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Significant Changes Anticipated to NJ Construction Lien Law

Summer 2008Cole Schotz DocketAttorney: Jamie P. Clare

This fall, the New Jersey Legislature will consider several important changes to this law.  The NJ Law Revision Commission, a non-partisan panel of scholars, former judges and attorneys, has been working on these proposed revisions for almost one year in response to substantial confusion and resulting litigation regarding the meaning of various sections of this law, which was last amended in 1994.

One of the most significant proposed revisions would permit a contractor, subcontractor or supplier on a tenant improvement to file a lien against the owner’s title interest in the property if the lease permitted the construction of the improvement.  Current law permits such a contractor, subcontractor or supplier to file a lien only against the tenant’s leasehold interest, even if the lease permits the construction of the improvement, unless the owner has delivered a written authorization of the specific tenant improvement contract at issue.

Another very important proposed change clarifies that large condominium, townhouse or co-op projects, even if mixed use or multi-use projects, are entitled to the substantial procedural protections afforded under the statute for residential construction.  The proposed changes also include a wholesale revision to the form of construction lien that needs to be filed in order for a contractor or subcontractor to have a valid lien on the property.

These changes, if enacted into law, will have important consequences for all developers, owners and contractors on New Jersey construction projects.  The New Jersey Law Revision Commission is still seeking input on these proposed changes.  If you would like a copy of the latest draft of New Jersey Law Revision Commission report or if you have any comments on the proposed changes to the New Jersey Construction Lien Law, please contact Robert Dowd or any other member of Cole Schotz’s Construction Service Practice Group.

New Jersey False Claims Act (“NJFCA”) Takes Effect:  Effective March 13, 2008, private citizens can bring a lawsuit on behalf of any New Jersey state agency or independent authority of the State Government against any contractor, grantee or other recipient of New Jersey state funds to recover monies paid in connection with false or fraudulent claims.  The NJFCA is the New Jersey State counterpart to the Federal Civil False Claims Act.

Liability under the NJFCA may extend even to contractors who submit a claim without undertaking the appropriate degree of due diligence to make sure the claim is accurate.  Contractors need to ensure they have adequate procedures in place, including review of subcontractor invoices to be passed on by the general contractor to the owner to verify the accuracy of any claim for payment.

This well-meaning antifraud effort poses significant risks for those in the construction industry since the statute provides for treble damages, attorney’s fees and penalties in a lawsuit, which can be initiated by any individual who has information about a suspected false or fraudulent claim and would like to share with the State in the recovery as a “whistleblower.”

New Jersey Department of Transportation Specifications Revised:  In November 2007, NJDOT issued comprehensive, revised specifications that considerably impact how contractors bid and perform NJDOT construction projects; how claims may be made and presented; and how the NJDOT handles claims.  The new specifications are wide-ranging, and follow the American Association of State Highway and Transportation Officials format.  Many divisions and sections are reorganized as compared to the 2001 specifications book, and users of the 2007 specifications are cautioned to read the specifications in their entirety to be thoroughly familiar with the new format, style and requirements.

The new specifications limit the types of damages and ways in which contractors can prove damages.  Delay claims, particularly in the area of utility relocations, have been drastically altered.  The new specifications place responsibility squarely on contractors to coordinate all utility work, and require contractors to assume responsibility for delays and costs resulting from a failure to coordinate.

Overall, with respect to modifications to contract time, NJDOT will extend time if an “excusable delay” delays work on the critical path beyond the contract time using the approved progress schedule that is current at the time the delay occurs. 

New and/or revised contract requirements require a contractor’s careful review and compliance in the areas of insurance, procedure, CPM progress schedules, soil erosion, sediment control, water quality control, and traffic control devices.  In addition, changes to specifications involving earthwork, sub-base and base courses, pavements, concrete surface courses, concrete pavement rehabilitation and bridges and structures have been reorganized, revised or updated. 

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