Table of
contents
FORWARD....................................................................... xiii
Acknowledgements................................................. xv
About the Authors................................................. xvii
CHAPTER 1
SOURCES OF KENTUCKY
CONSTRUCTION LAW
By: Ryan
R. Loghry
1.1 Statutes
And Regulations.................................... 1
1.2 Common
Law (“Case Law”)............................... 1
1.3 Local
Ordinances................................................ 2
CHAPTER 2
BUSINESS ENTITY TYPES
By: David
E. Longenecker
2.1 Sole
Proprietorship............................................. 3
2.1.1 Structural
Considerations.................................... 3
2.1.1.1 Tax
Considerations............................................. 4
2.2 Partnerships........................................................ 4
2.2.1 Structural
Considerations.................................... 4
2.2.1.1 General
Partnerships........................................... 4
2.2.1.2 Limited
Liability Partnerships............................. 5
2.2.1.3 Limited
Partnerships........................................... 6
2.2.2 Partnership
Tax Considerations.......................... 7
2.3 Joint
Venture...................................................... 7
2.4 Limited
Liability Company................................. 8
2.4.1 Structural
Considerations.................................... 8
2.4.2 Tax
Considerations............................................. 9
2.5 Corporations....................................................... 9
2.5.1 Structural
Considerations.................................... 9
2.5.2 Tax
Considerations........................................... 10
2.6 Piercing
The Corporate Veil.............................. 11
2.6.1 Personal
Liability for Nonpayment When a
Corporate
Owner, Officer, or Director Abuses the
Corporate
Form, or When A Subsidiary is a Tool of
its
Parent........................................................... 11
PRACTICE POINTERS:..................................................... 13
CHAPTER 3
Construction Lending
By: James
R. Williamson
3.1 Introduction...................................................... 17
3.2 Construction
Loan and Permanent Loan Interplay (Commitment Issues) 17
3.3 Risks
Associated with Construction Lending.... 20
3.4 Construction
Loan Agreement.......................... 22
3.5 Due
Diligence................................................... 24
3.6 Advancing
of Construction Loan Proceeds....... 27
3.7 Defaults
and Remedies..................................... 31
PRACTICE POINTERS:..................................................... 33
CHAPTER 4
DESIGN PROFESSIONAL AND CONTRACTOR
LICENSING
By: Ryan R. Loghry
4.1 Licensing
Of Design Professionals................... 35
4.1.1 Engineering....................................................... 35
4.1.1.1 The
practice of engineering.............................. 36
4.1.1.2 Engineers
performing services that do not constitute
the
“practice of engineering”............................ 36
4.1.1.3 Business
names and advertisements using
“engineer”
or “engineering”.............................. 37
4.1.1.4 When
an engineering license is not required..... 38
4.1.1.5 The
practice of engineering through business entities 38
4.1.1.6 Reciprocity....................................................... 39
4.1.2 Architecture...................................................... 39
4.1.2.1 The
practice of architecture.............................. 39
4.1.2.2 Exceptions
to the licensing requirement............ 40
4.1.3 The
practice of architecture through business entities 41
4.1.4 Reciprocity....................................................... 41
4.2 Enforceability
of Contracts by unlicensed
Design
professionals......................................... 42
4.3 Expert
testimony............................................... 43
4.3.1 Engineers.......................................................... 43
4.3.2 Architects......................................................... 43
4.3.3 Analysis............................................................ 43
4.4 General
Contractor licensing............................. 45
4.4.1 Plumbers........................................................... 45
4.4.1.1 Plumbing
defined............................................. 45
4.4.1.2 Insurance.......................................................... 45
4.4.1.3 Reciprocity....................................................... 46
4.4.2 Electrical
Contractors........................................ 46
4.4.2.1 Electrical
contractor defined............................. 46
4.4.3 Asbestos
Contractors........................................ 46
4.4.4 Fire
Protection Sprinkler Contractors................ 47
4.4.4.1 Exceptions
to license requirement.................... 47
4.4.4.2 Special
restrictions............................................ 47
4.4.4.3 Local
work....................................................... 47
4.4.5 HVAC
Contractors........................................... 48
4.4.6 New
boiler and pressure vessel contractors...... 48
4.4.7 Underground
petroleum storage tank contractors 49
4.4.8 Local
Licensing and Registration Requirements
for
General Contractors.................................... 49
4.4.9 Lexington Fayette Urban County Government. 49
4.4.10 Louisville-Jefferson
County Metro Government 51
PRACTICE POINTERS:..................................................... 51
CHAPTER 5
BUILDING CODES AND PERMITS
By: Angela
R. Stephens
5.1 Applicable
codes.............................................. 55
5.1.1 2002
Kentucky Building Code......................... 55
5.1.2 2002
Kentucky
Residential Code..................... 55
5.2 Enforcement
of codes Through Civil Actions... 55
5.2.1 KRS
198B.130................................................. 55
5.2.2 Building
Inspectors........................................... 56
5.2.3 Certificates
of Occupancy................................ 56
5.3 Building
Permits............................................... 57
5.3.1 When
Is A Permit Required.............................. 57
5.3.2 Process
To Obtain A Permit.............................. 57
5.4 Buildings
that must be designed by A licensed
architect
and/or A Licensed engineer
(KRS
323.033)................................................. 57
5.5 Kentucky State Board on Electric Generation and
Transmission
Siting........................................... 58
5.6 Kentucky Cabinet for Natural
Resources:
permits
for air emissions, water withdraws,
erosion
control, and discharges and solid
waste
disposal................................................... 59
PRACTICE POINTERS:..................................................... 60
CHAPTER 6
BIDDING AND OTHER PROCUREMENT METHODS
By: Buckner
Hinkle, Jr. and Mark W. Leach
1.1 Introduction...................................................... 63
1.2 The
Scope Of Kentucky’s
Procurement Statutes 63
1.3 Construction
Procurement Procedures.............. 64
1.4 Methods
Of Contracting................................... 64
1.5 Criteria
For Award............................................ 64
1.6 Exemptions
From Competitive Bidding............ 65
1.7 Public
School And Local Government Projects 66
1.8 Bidder
Prequalification..................................... 67
1.9 Bidding
Mistakes.............................................. 68
1.10 Subcontracting.................................................. 68
1.11 Bid
Protests....................................................... 68
1.12 Unfair
Trade Practices...................................... 70
CHAPTER 7
CONSTRUCTION CONTRACT LAW
By: Gregory P. Parsons
7.1 Contract
Essentials............................................ 75
7.2 Types
of Contracts........................................... 77
7.3 Contract
Interpretation...................................... 78
7.3.1 The
Parol Evidence Rule.................................. 78
7.3.2 Intent
of Parties................................................ 79
7.3.3 Common
and Technical Meanings of Contract
Language.......................................................... 79
7.3.4 Contracts
to be Interpreted Reasonably............ 79
7.3.5 Contract
Interpreted as a Whole........................ 80
7.3.6 Course
of Performance or Prior Dealings......... 80
7.3.7 Ambiguous
Terms Construed Against the Drafter 80
7.3.8 Specific
over General Terms............................ 81
7.3.9 Handwritten
Terms Preferred Over Typed or
Printed
Terms................................................... 81
7.3.10 Exclusion
by Inclusion..................................... 81
7.4 Key
Contract Clauses....................................... 82
7.4.1 Incorporation
By Reference............................. 82
7.4.2 Flow
Down Clauses.......................................... 82
7.4.3 Choice
of Law.................................................. 83
7.4.4 Forum
Selection Clauses................................... 83
7.4.5 Scope
of Work and Changes............................ 83
7.4.6 Liquidated
Damages......................................... 84
7.4.7 Indemnity......................................................... 84
7.4.8 Notice............................................................... 85
7.4.9 Time
of Completion......................................... 85
7.4.10 No
Damage for Delay....................................... 85
7.4.11 Right
to Stop Work........................................... 86
7.4.12 Right
to Terminate............................................ 86
7.4.13 Waiver
of Consequential Damages................... 86
7.4.14 Alternative
Dispute Resolution......................... 87
7.4.15 Changed
Conditions......................................... 88
7.4.16 Contingent
Payment Clauses............................. 88
7.5 Applicability
of the Uniform Commercial Code
to
Construction................................................. 89
PRACTICE POINTERS:..................................................... 90
CHAPTER 8
BONDS AND INSURANCE IN KENTUCKY
By: Anne
E. Gorham
8.1 Bonds............................................................... 95
8.1.1 Bid
Bonds......................................................... 96
8.1.2 Performance
Bonds.......................................... 96
8.1.3 Payment
Bonds................................................. 97
8.1.4 Insurance
for Construction Projects in
Kentucky.......................................................... 98
8.1.5 Rules
of Interpretation for Insurance Policies
in
Kentucky...................................................... 98
8.1.6 Builders’
Risk Insurance vs. Property
Insurance.......................................................... 99
8.1.7 Commercial
General Liability Insurance and the
Indemnity
Agreement....................................... 99
PRACTICE POINTERS:................................................... 100
CHAPTER 9
CHANGE ORDERS
BY: Joseph L. Hardesty, Matthew A. Gillies, Angela R. Stephens
9.1 The
Reality of Construction Contract
Modification................................................... 103
9.2 Change
Orders In General.............................. 103
9.3 Formal
Change Procedures............................. 104
9.4 Change
Orders v. Construction Change
Directives....................................................... 105
9.5 Change
Orders v. The Cardinal Change Doctrine 105
9.6 Consideration
For Contract Modifications...... 106
9.7 Contractor’s
Duty to Proceed with Disputed
Work;
and Constructive Changes.................... 107
9.8 Over-Meticulous
Inspection and the Acceptance
of
the Work.................................................... 107
9.9 Public
Contracts.............................................. 108
PRACTICE POINTERS:................................................... 108
CHAPTER 10
MECHANICS’ AND MATERIALMEN’S LIENS
By: Ryan
R. Loghry
10.1 Right
To A Mechanics’ Lien........................... 111
10.1.1 Nature
of services rendered and materials
furnished........................................................ 112
10.1.1.1 Labor.............................................................. 112
10.1.1.2 Materials......................................................... 112
10.1.1.3 Supplies.......................................................... 113
10.1.1.4 Preparatory
or fabricating work...................... 114
10.1.1.5 Overhead,
insurance, taxes, and profit........... 114
10.1.1.6 Delay
damages............................................... 114
10.1.2 Necessity
of written contract or consent of
owner............................................................. 114
10.1.3 Persons
entitled to a lien................................. 115
10.1.4 Engineers’,
architects’, and land surveyors’ liens 115
10.1.5 Residential
Construction Liens....................... 116
10.2 Interests
Subject To Mechanics’ Liens............ 116
10.2.1 Private
projects............................................... 116
10.2.1.1 Projects
involving leasehold interests.............. 116
10.2.2 Fixtures........................................................... 118
10.2.3 Public
projects................................................ 118
10.3 Perfecting
A Mechanics’ Lien......................... 118
10.3.1 Private
projects............................................... 119
10.3.1.1 Preliminary
statement of lien.......................... 119
10.3.1.2 Preliminary
notice of intent to file a lien......... 119
10.3.1.2.1 Extra
work...................................................... 120
10.3.1.3 Filing
the statement of lien.............................. 122
10.3.1.3.1 Time
for filing................................................ 122
10.3.1.3.2 Form
and content............................................ 122
10.3.1.3.3 Place
for filing................................................ 123
10.3.1.4 Notice
of filing............................................... 124
10.3.1.5 Amendment
of lien statement......................... 124
10.3.1.6 Filing
one or more lien statements.................. 124
10.3.2 Public
projects................................................ 124
10.3.2.1 Preliminary
lien statement............................... 125
10.3.2.2 Filing
the statement of lien.............................. 125
10.3.2.2.1 Time
for filing................................................ 125
10.3.2.2.2 Form
and content............................................ 125
10.3.2.2.3 Place
for filing................................................ 126
10.3.2.2.4 Perfecting
the lien........................................... 126
10.3.2.2.5 Protest
by contractor....................................... 126
10.4 Operation
And Effect Of A Perfected Mechanics’
Lien
on private projects.................................. 127
10.4.1 Amount
and extent of lien.............................. 127
10.4.2 Accrual
and duration of lien........................... 127
10.5 Lien
priority.................................................... 128
10.5.1 Priority
between mechanics’ lien claimants and
other
creditors................................................. 128
10.5.2 Priority
between general contractors,
subcontractors,
and materialmen.................... 129
10.5.3 Limitations
on the amount of mechanics’ lien
claims............................................................. 130
10.5.4 Public
projects................................................ 131
10.5.5 Kentucky cases involving
the priority of
mechanics’
liens............................................. 132
10.6 Enforcement
Of A Mechanics’ Lien............... 133
10.6.1 Time
to sue..................................................... 134
10.6.2 Parties
To The Lawsuit................................... 134
10.6.3 Venue............................................................. 135
10.6.4 The
Complaint................................................ 135
10.6.4.1 Other
claims................................................... 135
10.6.5 Execution
And Enforcement Of Judgment..... 136
10.7 Lien
Prevention And Defenses....................... 136
10.7.1 Pre-Project
Due Diligence............................... 137
10.7.2 Payment
Bonds............................................... 137
10.7.3 Contractual
Mechanics’ Lien Waivers............ 137
10.7.4 Releases
And Waivers Of Lien During
Performance................................................... 139
10.7.5 Bonding
Off Liens.......................................... 139
10.7.6 Payment.......................................................... 141
10.7.7 Releases
of Mechanics’ liens.......................... 141
10.8 Sales,
evictions, and forfeitures...................... 142
10.9 Bankruptcy
issues........................................... 143
10.9.1 The
automatic stay.......................................... 143
10.9.2 Kentucky bankruptcy
cases............................ 144
PRACTICE POINTERS:................................................... 146
CHAPTER 11
CONSTRUCTION DISPUTES – THEORIES OF LIABILITY
By: Ryan
R. Loghry
11.1 Breach
of contract.......................................... 153
11.1.1 Breach
of warranty......................................... 153
11.1.1.1 Express
warranties.......................................... 153
11.1.1.2 Implied
warranties.......................................... 154
11.1.1.3 Owner’s
implied warranty with respect to
the
accuracy
and suitability of plans.................... 154
11.1.2 Contractual
Indemnity.................................... 155
11.1.3 Third
party beneficiaries................................. 156
11.2 Implied
Contracts........................................... 156
11.2.1 Promissory
estoppel........................................ 157
11.2.2 Quantum
meruit.............................................. 157
11.3 Torts............................................................... 158
11.3.1 Negligence...................................................... 158
11.3.1.1 Negligence
between parties who are in
privity
of contract........................................... 159
11.3.2 Negligent
misrepresentation............................ 160
11.3.3 Fraud.............................................................. 161
11.3.4 Common
law indemnity................................. 162
11.3.5 Economic
loss doctrine................................... 162
11.3.5.1 Unanswered
questions regarding the economic loss
rule
and negligent misrepresentation............... 163
11.4 Statutory
Actions............................................ 164
11.4.1 Violation
of Building Code............................. 164
11.4.2 Mechanics’
liens............................................. 164
11.4.3 Failure
to make a required disposition of funds 164
11.4.3.1 KRS
376.070.................................................. 165
11.4.3.2 KRS
514.070.................................................. 165
11.4.3.3 Conversion..................................................... 167
PRACTICE POINTERS:................................................... 167
CHAPTER 12
STATUTES OF LIMITATION
By:
Matthew A. Gillies
12.1 Statutes
of Limitations for Contract Actions... 172
12.1.1 Written
Contracts (15 Years).......................... 172
12.1.2 Oral
contract (5 Years)................................... 173
12.1.3 Bond
claims (7 years)..................................... 174
12.1.4 Fraud.............................................................. 174
12.2 Statutes
of Limitations Applicable to 175
Tort
Actions.................................................... 175
12.2.1 General
Negligence Claims............................. 175
12.2.1.1 Negligence
resulting in personal injury........... 175
12.2.1.1.1 Statutes
of Repose Applied to Personal Injury Claims are Unconstitutional 177
12.2.1.2 Negligence
resulting in property damage........ 178
12.2.1.2.1 Claims
for trespass to real or personal property 178
12.2.1.2.2 Claims
for taking, detaining, or injuring
personal
property............................................ 179
12.2.2 Professional
negligence.................................. 179
12.2.2.1 Definition
of “professional”........................... 180
12.2.2.2 Accrual
of the cause of action........................ 180
12.2.2.3 Potential
Exceptions where a Professionals
will
not be subject to KRS 413.245................ 181
12.2.3 Intentional
interference with business
relationship..................................................... 181
12.2.4 Common
law indemnity................................. 182
12.2.5 Building
code violation................................... 182
12.2.6 Action
for damages against home inspector
–
KRS 198B.734........................................... 183
12.3 Claims
against the Commonwealth................. 183
12.3.1 Contract
Claims.............................................. 183
12.3.2 Negligence
Claims.......................................... 185
12.4 Mechanics’
liens............................................. 186
PRACTICE POINTERS:................................................... 186
CHAPTER 13
DAMAGES AND REMEDIES
By: Cassidy Ruschell Rosenthal
13.1 Consequential
Damages.................................. 195
13.1.1 Definition
of Consequential Damages............ 195
13.1.2 Waiver
of Consequential Damages................. 197
13.1.3 Waiver
of Consequential Damages under
the
UCC.......................................................... 198
13.1.4 Lost
Profits..................................................... 198
13.2 Liquidated
Damages....................................... 199
13.3 Delay
Damages............................................... 200
13.3.1 Contractor
Delay Damages............................. 201
13.3.2 No
Damages For Delay Clause....................... 203
13.3.3 Acceleration................................................... 204
13.4 Damages
for defective construction............... 205
13.5 Total
Cost Claims........................................... 206
13.6 Attorneys’
Fees............................................... 207
13.7 Punitive
Damages........................................... 208
13.8 Interest............................................................ 208
13.9 Mitigation
Of Damages................................... 209
13.9.1 Contract
for Sale of
Goods............................. 210
13.9.2 General
Contractors and Subcontractors......... 210
13.10 Injunctive
Relief............................................. 211
13.11 Prejudgment
Attachments............................... 211
13.11.1 Grounds
for Attachment................................. 212
13.11.2 Property
Subject to Attachment...................... 213
13.11.3 Effect
of an Attachment................................. 213
13.11.4 Procedures
to Obtain an Attachment............... 213
13.11.5 Liability
for Wrongful Attachment................. 214
13.12 Enforcement
Of Judgments............................ 215
13.12.1 Garnishments.................................................. 215
13.12.1.1 Wage
Garnishment......................................... 216
13.12.1.2 Wages
Exempt from Garnishment.................. 216
13.12.1.3 Non-wage
Garnishment.................................. 217
13.12.2 Levy
Against Property.................................... 217
PRACTICE POINTERS:................................................... 218
CHAPTER 14
ALTERNATIVE DISPUTE RESOLUTION
By: Clark Case
14.1 Mediation....................................................... 224
14.2 Arbitration...................................................... 225
14.2.1 Modern
Kentucky
Arbitration Law................. 226
14.2.2 Enforceability................................................. 227
14.2.2.1 Under
the Kentucky
Arbitration Act, Agreements
To
Arbitrate Future Disputes Are Enforceable 227
14.2.2.2 Arbitration
Clauses Incorporated By
Reference
Are Enforceable............................ 228
14.2.2.3 Arbitration
Clauses Are Not Enforceable
If
Waived By Either Party............................... 229
14.2.2.3.1 If
Neither Party Seeks To Compel Arbitration,
Then
The Parties May Litigate........................ 229
14.2.2.3.2 If
One Party Participates In A Judicial
Proceeding,
Then That Party Waived Its
Right
To Compel Arbitration.......................... 229
14.2.2.3.3 Parties
May Modify The General Waiver
Rule
By Contract............................................ 230
14.2.2.4 A
Claim Of Fraud in the Inducement Is
Arbitrable....................................................... 231
14.2.3 Scope
of Arbitration Clauses.......................... 231
14.2.3.1 Arbitrator’s
Decision Must Be Within Scope of
Submission..................................................... 231
14.2.3.2 Arbitrator
Decides Procedural Issues.............. 232
14.2.4 Applicability
to Sureties.................................. 232
14.2.4.1 Surety
Bonds Are Distinguishable From
Insurance
Contracts........................................ 232
14.2.4.2 Surety
Bonds Are Subject To Arbitration
Clauses
That Are Incorporated By Reference
In
The Prime Contract..................................... 233
14.2.5 Consolidation................................................. 234
14.2.6 Enforcement
of Arbitration Awards............... 234
14.2.6.1 Kentucky Appellate
Courts Can Reverse
Arbitration
Awards......................................... 234
14.2.6.2 Standard
of Review to Set Aside Arbitration
Award............................................................. 235
14.2.6.3 The
Time Limit To Challenge An Award
Is
The Same As The Time Limit In Civil
Actions........................................................... 236
14.2.6.4 The
“Default” Rule In Kentucky
Is That
The
Arbitration Award Will Be Enforced....... 237
14.2.7 Liability
of Arbitrators.................................... 237
14.2.8 Conclusion..................................................... 238
PRACTICE POINTERS:................................................... 238
CHAPTER 15
RESIDENTIAL CONSTRUCTION
By: Ryan
R. Loghry
15.1 Construction
Professionals’ Opportunity
To
Repair Act................................................. 245
15.2 Mechanics’
And Materialmen’s Liens............. 247
15.3 Homeowner
Claims Against Homebuilders.... 248
15.3.1 Breach
of Implied Warranty of Habitability... 248
15.3.2 Negligence
and Negligence Per Se.................. 249
15.3.3 Violation
of Building Code............................. 250
15.3.4 Consumer
Protection Act................................ 250
PRACTICE POINTERS:................................................... 250
APPENDIX....................................................................... 253
CONTACT INFORMATION............................................ 259
