|
|
|
Umbrella Actions
STA members benefit from the coordinated efforts of “Umbrella Actions” which help unpaid subcontractors and suppliers get paid on troubled private projects. The idea that a coordinated action by subcontractors and suppliers could effectively encourage owners and contractors to meet their financial obligations is at the heart of the STA and is essentially what led to the formation of the STA more than 40 years ago.
Before The STA
Before the formation of the STA, trade contractors faced the same difficulties they now encounter, except that construction managers were not then a factor. Owners and developers ran short of cash; "extras" soared; problems in construction arose; jobs suffered from delays; and general contractors, on occasion, diverted money to pay for other projects. Unpaid subcontractors and suppliers, on projects where various combinations of such problems existed, found themselves forced to seek payment from entities that were substantially larger and with more resources than the individual
subcontractors had. By joining forces those subcontractors and suppliers discovered that they could stand up to defaulting owners and developers and general contractors and get results without paying large sums for legal fees.
How It Worked
Originally, the motivating force behind "Umbrella Actions" was Irwin Taylor, Esq., STA’s original legal counsel. When the STA Executive Director received information from several members that indicated that a project was "in trouble" he would notify Mr. Taylor, who would then call a meeting of all subcontractors on the project. Those who found that their work had been stopped, or that payments were not being made in accordance with their subcontracts, would meet jointly with Mr. Taylor. Prior to meeting with the subcontractors, Mr. Taylor would informally discuss with the contractor the problems that interrupted payment to subcontractors. When the unpaid subcontractors met with Mr. Taylor, he would urge appropriate action, including the filing of mechanic’s liens and, if necessary, the commencement of legal action.
At the meeting, unpaid subcontractors and suppliers learned about the nature of the problems on the project from the general contractor’s prospective. Sometimes meetings with the general contractor were arranged to see if problems resulting in non-payment could be amicably resolved. At such meetings the general contractor would be impressed with the prospect that it would face a united community of unpaid subcontractors and suppliers.
If the problems could not be resolved, subcontractors were advised of their lien rights and received project descriptions to facilitate the filing of liens. Subcontractors also found that they could save legal fees by combining their collection efforts where no conflict of interest existed between the subcontractors.
How It Works Now
The tradition started by Irwin Taylor continues today. When the Executive Director of the STA receives information indicating that several subcontractors on a project are not being paid, and that there may be problems that will impact on all or substantially all of the trade contractors on that project, he initiates the Umbrella Action. A meeting is scheduled with all trade contractors who have an interest whether they are STA members or not. At the meeting, information on filing mechanic’s liens is distributed. In addition, information is exchanged among the attendees as to the nature of the problems on the project, and what each has been told by the general contractor or construction manager. On occasion, at such meetings, trade contractors have been "shocked" to learn that the general contractor or construction manager has given different reasons for interruption in the project payments to different subcontractors.
On behalf of the unpaid subcontractors, STA’s general counsel then calls the general contractor or construction manager explaining that a significant number of trade contractors have banded together to coordinate their efforts to enforce their contract rights. Counsel’s ensuing dialogue with the general contractor or construction manager usually then provides sufficient information for the trade contractors to decide whether legal action is necessary. Frequently, when faced with the prospect of dealing with a united subcontractor front, payment is facilitated. However, sometimes a project is so "troubled" that litigation must go forward.
Successful Litigation
During the banking problems of the 80's, the Federal Deposit Insurance Corporation and the Resolution Trust Corporation took over construction loans which they declared were in default. These agencies of the United States proclaimed that they had a priority over all the claims of unpaid subcontractors and suppliers who had filed liens because the construction loan mortgage had been filed first. In at least one Umbrella Action, the RTC was forced to back down on its claim of priority when it was established that the construction lender had failed to comply with New York State Lien Law filing requirements. Even the RTC could not escape the effect of the Lien Law. If an Umbrella Action had not been awarded to unpaid subcontractors and suppliers, none of them would individually have had enough resources to successfully challenge the federal government.
Similarly, on a project at 1540 Broadway, the construction lender commenced a foreclosure action for more than $239 million. It, too, was forced to acknowledge the priority of the unpaid subcontractors and suppliers as a consequence of an Umbrella Action which challenged the bank’s priority.
Successful Settlements
Sometimes litigation is unnecessary. On the Embassy Suites project at Battery Park City, on which a dispute between Bovis Lend-Lease and the owner, a subsidiary of Forest City Ratner, led to a suspension of payments of more than $5.5 million claimed to be due trade contractors and suppliers, the STA instituted an "Umbrella Action." STA’s counsel approached both Bovis Lend-Lease and the owner’s attorneys on behalf of the unpaid subcontractors and suppliers. Within a short time thereafter, the claims of the subcontractors and suppliers were or are being resolved, even though, apparently, Bovis Lend-Lease and the owner have not yet resolved their own disputes.
The Future Of Umbrella Actions Umbrella Actions give subcontractors a chance to get information, facilitate filing mechanic’s liens and help cut legal costs, while giving all affected subcontractors a chance for united action. Remember, in unity there is strength.
|
|
|
