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Oklahoma’s Fair Pay for Construction Act

Oklahoma’s Fair Pay for Construction Act applies to public contracts, and requires prompt payment of contract monies to contractors and subs.

Here are the Act’s highlights:

  • The awarding agency must make progress payments within 30 days after submission of an invoice.
  • The awarding agency cannot reduce an invoice of a prime contractor without describing the reasons for reduction within 14 days.
  • A prime contractor and/or sub cannot reduce the invoice payment due others without forwarding the reasons for reduction within 7 calendar days.
  • Subs are entitled to receive payment no later than 10 calendar days after the prime contractor receives its corresponding payment.
  • Retainage cannot exceed 10% but once the gross amount invoiced equals 50% of the contract amount, maximum retainage allowed is 5%.

The Act has numerous exceptions and limitations.  For example, it does not apply highway construction.

 

The Change Order

Except in the middle of a battlefield, nowhere must men coordinate the movement of other men and all materials in the midst of such chaos and with such limited certainty of present facts and future occurrences as in a huge construction project . . .  even the most painstaking planning frequently turns out to be mere conjecture and accommodations to changes must necessarily be of the rough, quick and ad hoc sort, analogous to ever changing commands on the battlefield.  Blake Construction Co. v. C.J. Coakley Co., 431 A.2d 569, 575 (D.C. App. 1981).

In my experience, change orders are a frequent source of construction disputes.  Get those change orders approved by the property authority (in writing) with an understanding of the change’s effect on the project’s completion date and budget.

What is Oklahoma’s Homestead law?

The Oklahoma homestead law protects your primary residence from the forced sale by creditors. Our lawmakers consider the family home a cherished possession. As such, a creditor (one to whom you owe money) cannot force its sale unless to satisfy a mortgage, mechanic’s lien, or unpaid taxes.

A creditor can, however, file a judgment lien on the homestead. Although this creditor cannot force the sale of the home, the lien will act as an encumbrance that will need to be satisfied (paid) when you sell the home.

One implication of the homestead law is the requirement that any contract, deed or mortgage must be signed by both spouses if it affects the homestead.

Before you sign an oil and gas well lease…

Assume you are approached by a landman who wants to lease your 80 mineral acres.  As far as you know, your place has never been under lease, but you understand that your neighbor is receiving handsome checks since a well was drilled on his place.

That oil and gas lease will remain in full force so long as oil or gas is produced in paying quantities.  It is not unusual to see leases that are still effective even though they were signed many, many years ago.  So, you are negotiating a document that you, and maybe your kids and grandkids will live under.  Perhaps you should conduct (or more likely hire a professional to conduct) research before you sign that lease.

If I were in your shoes, here is what I would want to know:

  • What is the drilling activity in my area?
  • What is the volume of oil and gas from any producing wells in my area?
  • Have there been any oil and gas leases or assignment of oil and gas leases in my area lately?
  • Is the operator currently engaged in any lawsuits?
  • What terms did my neighbor receive on his lease?
  • Besides the royalty and bonus, what other items should I negotiate?

The oil and gas industry is heavily regulated.  The good part about the regulation is that the Oklahoma Corporation Commission, Oklahoma Tax Commission, County Clerk, and Court Clerk will have many of the records you seek.

With research you may discover, as I did recently, that a large operator (a different operator than approached you) is actively leasing near your place.   Wouldn’t it be nice to have two separate operators attempting to lease your place?

“How do I avoid being sued?”

While at my favorite Italian restaurant last week, I was asked “how do I avoid being sued?”  The short answer:  you don’t.  Things happen.  While it is impossible to prevent lawsuits, you can avoid losses by using sound asset protection strategies.
Consider Sam, who is the managing member of a successful oil and gas company called Sam’s Resources, LLC.  Because of the protection afforded by the LLC, Sam believes that his personal assets are safe from lawsuits that arise at work.  Baloney!
Successful plaintiffs may get to Sam’s personal assets in three ways.  First, he may be sued for his wrongful acts.  For example, if Sam allegedly lied to a landowner in order to get a contract signed, then that landowner may sue Sam personally.  Second, other members of the Sam’s Resources, LLC may sue Sam over ownership disputes (to avoid this exposure, always create a separate entity to serve as the member).   Third, Sam’s personal assets may be reached if a successful plaintiff sues Sam’s Resources, LLC and manages to pierce the LLC’s veil.
How does Sam ensure that a plaintiff does not pierce the veil of Sam’s Resources, LLC?  He makes sure that his business has a legitimate purpose (an LLC created to launder drug money provides zero protection), maintains separate bank accounts for business and personal, identifies his status “managing member” with all he does business with, and complies with his LLC’s requirements, which by example means if his LLC’s operating agreement states that any purchase over $25,000 requires sign off by a majority of members, then gets the sign off.
Lawsuits can come at Sam personally and Sam’s Resources, LLC from every angle:  from customers, employees, partners, suppliers, contractors, and the government.  Sam should find a good insurance man.
I would advise Sam to call Charles Johnson at Overman Insurance Agency, LLC, (405) 310-2020.  Charles understands the ins and outs of business coverage, and frankly I call him several times a week with questions (This is not a paid endorsement of Charles Johnson.  Rather, I trust his advice).
What if a plaintiff is successful in bringing suit against Sam’s Resources, LLC?  Are there ways to protect the assets of the LLC?  Yes, a business-savvy attorney can protect both personal and business assets.  Keep in mind, asset protection should be done now.  Measures taken after a lawsuit is filed (or in some cases when the filing is imminent) may be disallowed as fraudulent transfers.

Before you sign that real estate purchase contract, do this . . .

Perform a background search before you sign a real estate contract.  The search is intended to spot any obvious problems before you spend money and time on the matter.

  • Check the Oklahoma Secretary of State records.  If the Seller is a business entity, then it should be in “good standing.”
  •  If the Seller is a foreign entity (for example, a Texas limited partnership), then also check that state’s secretary of state records.
  •  Check the Oklahoma and federal court records to identify past or present lawsuits.  Again, if the Seller is a foreign entity, check that state’s court records.
  •  Check the county assessor’s records to confirm ownership, address, tax and sales information on the property in question.
  •  Check the county clerk’s records for tax liens, mechanic’s liens, lis pendens, and mortgages.
  •  Check the county clerk’s records for the deed that conveyed title to the seller.
  • Walk the property (do you see any obvious environmental hazards like an oil spill?).

Chances are, the title commitment will identify any concerns.  But, wouldn’t you want to know about any “gotchas” before you tendered a deposit and waited ten days for a title commitment?

Escrow

Most think of escrow in the sense of purchasing a home:  you deposit earnest money with the title company; that money is held in escrow while you inspect the home; and at closing, the purchase price of the home is reduced by the sum held in escrow.  Yet, escrow has other benefits in today’s world.
 
For example, assume you are a member of a two-member LLC.  The managing member makes a cash call, requesting that you contribute an additional $100,000 in capital to the LLC.  However, you are hesitant to honor the cash call because you suspect the managing member of cooking the books.  So you ask for an audit of the LLC’s books.   While the audit is underway, you agree to deposit $100,000 in an escrow account, and upon the successful completion off the audit, the cash will be distributed to the LLC.  This tactic is favorable to you in that you have “clean hands” should the matter appear before a judge.  The managing member, likewise, should agree to this solution because he is assured that the $100,000 will be tendered, assuming the LLC’s books are in order.

Does a Revocable Living Trust Protect your Assets?

Suppose that you plan to get re-married, and in order to keep your assets separate from your significant other you set up a revocable living trust, naming yourself as trustee and sole beneficiary.  Three years later, a neighbor trips on your door step, breaks his leg, and wins a lawsuit against you.  Can the neighbor collect the lawsuit judgment by filing a lien on your home, even though the home is held by your trust?

Generally speaking, yes, a judgment creditor can reach the assets of the trust during your lifetime.  Oklahoma law does not allow debtors to escape their creditors by simply moving their assets into a trust that may be revoked at any time.

However, The Oklahoma Family Wealth Preservation Trust Act allows you protect up to $1,000,000 if certain steps are taken, such as 1) naming a co-trustee, and 2) investing the majority of the trust’s assets in Oklahoma assets, like Oklahoma property or stocks and bonds from an Oklahoma-based company.

The Oklahoma Limited Liability Company (“LLC”)

As with a corporation, all owners of an LLC enjoy limited personal liability.  That means that being a member of an LLC doesn’t normally expose you to legal liability for business debts and court judgments against the business.  Generally, if you become an LLC member, you risk only your share of capital paid into the business.  You will, however, be responsible for any business debts that you personally guarantee (of course, you can reduce your risk to zero by not doing this) and for any wrongs (torts) that you personally commit (a good insurance policy should help here).

Excerpt from Legal Guide for Starting and Running a Small Business, Steingold, Fred.  10th Edition.  2008, Nolo Publishing.

Suppose an unsecured debtor doesn’t pay. What’s next?

A savvy creditor should understand the nature and availability of remedies if a debtor defaults. Such knowledge is especially important to unsecured creditors, since the options upon default are relatively few and frequently unsatisfactory-why?

More often than not, the only remedy available to the unsecured creditor is to file a lawsuit, proceed to judgment (an often lengthy and expensive process), and execute against whatever property of the debtor can be found, provided that is not exempt from execution, e.g. homestead.

Here are some tips for unsecured creditors:

· Assure yourself that the customer is credit worthy.

· Get all the information you can about the debtor, especially bank accounts, employer, and ss#.

· Start your collection efforts early. American Express sends me an electronic notice 5 days before the payment is due.

· Be aware of any statutory liens that are available to you, such as laboror’s liens and UCC liens, and be prepared to use them.

(See related post, dated September 16th, 2009)

On August 27, 2013, Gary Quinnett presented a legal seminar on commercial real estate issues. The attendees rated him "Excellent"