The Court of Appeals ruled that the Trusts' liens against the bond and retainage were improper. The Court of Appeals was bound by the Washington State Supreme Court's decision in I.B. E.W., Local No. 46 v. Trig Electric Construction Company, 142 Wn.2d 431, 13 P.3d 622 (2000), which held that trust funds, such as those in the Leo Finnegan case, that were created under federal law and governed by the Employee Retirement Income Security Act (ERISA), were governed by federal law that preempted the Trusts' right to recover against the payment bond and retention under Washington state law.

The case demonstrates that until the Trig Electric case is overruled by the Washington Supreme Court, lower Washington courts will hold that trust fund liens against the payment bond and retainage are invalid.

The case arose out of a project for the City of Vancouver.  The general contractor, Berschauer Phillips, subcontracted with Dynamic International, to furnish labor and materials to the project.  Dynamic then subcontracted with Campbell Crane to supply and operate cranes on the project.  Campbell's invoices charged only an hourly rate for crane services and did not differentiate between labor and equipment rental.

Campbell was not paid by Dynamic and it filed a timely notice of lien against Berschauer's bond and the City's retained percentage.  However, Campbell never provided a pre-lien notice to Berschauer.  Berschauer argued that Campbell's lien was invalid because it did not provide the pre-lien notice.  The retainage statute requires a pre-lien notice for providers of materials, supplies or equipment to a subcontractor.  The bond statute requires the pre-lien notice for providers of materials, supplies or provisions to a subcontractor.

The Court of Appeals ruled that Campbell was not required to give the pre-lien notice under both statutes even though it provided equipment as well as labor.  The Court decided that the pre-lien notice was not required for the equipment supplied because Campbell used the cranes as tools incidental to the specialized crane operation labor and its invoices did not segregate labor and equipment provided to the project. 

A complete copy of the Court's opinion can be found here.  Despite this ruling, a prudent sub-tier subcontractor that provides materials or equipment on a public project should nonetheless provide the pre-lien notice in order to ensure that its lien rights are preserved.

Bellingham argued that Matia's lawsuit was barred because Matia did not notify the City before it filed its lawsuit as required by a City ordinance and state statute.  Cities can enact ordinances providing for claim filing requirements but they cannot be more restrictive than the authorizing state statute.  The authorizing state statute, RCW 4.96.010, provides that the pre-lawsuit claim filing requirements apply only to tort claims (i.e. personal injury, negligence, etc.).  Therefore, because Matia's claim was for breach of contract, and not tort, it was not required to comply with the pre-lawsuit claim filing requirements of the City and the state statute. 

Although the Division One Court of Appeals' ruling in this case may seem self apparent, the Division Three Court of Appeals reached the opposite result in a case decided in 2004. 

During the course of the project, Beco alleged that J-U-B improperly tested asphalt with the intent of promoting failed tests, unreasonably shut down the project causing delays to Beco, and unreasonably delayed the commencement of the project.  Beco alleged breach of contract, negligence, and intentional interference with contract claims against J-U-B.  Beco's breach of contract claim and negligence claims against Beco were dismissed early in the case, and the only issue on appeal was whether Beco could make a claim for intentional interference against J-U-B.

The Idaho Supreme Court reasoned that Beco could not make a claim against J-U-B for intentional interference.  In Idaho, a party cannot make a claim for intentional interference against another party to the same contract.  The cause of action is only applicable when a third party interferes with one party's contract with another.  In this case, J-U-B was acting as an agent of the City on the project because it was designated as the owner's representative and tasked with administering the general contract.  The Court reasoned that because J-U-B was the City's agent, and the actions that were the basis of Beco's claims occurred during J-U-B's administration of the contract, J-U-B was not a third party to the general contract, and therefore, Beco could not make a claim against J-U-B for intentional interference. 

The case represents the difficult task that general contractors have in making claims against the design professionals on projects.  Because the contractor does not have a contract with the design professional, it cannot allege breach of contract against the design professional.  In this case, Beco's sole remedy was to sue the City for breach of contract due to the actions caused by its agent, J-U-B. 

Court opinion:  Beco Constr. Co. v. J-U-B Engineers, Inc.

The Board held that the contractor was entitled to the consulting costs incurred in preparing the request for equitable adjustment, but because the consultant's work had not been monitored and because the consultant's services were categorized under generalized terms such as "schedule analysis," "developing issue files," "summarized findings/developed schedule REA" and "finalized REA," the Board determined it was not possible to discern the level of detail of work that was actually being performed by any given person on a given day and therefore, reduced the contractor's costs.

Government contractors, when faced with whether to present a request for equitable adjustment or file a certified claim, should weigh the recovery of claim preparation costs, but non‑recovery of interest in a request for equitable adjustment presentation vs. making a claim pursuant to which interest is recoverable under the CDA, but claim preparation costs are not.  To prevail, however, on the request for equitable adjustment, the contractor's burden is to show that the "genuine purpose" in incurring the attorneys' fees and costs was to further the negotiation process rather than to simply disguise a claim.  Find the case here

The Supreme Court reversed, and emphasized that, at most, the City's actions constituted "equivocal" evidence of waiver. "Equivocal conduct by its definition cannot be unequivocal" as required by Mike M. Johnson. Because the City on occasion expressly asserted it was not waiving its contractual defenses no juror could find the City unequivocally did the exact opposite. The Court further affirmed Mike M. Johnson and held continued settlement negotiations will not establish waiver, as such a finding would frustrate the settlement process.

The Court of Appeals disagreed and held that because McDonalds placed Keystone in charge of constructing its restaurant, Keystone was McDonalds' construction agent. McDonalds also argued that the extra work was not lienable because because it was not within the "contract price" as defined in RCW 60.04.011(2). The statue defines contract price as "the amount agreed upon by the contracting parties, or if no amount is agreed upon, then the customary and reasonable charge therefor." McDonalds argued the extra work sought by Henifin was not a part of the agreed upon price. The Court of Appeals held that the extra work was lienable because Keystone, McDonalds' construction agent, authorized the change orders.

The contract required Katspan to follow a set of specific procedures in order to make a claim for extra compensation. In addition, the contract stated that Katspan had 180 day from final acceptance of the project to file a lawsuit against the City. While the project was ongoing a dispute arose between the City and Katspan regarding whether Katspan should be entitled to additional time and compensation on the project. Katspan sent letters to the City notifying it that Katspan intended to seek additional time and money for its work on the project. None of Katspan's letters complied with the claim procedure in the contract.

Katspan completed the project and assigned its rights to American Safety pursuant to an indemnity agreement. The City accepted the contract as complete on September 10, 2001. Katspan then had until March 9, 2002 to file a lawsuit against the City, per its contract. In November 2001, American Safety made a request for equitable adjustment to the City. The City did not respond. In March 2002, American Safety contacted the City and the City's attorney requested addition information. The City stated that it would negotiate the claim if it had adequate backup from American Safety. In May 2002, American Safety provided more documents to the City, and the City requested more information. In January 2003, American Safety provided more information, which the City stated was inadequate. The City gave American Safety a deadline of May 2003 to provide the information requested by the City, or the claim would be denied. American Safety failed to meet the deadline.

In July 2003, American Safety, through its consultant, contacted the City regarding the information the City was seeking. The City's consultant stated that he had been given the authority to discuss the claim. The consultants proceeded to discuss the claim. In May 2004, American Safety notified the City that the information requested by the City was available. The City denied the claim because the 180 day suit limitation period had expired. The key issues for the Court of Appeals were (1) whether the City had waived the 180 day suit limitation clause and (2) whether the City had waived the notice of claim procedure. The Court relied heavily on the waiver analysis in the Mike M. Johnson case but reached a different result. The Court distinguished the Mike M. Johnson case because in that case the owner had requested that the contractor follow the specific claim procedures when the contractor made a claim that was not in compliance with the contract. In addition, in Mike M. Johnson, the owner repeatedly referred to the contract's provisions and repeatedly asserted its rights under the contract. By contrast, the City of Olympia did not repeatedly reserve its rights to assert compliance with the contract claim procedures. The City of Olympia also proceeded to negotiation the claim well after the 180 suit limitation period had expired, without reserving its right to assert compliance with the suit limiation clause. Due to this conduct, the Court held that a reasonable person could conclude that that the City had waived its right to assert compliance with the notice and suit limitation provisions of the contract.