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PREFACE ............................................................................................ xiii
ACKNOWLEDGEMENTS....................................................................... xv
ABOUT THE AUTHORS....................................................................... xvii
CHAPTER 1................................................................................................ 1
SOURCES OF NEVADA CONSTRUCTION LAW...................................... 1
1.1 STATUTES AND REGULATIONS............................................... 1
1.2 COMMON LAW OR "CASE LAW".............................................. 1
chapter 2 ............................................................................................... 4
BUSINESS ENTITY TYPES...................................................................... 4
2.1 SOLE PROPRIETORSHIP............................................................. 4
2.1.1 Governing Law....................................................................... 5
2.1.2 Ownership.............................................................................. 5
2.1.3 Ownership Liabiity/Management Liability.............................. 6
2.1.4 Management of Business........................................................ 6
2.1.5 Taxation................................................................................. 6
2.1.6 Distribution of Profits and Losses........................................... 6
2.2 GENERAL PARTNERSHIP & JOINT VENTURE......................... 6
2.2.1 Governing Law....................................................................... 6
2.2.2 Ownership.............................................................................. 6
2.2.3 Owner liability........................................................................ 7
2.2.4 Management of Business........................................................ 7
2.2.5 Management Liability............................................................. 7
2.2.6 Taxation................................................................................. 7
2.2.7 Division of Profits and Losses................................................ 7
2.2.7.1 Division of Profits................................................................. 7
2.2.7.2 Division of Losses................................................................. 7
2.3 LIMITED PARTNERSHIP............................................................. 8
2.3.1 Governing Law....................................................................... 8
2.3.2 Ownership.............................................................................. 8
2.3.3 Owner liability........................................................................ 8
2.3.4 Management of Business........................................................ 9
2.3.5 Management Liability............................................................. 9
2.3.6 Taxation................................................................................. 9
2.3.7 Division of Profits and Losses................................................ 9
2.3.7.1 Division of Profits................................................................. 9
2.3.7.2 Division of Losses................................................................. 9
2.4 CORPORATION.......................................................................... 9
2.4.1 Governing Law.. 9
2.4.2 Ownership. 10
2.4.3 Owner Liability. 10
2.4.4 Management of Business. 10
2.4.5 Management Liability. 11
2.4.6 Taxation. 11
2.4.7 Division of Profits and Losses. 12
2.4.7.1 Division of Profits. 12
2.4.7.2 Division of Losses. 12
2.5 LIMITED LIABILITY COMPANY....................................... 12
2.5.1 Governing Law.. 12
2.5.2 Ownership. 12
2.5.3 Owner Liability. 12
2.5.4 Management of Business. 12
2.5.5 Management Liability. 13
2.5.6 Taxation. 13
2.5.7 Distribution of Profits and Losses. 13
2.5.7.1 Distribution of Profits. 13
2.5.7.2 Distribution of Losses. 13
CHAPTER 3 17
Construction Lending. 17
3.1 Construction lending Industry. 17
3.1.1 Representation of the Construction Lender 18
3.2 The Construction Loan Agreement: terms and conditions........... 19
3.2.1 Conformance with the Construction Loan and Take-Out Commitments........................................ 19
3.2.2 Factual Background to the Project 19
3.2.2.1 Underwriting the Construction Loan. 19
3.2.2.2 Construction Loan Agreement & Documents. 19
3.2.3 Loan Amount and Repayment 20
3.2.4 Interest Rate. 21
3.2.5 Recourse Lending. 21
3.2.6 Lien Priority Over Prior Encumbrances. 21
3.2.7 Lien Priority Vis-à-Vis Mechanic’s Lien Claims. 22
3.2.7.1 The “Obligatory” Versus the “Optional” Advance Rule. 22
3.2.7.1.1 The Southern Trust Rule. 22
3.2.7.1.2 Subsequent Defaults. 23
3.2.7.2 Nevada Revised Statute §§106.300, et seq. 23
3.2.7.3 Title Insurance Protection. 24
3.2.7.4 Labor and Material Bonds. 25
3.2.8 Approval of Subcontractors and Contracts. 25
3.2.9 Assurances of Completion. 26
3.2.9.1 Retainage. 26
3.2.9.2 Payment and Performance Bonds................................... 26
3.2.9.3 Construction Disbursement Controls. 27
3.2.9.4 Additional Assurances. 27
3.3 Closing The Construction Loan. 27
3.4 Construction Loan disbursements. 27
3.4.1 Application for Disbursement 28
3.4.2 Architect’s Certificate. 28
3.4.3 General Contractor’s Certificate. 28
3.4.4 Title Insurance. 29
3.4.5 Lender’s Inspections. 29
3.4.6 Construction Control Companies. 29
3.4.7 Methods of Loan Disbursement 30
3.4.7.1 Voucher Methods. 30
3.4.7.2 Direct Payment Methods. 30
3.4.7.3 Joint Checks. 31
3.4.7.4 The Construction Escrow.. 31
3.4.7.5 The Final Loan Advance. 31
3.5 Liability for Construction defects. 32
3.6 The defaulting developer 32
3.6.1 Workout Negotiations. 33
3.6.2 The Mortgagee-in-Possession. 33
3.6.3 The Deed in Lieu of Foreclosure. 33
3.6.4 The Foreclosure Sale. 34
3.6.5 The Receivership. 34
3.6.6 Bankruptcy Relief. 34
3.7 The final loan takeout 35
CHAPTER 4 39
LICENSING OF DESIGN PROFESSIONALS AND CONTRACTORS. 39
4.1 DEFINITIONS of professions. 39
4.1.1 Contractors. 39
4.1.2 Professional Engineer 40
4.1.3 Professional Land Surveyor 41
4.1.4 Architect 42
4.1.5 Interior Design. 43
4.1.6 Residential Design. 43
4.1.7 Landscape Architect 43
4.2 Nevada State CONTRACTORS BOARD.. 45
4.2.1 Licensed Contractor 45
4.3 Nevada state board of engineers and land surveyors. 46
4.3.1 Engineer 46
4.3.2 Land Surveyors. 46
4.4 Architecture, Interior design and Residential Design. 47
4.4.1 Architect 47
4.4.2 Interior Design. 48
4.4.3 Residential Design. 48
4.5 LANDSCAPE ARCHITECTURE. 48
chapter 5 53
5.1 Public vs. Private Projects. 53
5.1.1 Public Bid Process. 53
5.1.1.1 The Term “Public Work” is Defined in Nev. Rev. Stat. § 338.010(15) 53
5.1.1.2 Solicitation of Bids for Public Works Projects. 54
5.1.1.3 Required Contents of Bids. 54
5.1.1.3.1 Nev. Rev. Stat. § 338.144 Requirements. 54
5.1.1.3.2 Nev. Rev. Stat. § 408.337 Requirements. 54
5.1.1.3.3 Nev. Rev. Stat. § 338.1377 Requirements. 54
5.1.1.4 Award of Contract to Licensed Contractor 57
5.1.1.5 Lowest Responsible and Responsive Bidder 58
5.2 Private Bid Projects. 61
5.2.1 Value Engineering. 62
5.2.2 Open vs. Closed Bid. 62
5.3 BONDS. 62
5.3.1 Bond Types and Terms. 62
5.3.1.1 Performance Bonds. 63
5.3.1.2 Payment Bonds/Mechanics Lien Release Bond. 64
5.3.1.3 License Bond. 66
5.3.1.4 Bid Bonds. 67
5.3.2 Bid Bond Types and Terms. 67
5.3.2.1 Damage Bond. 67
5.3.2.2 Penal Bond (or Forfeiture Bond) 68
5.4 Handling Mistakes in the Bidding Process. 68
5.4.1 Mistakes in Judgment 68
5.4.2 Clerical or Mathematical Error 69
5.4.3 Suggestions –Bid Bonds and Bid Errors. 69
chapter 6 71
Construction Contract Law.. 71
6.1 Standard Form Contracts. 71
6.2 Implied Contract Clauses. 71
6.2.1 Covenant of Good Faith and Fair Dealing. 71
6.2.2 Warranty of Workmanship & Implied Contractual Indemnity. 71
6.2.3 Warranty of Adequacy of Plans and Specifications. 72
6.3 Differing Site Conditions Clause. 72
6.4 No Damage for Delay Cause. 72
6.5 Common Clauses to Include in Construction Contracts. 73
6.5.1 Integration Clause. 73
6.5.2 The Parol Evidence Rule. 73
6.5.2.1 Nev. Rev. Stat. § 104A.2202. 73
6.5.3 Amendment Clause. 73
6.5.4 Statute of Limitation Clause. 73
6.5.5 Choice of Law and Forum Clause. 73
6.5.6 Arbitration Clause. 74
6.5.7 Indemnification Clause. 74
6.5.8 Time is of the Essence Clause. 74
6.5.9 Waiver Clause. 74
6.5.10 Liquidated Damages Clause. 74
6.5.11 Severability Clause. 74
6.6 Considerations in Writing the Contract 75
6.6.1 Make the Contract Understandable. 75
6.6.2 Contract Documents. 75
6.6.3 Identify the Scope of Work to be Performed by Contractor or Subcontractor 75
6.6.4 Representations or Warranties. 75
6.6.5 Period of Performance. 75
6.6.6 Contract Price and Payment 75
6.7 No lien provisions in Nevada Construction Contracts. 76
6.8 Pay if Paid” or “Pay when Paid” Clauses. 76
chapter 7 79
Bonds 79
7.1 Bid bonds. 79
7.2 Performance and Payment bonds. 80
7.2.1 Introduction. 80
7.2.2 The Purpose of Both the Payment and the Performance .......... Bond is to Protect the Public Entity From a Default of the General Contractor 80
7.2.2.1 General Purpose and History of Suretyship. 80
7.2.2.2 Nevada Law Requires Performance and Payments Bonds For Public Construction. 80
7.2.2.3 The Bonds Must Generally be Construed in Favor of the Public Entity. 82
7.2.3 Because a Surety’s Liability is Co-Extensive With That of its .. Principal, the Surety is Often a Party to a Dispute About the Principal’s Obligations. 83
7.2.4 The Bond Claimant Must Properly Invoke the Bond To Avoid the Surety’s Possible Defenses. 84
7.2.5 The Surety Has Significant Leverage With Its Principal: The GIA.. 85
CHAPTER 8 89
NEVADA MECHANIC’S LIEN LAW... 89
8.1 WHAT IS A MECHANIC’S LIEN?. 89
8.2 WHO IS ENTITLED TO A MECHANIC’S LIEN?. 89
8.3 DOES NEVADA PROHIBIT CERTAIN TYPES OF CONTRACTUAL PROVISIONS?. 90
8.4 CAN AN EXISTING LIEN OR A “PROSPECTIVE LIEN RIGHT” BE “BONDED AROUND”?. 91
8.4.1. Posting the Bond. 91
8.4.2. Excepting to Sufficiency of Surety or Surety Bond. 92
8.4.3. Bringing An Action On the Lien Release Bond. 92
8.4.4. Enforcement of Liability of Principal and Surety. 96
8.5 CAN LIEN RIGHTS BE WAIVED IN EXCHANGE FOR PAYMENT?. 96
8.6 WHAT TYPES OF PRELIMINARY NOTICES ARE REQUIRED?. 110
8.6.1 Nev. Rev. Stat. § 108.245: Notice of Right to Lien a/k/a Pre-lien Notice. 110
8.6.2 Nev. Rev. Stat. § 108.226(6): Notice of Intent to Lien (Residential Only) 111
8.7 WHAT PROPERTY IS SUBJECT TO A MECHANIC’S LIEN?. 111
8.7.1 Nev. Rev. Stat. § 108.22172—The “Property”. 111
8.7.2 Nev. Rev. Stat. § 108.22218—The “Improvement”. 111
8.7.3 Nev. Rev. Stat. § 108.22188—The “Work of Improvement”. 112
8.7.4 Nev. Rev. Stat. § 108.231—“Multiple Buildings/Single Prime Contract”. 113
8.7.5 Nev. Rev. Stat. § 108.2403—“Lessee to Establish Construction Disbursement Account or Post Surety Bond”. 114
8.7.6 Nev. Rev. Stat. § 108.2407—“Lien Attaches to Funds in Construction Disbursement Account”. 114
8.7.7 Recording Notice of Non-Responsibility by Disinterested Owner 116
8.8 WHAT TYPES OF LABOR, MATERIALS AND SERVICES ARE LIENABLE?. 123
8.8.1 Labor 123
8.8.2 Personal Property and Trade Fixtures. 123
8.8.3 Fixtures. 123
8.9 HOW DO YOU PREPARE A MECHANIC’S LIEN?. 124
8.9.1 Determine the Owner and Property Description. 124
8.9.2 Nev. Rev. Stat. § 108.226—Time for Recording the Mechanic’s Lien. 125
8.9.3. Nev. Rev. Stat. § 108.227—Service of the Mechanic’s Lien. 125
8.9.4. Formal Requirements of the Mechanic’s Lien. 127
8.9.5 Nev. Rev. Stat. § 108.229—Amending the Lien. 130
8.10 HOW DO YOU ENFORCE YOUR LIEN?. 132
8.10.1 Duration of Lien. 133
8.10.2 Leverage. 133
8.10.3 Priority. 133
8.11 HOW DO YOU DEAL WITH A FRIVOLOUS OR EXCESSIVE LIEN?. 135
8.12 HOW DO YOU FORECLOSE ON THE LIEN?. 138
8.12.1. Limitation on Filing Complaint for Foreclosure. 138
8.12.2 Filing the Lawsuit 138
8.12.3 Preferential Trial Setting Available. 139
8.12.4 Arbitration Rights Not Impaired. 140
8.13 HOW MUCH MONEY CAN BE RECOVERED?. 141
8.13.1 The Prime Contractor 141
8.13.2 Amount Recoverable by Lien Claimants/Lien Bond Claimants. 142
8.13.3. Court Costs and Attorney’s Fees. 143
8.13.4. Sale of the Property and Application of Proceeds. 143
8.14 HOW AND WHEN DO YOU DISCHARGE A LIEN?. 144
8.15 MECHANIC’S LIEN TERMINOLOGY.. 146
CHAPTER 9A 159
Nevada Prompt Payment Statutes for Public Works: Nev. Rev. Stat. § 338.400 Through 338.645. 159
9A.1 PRELIMINARY MATTERS. 159
9A.1.1 Applicability and Limitations. 159
9A.1.2 Notices. 159
9A.1.3 Interest on Retainage. 160
9A.2 PAYMENTS BY PUBLIC BODY TO CONTRACTOR.. 160
9A.2.1 Progress Bills. 160
9A.2.2 Timing of Payments; Retainage; Interest; Labor Commissioner 160
9A.2.2.1 Payment Within 30 Days. 160
9A.2.2.2 Payment of 90% of Progress Bill Mandated Until 50% Complete. 160
9A.2.2.3 Interest to be Paid Quarterly On Amounts Withheld. 161
9A.2.2.4 Labor Commissioner May Require Withholding of Money for Wages. 161
9A.2.3 Payment Within 30 Days of Occupancy, Use or Notice of Completion. 162
9A.2.4 Withholding Amounts Upon Notice; Notice of Correction. 162
9A.2.4.1 Written Notice to Contractor Within 20 Days of Billing. 163
9A.2.4.2 Contractor to Provide Written Notice of Correction. 163
9A.2.4.3 Written Notice to Contractor if Objection to the Correction; Partial Payment 163
9A.2.4.4 Payment of Interest on Amounts Improperly Withheld. 164
9A.2.4.5 Public Body to Provide Notice of Payments Made to Contractor 165
9A.3 PAYMENTS BY CONTRACTOR TO SUBCONTRACTORS/SUPPLIERS. 165
9A.3.1 Payments to Subcontractors and Suppliers Within 10 Days. 165
9A.3.2 Retainage; Interest 166
9A.3.2.1 Not More Than 10% Retention May Be Withheld Until Subcontractor’s Work Is 50% Complete. 166
9A.3.2.2 Interest Payments Within 10 Days of Receipt by Contractor 166
9A.3.3 Withholding Amounts Upon Notice; Notice of Correction. 166
9A.3.3.1 Contractor May Withhold Money for Specified Reasons. 166
9A.3.3.2 Written Notice Must Be Given Within 10 Days. 167
9A.3.3.3 Contents of Written Notice. 167
9A.3.3.4 Payment Upon Notice of Correction or Payment by Public Body. 168
9A.3.3.5 Objection to Notice of Correction; Partial Payment 168
9A.3.4 Payment of Interest on Amounts Improperly Withheld. 168
9A.3.5 Contractor to Provide Notice of Payments Upon Request 170
9A.4 PAYMENTS BY SUBCONTRACTORS TO SUBCONTRACTORS AND SUPPLIERS. 170
9A.5 REMEDIES. 171
9A.5.1 Contractor May Seek Writ of Mandamus Against Public Body. 171
9A.5.2 Subcontractor/Supplier May Seek An Order to Show Cause. 171
9A.5.3 Prevailing Party Entitled to Reasonable Costs and Attorney’s Fees. 173
9A.5.4 Other Rights and Remedies, Including Arbitration, Not Affected. 174
CHAPTER 9B 177
Nevada Prompt Payment Statutes for Private Projects: Nev. Rev. Stat. § 624.606 Through 624.630. 177
9B.1 The Nevada Prompt Pay Act Favors Nevada's Prime Contractors and subcontractors. 177
9B.1.1 Circumstances Under which the Owner Can Withhold Payment 177
9B.1.2 The Owner Must Provide Written Notice to Prime Contractor Before Withholding Payment 178
9B.1.3 Agreements between Higher-Tiered Contractor and Lower Tiered Subcontractors. 179
9B.2 Nevada Stop Work Statutes Nev. Rev. Stat. § 624.610. 180
9B.2.1 Prime Contractor 180
9B.2.2 Owner 181
9B.2.3 Delays Caused by Work Stoppage. 181
9B.2.4 Payment Requirements After Occupancy of the Project 181
9B.2.5 Subcontractor’s Right to Stop Work. 183
9B.2.6 Change Orders. 184
9B.3 Remedies for Work Stoppage Caused by the Owner or Higher Tiered Contractor 185
9B.3.1 Prohibited Provisions Under the Act 186
9B.3.2 Interest on Late Payments. 186
9B.3.3 No Damage for Delay Clauses. 186
CHAPTER 10 189
STATUTE OF LIMITATIONS. 189
10.1 CONTRACT ACTIONS. 189
10.1.1 Fraud. 189
10.2 Actions for Damages for Injury or Death Caused by Deficiency in Construction of Improvements to Real Property. 189
10.2.1 Deficiencies Resulting from Willful Misconduct or Concealment 191
10.2.2 Deficiencies Resulting from Known Deficiencies. 191
10.2.3 Deficiencies Resulting from Latent Deficiencies. 192
10.2.4 Deficiencies Resulting from Patent Deficiencies. 193
10.3 LIMITATIONS FOR CONSTRUCTION PROFESSIONALS. 193
10.3.1 Bond Claims for Public Works. 193
10.3.2 Actions against Principal Contractors by Subcontractors Employees Actions against Principal Contractors. 195
10.3.3 Actions against Dissolved Corporations. 195
10.3.4 Construction Defect 195
10.4 LIMITATIONS Against Actions of State. 196
10.4.1 Actions against the State of Nevada. 196
10.4.2 Actions by Contractors against Department of Transportation for Highway Work. 196
chapter 11 199
damages and remedies. 199
11.1 CONSEQUENTIAL DAMAGES. 199
11.1.1 Definition of Consequential Damages. 199
11.1.2 Waiver of Consequential Damages. 200
11.1.3 Lost Profits. 201
11.2 LIQUIDATED DAMAGES. 202
11.3 DELAY DAMAGES. 202
11.3.1 Contractor Delay Damages. 203
11.3.2 NO DAMAGE FOR DELAY CLAUSES. 204
11.3.3 Acceleration. 205
11.4 CARDINAL CHANGE RULE. 207
11.5 ATTORNEY’S FEES. 208
11.6 INTEREST. 209
11.6.1 Rate of Interest Generally. 210
11.6.2 Time From When Prejudgment Interest Commences. 210
11.6.3 Amount of Money to Which Rate is Applied. 210
11.6.4 Prejudgment Interest in Agreements for Works of Improvement 210
11.7 MITIGATION OF DAMAGES. 211
11.7.1 General Contractors and Subcontractors. 212
11.8 INJUNCTIVE RELIEF. 212
11.9 ENFORCEMENT OF JUDGMENTS. 213
11.9.1 Garnishments. 213
11.9.1.1 Wage Garnishments. 214
11.9.1.2 Non-Wage Garnishments. 214
CHAPTER 12 219
Residential Construction. 219
12.1 Actions Resulting From Constructional Defect – Conditions And Limitations On Actions. 219
12.1.1 Liability of Contractor 219
12.1.2 Pre-Litigation Notice by Claimant to Contractor 219
12.1.3 Common Constructional Defects in Single Developments. 220
12.1.4 Notice by Contractor to Subcontractors. 222
12.1.5 Access Required for Inspections. 223
12.1.6 Response by Contractor to Claimant 224
12.1.6.1 Election to Repair 225
12.1.6.2 Presentation to Insurer 227
12.2 Claimant Rejects Reasonable Settlement 227
12.3 Limitations On Recovery. 227
12.4 Repairs. 229
12.4.1 Duty to Cure Defect Which Creates Imminent Threat to Health or Safety. 229
12.4.2 Duty to Cure Defects in New Construction of Less Than a Year 229
12.4.3 Special Procedures: Mediation............................................ 230
12.5 Disclosures Between Claimant And Contractor 232
12.6 Disclosures Between Claimant And Prospective Purchaser 232
12.7 Submission Of Questions Concerning Defects To State Contractors’ Board. 233
12.8 Preference Given To Trial Of Action. 233
12.9 Tolling Of Statutes Of Limitation Or Repose. 224
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