional Items Must Be Met in Order to Establish a Lien – Sections 7, 21, 22, 24, and 25 of the Act ................................................................................108
6.1.4 Services and Materials – Lienable and Not Lienable ................................................................................109
6.1.4.1 Guidance is Provided by Sections 1 and 1.2 of the Act, Which Describes the Several Types of Work That are Lienable as Follows ................................................................................ 109
6.1.4.2 Other Examples of Services or Materials That Have Been Found to Be Lienable: ................................................................................110
6.1.4.3 Examples of Services or Materials That Have Been Found to Not Be Lienable ................................................................................111
6.1.5 Summary of Required Content and Timing of Claim Notice and Suit Limitation Periods for Enforcement of Lien ................................................................................ 112
6.1.5.1 For a General Contractor ................................................................................112
6.1.5.2 For First and Lower-Tiered Subcontractors or Suppliers: ................................................................................113
6.1.5.3 Owner-Occupied Single-Family Residences – Additional Notice Requirements for First-Tiered and Lower-Tiered Subcontractors, Laborers andMaterials Suppliers ................................................................................114
6.1.5.3.1 60-Day Notice After Commencement of Work ................................................................................115
6.1.5.3.2 10-Day Notice After Commencement of Suit ................................................................................116
6.1.5.4 Section 34 Demand to Commence Suit ................................................................................117
6.1.5.5 Apportionment of Lien Claims ................................................................................117
6.1.5.6 Other Noteworthy Case Law ................................................................................121
6.1.6 Commencement of Suit, Pleadings and Process ................................................................................123
6.1.6.1 Sections 9 and 28 – Suits to Enforce Lien; Joint Actions; Counterclaims ................................................................................ 123
6.1.6.2 Section 11 – Content of Pleadings;Necessary Parties; Process ................................................................................125
6.1.6.2.1 Subsection 11(a) – Required Content of Pleadings ................................................................................125
6.1.6.2.2 Subsections 11(b)-(g) – Parties and Process................................................................................ 126
6.1.7 Interrelationship Between Parties’ Rights and Defenses................................................................................ 128
6.1.7.1 Section 5 – Contractor Sworn Statements ................................................................................129
6.1.7.2 Section 21(d) – Conditional Limitation of Owner’s Liability ................................................................................129
6.1.7.3 Section 27 – Owner’s Duty After Notice Under Sections 5, 24 and/or 25 ................................................................................131
6.1.7.4 Section 30 – Multiple Liens; Insufficient Funds Held by Owner ................................................................................132
6.1.7.5 Section 32 – Payments to the Contractor by Owner ................................................................................133
6.1.7.6 Illustrative Case Law – Interrelationship of Sections 5, 21(d), 21.02, 24, 25, 27, 30 and 32 as to Duties of Owner ................................................................................133
6.1.7.7 Sufficiency of Notice of Subcontractor’s Claim to Lender ................................................................................138
6.1.7.8 Owner or Contractor Fraudulently Fix Unreasonably Low Contract Price ................................................................................139
6.1.8 Lien Waivers – Funds to Be Held in Trust for the Benefit of Claimant ................................................................................141
6.1.9 Pay-When-Paid; Pay-If-Paid Clauses ................................................................................146
6.1.10 Whose Lien is Superior – Mechanics Lien vs. Lenders/Mortgagees? ................................................................................146
6.1.11 Interest and Attorneys’ Fees ................................................................................150
6.2 LIENS AGAINST PUBLIC FUNDS – 770 ILL. COMP STAT. 60/23 ................................................................................151
6.2.1 Who is a Proper Claimant Under the Act? ................................................................................151
6.2.2 What Types of Items are Lienable Under the Act? ................................................................................151
6.2.3 What are the Requirements to Perfect a Lien? ................................................................................152
6.2.3.1 Who Should the Claim Notice Be Sent to? ................................................................................152
6.2.3.2 What Must Be Contained in the Claim Notice? ................................................................................155
6.2.3.3 By What Means Must the Notice Be Served? ................................................................................155
6.2.3.4 When Successive Notices May or May Not Be Permitted ................................................................................155
6.2.3.5 Public Lien Considered Perfected Upon Serving of Notice ................................................................................157
6.2.3.6 Public Body’s Duty to Set Aside Funds Only Arises at Perfection ................................................................................158
6.2.4 Filing of Suit Within 90 days After Notice and Serving Copy of Complaint 10 Days Thereafter ................................................................................158
6.2.4.1 90-Day Suit Filing Requirement and Service of Complaint 10 Days Thereafter ................................................................................158
6.2.4.2 Proper Parties to Lien Claim Complaint ................................................................................159
6.2.5 Claimant’s vs. Public Owner’s Rights Under Section 23 ................................................................................161
6.2.5.1 Claimant’s Rights – Generally ................................................................................ 161
6.2.5.2 Claimants Rights vs. Public Owner ................................................................................161

CHAPTER 7: A/E LIABILITY AND THE ECONOMIC LOSS RULE ................................................................................173
7.1 INTRODUCTION ................................................................................173
7.2 THE MOORMAN DOCTRINE ................................................................................173
7.2.1 The Moorman Opinion ................................................................................173
7.2.1.1 The Policy Considerations of the Moorman Doctrine ................................................................................174
7.2.1.2 The Economic Loss Rule ................................................................................175
7.2.1.3 The Exceptions to the Economic Loss Rule ................................................................................176
7.3 EXCEPTIONS TO THE MOORMAN DOCTRINE ................................................................................177
7.3.1 The “Sudden and Calamitous Damage to Other Property” Exception ................................................................................ 177
7.3.1.1 Illinois Supreme Court Has Further Refined the “Sudden and Calamitous Damage to Other Property” Exception ................................................................................ 177
7.3.1.2 Moorman’s Progeny: Helping to Define “Sudden and Calamitous” ................................................................................178
7.3.1.3 Moorman’s Progeny: Helping to Define “Damage to Other Property” ................................................................................179
7.3.2 The Misrepresentation Exceptions ................................................................................181
7.3.2.1 Intentional Misrepresentation Exception ................................................................................181
7.3.2.2 Negligent Misrepresentation Exception ................................................................................182
7.3.2.2.1 Elements ................................................................................182
7.3.2.2.2 Definition of “In the Business of Supplying Information” for the “Guidance of Others” ................................................................................182
7.3.2.3 Application to Architects and Engineers ................................................................................183
7.4 THE MOORMAN DOCTRINE AND THE CONSTRUCTION INDUSTRY ................................................................................185
7.5 CONCLUSION ................................................................................186

CHAPTER 8: CLAIMS RELATING TO DELAYS, CONTRACT ADMINISTRATION, AND OTHER PERFORMANCE ISSUES ................................................................................191
8.1 CLAIMS RELATING TO DELAYS, CONTRACT ADMINISTRATION AND OTHER PERFORMANCE ISSUES ................................................................................ 191
8.1.1 Introduction ................................................................................191
8.1.2 Common Contract Clauses and Legal Issues Relating to Time ................................................................................ 191
8.1.2.1 Contract Duration ................................................................................191
8.1.2.2 Time is of the Essence ................................................................................192
8.1.2.3 Schedule Preparation and Updating ................................................................................193
8.1.2.4 Responsibility for Coordination ................................................................................194
8.1.2.5 Substantial Performance................................................................................ 195
8.1.2.6 Substantial Completion ................................................................................196
8.1.2.7 Suspension of the Work ................................................................................196
8.1.2.8 Acceleration ................................................................................197
8.1.2.9 No-Damages-for-Delay Clauses ................................................................................198
8.1.2.10 Liquidated Damages ................................................................................199
8.1.3 Types of Delays ................................................................................200
8.1.3.1 Excusable and Non-excusable Delays ................................................................................200
8.1.3.2 Compensable and Non-Compensable Delays ................................................................................201
8.1.3.3 Concurrent Delays ................................................................................202
8.1.4 Causes of Delay ................................................................................203
8.1.4.1 Interference and Hindrance ................................................................................203
8.1.4.2 Failure to Coordinate ................................................................................203
8.1.4.3 Excessive Changes to Contract Documents ................................................................................204
8.1.4.4 Defects in Plans and Specifications ................................................................................206
8.1.4.5 Differing Site Conditions ................................................................................207
8.1.4.6 Failure to Provide Adequate Supervision................................................................................ 208
8.1.4.7 Force Majeure ................................................................................209
8.1.5 The Delay Claim ................................................................................210
8.1.5.1 Burden of Proof ................................................................................210
8.1.5.1.1 Generally ................................................................................210
8.1.5.1.2 Critical Path Method ................................................................................211
8.1.5.2 Apportionment of Delays ................................................................................211
8.1.5.3 Claim Damages ................................................................................212
8.1.5.3.1 Elements of Damages ................................................................................213 8.1.5.3.2 Reasonable Certainty Standard ................................................................................214
8.1.5.3.3 Home Office Overhead ................................................................................215
8.1.5.3.4 Total Cost Method ................................................................................217
8.1.5.3.5 Modified Total Cost Method ................................................................................218
8.1.5.3.6 Measured Mile ................................................................................219
8.2 STATUTE OF LIMITATIONS FOR CLAIMS ARISING OUT OF CONSTRUCTION ................................................................................ 219

CHAPTER 9: ILLINOIS FALSE CLAIMS ACT ................................................................................229
9.1 INTRODUCTION ................................................................................229
9.2 MAKING A CLAIM UNDER THE ILLINOIS FCA ................................................................................229
9.2.1 Types of Claims ................................................................................231
9.2.2 Contractor Acting “Knowingly” Under the FCA ................................................................................232
9.2.3 Limitations on the Claims ................................................................................232
9.2.4 Relief Recoverable Under IFCA ................................................................................233
9.3 QUI TAM ACTIONS................................................................................ 233
9.3.1 No Intervention by State ................................................................................234
9.3.2 Intervention by State ................................................................................234
9.3.3 State Intervention Immaterial ................................................................................235
9.3.4 IFCA Protection for Whistleblower ................................................................................235
9.4 DISCOVERY PERMITTED UNDER THE IFCA ................................................................................236
9.5 PROCEDURAL REQUIREMENTS FOR FILING UNDER THE IFCA ................................................................................ 237
9.5.1 Action Brought by Relator ................................................................................237
9.5.2 Action Brought by State ................................................................................237
9.5.3 State’s Intervention ................................................................................237

CHAPTER 10: ALTERNATIVE DISPUTE RESOLUTION ................................................................................243
10.1 INTRODUCTION ................................................................................243
10.2 ADR PROVISIONS ................................................................................243
10.3 ADR AND THE STATE OF ILLINOIS ................................................................................244
10.4 MEDIATION BACKGROUND ................................................................................244
10.4.1 Introduction ................................................................................244
10.4.2 Uniform Mediation Act, 710 ILL. COMP STAT. 35/1-99 (2004) ................................................................................245
10.4.3 Selection of the Mediator ................................................................................245
10.4.4 Discovery ................................................................................246
10.4.5 Resolution ................................................................................247
10.4.6 Court-Annexed Mediation ................................................................................247
10.5 ARBITRATION ................................................................................248
10.5.1 Introduction ................................................................................248
10.5.2 Issues Regarding the Ability to Arbitrate ................................................................................248
10.5.2.1 Applicable Law ................................................................................248
10.5.2.1.1 Illinois Arbitration Act ................................................................................248
10.5.2.1.2 Federal Arbitration Act ................................................................................249
10.5.2.2 Choice of Law ................................................................................249
10.5.2.3 Disputes as to Arbitrability ................................................................................249
10.5.2.4 Arbitrator ................................................................................250
10.5.2.5 Waiver of Arbitration ................................................................................251
10.5.3 The Process ................................................................................251
10.5.3.1 Agency Rules ................................................................................251
10.5.3.2 Prehearing Conference ................................................................................252
10.5.3.3 Discovery ................................................................................252
10.5.3.4 Venue ................................................................................253
10.5.3.5 Hearing ................................................................................253
10.5.3.6 Award ................................................................................254
10.5.4 Post Award ................................................................................254
10.5.4.1 Confirmation of Award ................................................................................254
10.5.4.2 Challenge of Award, Vacate, Modification of Award................................................................................ 255
10.5.5 Court-Annexed Arbitration ................................................................................256
10.6 CONCLUSION ................................................................................256

CHAPTER 11: STATE AND FEDERAL PROGRAMS FOR SMALL, MINORITY OWNED AND DISADVANTAGED BUSINESS ENTERPRISES ................................................................................ 259
11.1 INTRODUCTION TO MINORITY OWNED AND DISADVANTAGED BUSINESS ENTERPRISES ................................................................................259
11.2 OVERVIEW FEDERAL AND STATE LAW-SMALL AND MINORITY OWNED BUSINESS PROGRAMS ................................................................................260
11.2.1 General Background ................................................................................260
11.2.2 Purpose of SBA Programs ................................................................................260
11.2.3 Certification ................................................................................261
11.2.3.1 Federal ................................................................................261
11.2.3.2 Illinois ................................................................................261
11.2.4 State and Federal Business Development Programs Available ................................................................................262
11.2.4.1 Section 8(a) Business Development Program ................................................................................262
11.2.4.2 HUBZone ................................................................................263
11.2.4.3 Business Development Programs for Veterans ................................................................................264
11.2.4.4 Small Disadvantaged Businesses ................................................................................265
11.2.4.5 Women Owned Small Business ................................................................................265
11.3 ILLINOIS PROCUREMENT CODE ................................................................................266
11.4 ILLINOIS BUSINESS ENTERPRISE FOR MINORITIES, FEMALES AND PERSONS WITH DISABILITIES ACT ................................................................................267
11.5 ILLINOIS SMALL BUSINESS LOAN ASSISTANCE ................................................................................269
11.6 ILLINOIS CONSTRUCTION MINORITY AND FEMALE BUILDING TRADES ACT ................................................................................ 270
11.7 MULTIPLE CONTRACTOR AGREEMENTS AND SBA PROGRAMS ................................................................................ 271
11.7.1.1 Teaming Agreements ................................................................................271
11.7.1.2 Joint Venture Agreement ................................................................................272
11.8 AFFILIATION ................................................................................274
11.8.1.1 Mentor/Protégé Relationship ................................................................................275
11.9 CONCLUSION ................................................................................276