• Kentucky Fairness in Construction Act – Effective July 1, 2007

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    • Abstract: Recently, the Kentucky legislature enacted the "Kentucky Fairness in Construction Act", which ... Kentucky Fairness in Construction Act – 2007. 2. with written notice via certified mail indicating non-payment and pending ...

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Submitted for publication
555 Jefferson Street, Suite 301
Paducah, Kentucky 42001
(270) 443-8253
www.dklaw.com
Kentucky Fairness in Construction
Act – Effective July 1, 2007
Thomas J. Keuler, Attorney at Law
David L. Kelly, Attorney at Law
Denton & Keuler
Paducah, Kentucky
Recently, the Kentucky legislature enacted the “Kentucky Fairness in Construction Act”, which
becomes effective on July 1, 2007. This Act sets forth various restrictions which will redefine some of the
terms and conditions in your company’s construction agreements.
• SCOPE
o “Construction” means building, altering, repairing, improving, or demolishing any struc-
tures or buildings, or other improvements of any kind to any real property
Residential construction is exempt
Maintenance exempt
Processing equipment work exempt
USDA Rural Utilities Services projects exempt
• “Business days” – not defined in statute, but Kentucky law defines as weekdays exclud-
ing holidays
• PROMPT PAYMENTS
o Owners must pay GC/prime within 30 business days after “timely, properly completed, un-
disputed request for payment.”
o Interest on unpaid amounts accrues at 12% per annum commencing on the 31st business
day
o For statute to apply (and interest to accrue), Contractor must provide Owner with notice on
25th business day indicating non-payment and pending statutory consequences
Unusual Notice Requirement
• For statute to apply on the 25th business day Contractor must provide Owner
Kentucky Fairness in Construction Act – 2007 1
with written notice via certified mail indicating non-payment and pending
statutory consequences
o Postsecondary Educational Institutions and Boards of Education are allowed 45 business
days
o Contractor must pay Subcontractors undisputed amounts within 15 business days of receiv-
ing payment from Owner
Provision applies to retainage
Interest accrues at 12% per annum commencing on 16th business day
No notice requirement similar to Prime Contractor-to-Owner obligation
o Provisions apply to all payments to all lower tier subs
Successive 15 business day periods
o What is a “timely, properly completed, undisputed request for payment”?
“properly completed” – no prohibition against subjective terms to create “dispute”
“request for payment” – AIA A201: Article 9 “pay applications” must be certified
for payment by Architect
“undisputed” – pay applications will be scrutinized more carefully
Likely Ramifications –people will dispute payment to avoid paying 12% inter-
est
• RETAINAGE
o Until 50% completion “in accordance with the contract” retainage limited to 10% of any
undisputed payment due
o Beginning at 51% completion, retainage is limited to 5%
o Retainage, less 200% of reasonable estimated cost of completion, shall be released to Prime
within 30 days of substantial completion
Reasonable cost of completion determined by Contracting entity
Substantial completion determined by Contracting entity’s agent
o Prime shall release proportionate share of retainage to Subcontractors within 15 business
days of receipt
• SUBSTANTIAL COMPLETION
o “the point at which, as certified in writing by the Contracting entity, a project is at the level
of completion, in strict compliance with the contract, where:
(a) necessary approval by public regulatory authorities has been given;
(b) the Owner has received all required warranties and documentation, and
Kentucky Fairness in Construction Act – 2007 2
(c) the Owner may enjoy beneficial use or occupancy and may use, operate, and
maintain the project in all respects, for its intended purpose.”
o No mention of existing retainage legislation
o Retainage on public project must be held in escrow accumulating limited interest
• UNENFORCEABLE PROVISIONS
o Severability
If provision is found to be void – the Court will only strike that provision
The remainder of the contract (the “un-struck” part) will remain in full force and ef-
fect
• NO DAMAGE FOR DELAY
o A provision that purports to waive, release or extinguish the right of a Contractor or Sub-
contractor to recover costs, additional time, or damages, or obtain an equitable adjustment
of the contract, for delays in performing the contract are, in whole or part, within the con-
trol of the Contracting entity is unenforceable.
o Unusually bad weather that cannot be reasonably anticipated, fire, or other acts of God shall
not automatically entitle the Contractor to additional compensation under this paragraph.
o Law does not render null, void and not enforceable a contract provision that:
(a) permits a Contractor or Subcontractor to recover that portion of delay costs
caused by acts or omissions of the Contracting entity;
(b) requires notice of any delay by the party affected by the delay;
(c) provides for reasonable liquidated damages;
(d) provides for arbitration or any other procedure designed to resolve contract dis-
putes; or
(e) specifies which costs are recoverable by a Contractor or Subcontractor for delay
• DISPUTE RESOLUTION
o Any provision that waives, releases or extinguishes the right to resolve the dispute through
litigation
Can still require binding arbitration as a substitute for litigation
Can still require nonbinding alternative dispute resolution as a prerequisite to litiga-
tion
o Public construction: can bypass agency administrative hearing
• MECHANICS LIENS
o Any provision that waives, releases or extinguishes the right to take a mechanic’s lien on
Kentucky Fairness in Construction Act – 2007 3
the property is unenforceable
o The Act provides that a Contractor receiving a judgment against the Owner has 60 days to
file a mechanic’s lien as provided by statute
o “No lien” contract is unenforceable, but it does not affect routine conditional lien waivers to
secure progress payments
o Public lien (“claims against funds”) new longer time limit:
Lien shall be filed within 60 days of last labor or material to site, or substantial com-
pletion, whichever is later
Existing language was simply 60 days of last lien or material to site and could re-
quire lien well prior to sub. completion
Only provision that affects suppliers
• ATTORNEY’S FEES AND COSTS
o Recoverable
Prevailing party can recover reasonable attorneys fees in actions to enforce if losing
party acted in bad faith
Public contracts: only to the extent of the “public contract rate” for attorney’s fees
About Tom Keuler
Tom Keuler credits his legal intensity to an inherent drive to win. What better place to have gar-
nered this competitive spirit than his hometown of Green Bay, Wisconsin. From that renowned gridiron
arena to the board rooms and courtrooms of western Kentucky, Tom has “packed” on more than two dec-
ades of knowledge and experience in practically all aspects of the general practice of law. He has litigated
in federal and state courts and in bankruptcy court and has argued cases in federal and state appellate
courts.
About David Kelly
David Kelly is a Denton & Keuler partner with a singular purpose—to effectively examine every
detail of every case for the pure objective of achieving successful outcomes for his clients. David has ex-
tensive litigation experience in matters of personnel, construction, commercial concerns, civil rights, and
personal injury. David also possesses an expansive knowledge of employment law.
Authors Thomas J. Keuler and David L. Kelly are partners at the law firm of Denton & Keuler
located in Paducah, Kentucky.
You can reach Tom via email at [email protected] and David at [email protected]
This article is designed to provide general information prepared by the professionals at Denton & Keuler in regard to the subject matter covered. It is provided
with the understanding that the author is not engaged in rendering legal, accounting, or other professional service. Although prepared by professionals, these
materials should not be utilized as a substitute for professional service in specific situations. If legal advice or other expert assistance is required, the service of
a professional should be sought.
Kentucky Fairness in Construction Act – 2007 4


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