Portability of Federal Estate Tax Exclusion Between Spouses Requires Form 706
Click here to print "Portability of Federal Estate Tax Exclusion Between Spouses Requires Form 706"
(Published in the Idaho Business Review)
By Kimbal L. Gowland
As many people may have read or heard by now, the Tax Relief Act of 2010 (the “2010 Act”) provides that the federal estate tax exclusion amount for a person who passes away in 2011 or 2012 is $5 million. One of the most significant and unique aspects of the 2010 Act is the provision on spousal “portability”, which means that a surviving spouse can take advantage of the unused exclusion amount of his or her predeceased spouse by adding the unused exclusion amount to the exclusion amount of the surviving spouse. In plain English that means, together, a married couple can transfer up to $10 million to children and other people without federal estate taxes being imposed, making portability (if it, and the $5 million exclusion amount, were here to stay – see discussion below) a very important consideration in effective estate planning, particularly for people owning construction businesses and other small businesses.
To take advantage of portability, the federal estate tax laws require that the unused exclusion amount must be transferred from the estate of the first spouse to die to the surviving spouse. This transfer can only be done by the filing of a “timely and complete” federal estate tax return (Form 706) for the first spouse to die, even if there is no federal estate tax due and even if the executor of the estate of the first spouse to die is not otherwise obligated to file a Form 706. All of the assets owned by the decedent at his or her date of death must be properly valued and listed on Form 706.
If Form 706 is not filed (or is not “timely and complete”), any unused exclusion amount that could have been transferred to the surviving spouse is lost forever and will not be available at the death of the surviving spouse to reduce the amount of his or her estate that may otherwise be subject to federal estate tax. The need to timely file Form 706 appears to be a trap for the unwary. Often, the value of the estate of the first spouse to die will be less than the amount required to file a Form 706. Nevertheless, the executor is required to file a timely and complete Form 706 before the decedent’s unused exclusion amount will become portable to the surviving spouse.
It is important to recognize that portability and the $5 million exclusion amount are, under present federal estate tax law, only scheduled to last through 2012. For deaths occurring after December 31, 2012, unless Congress legislates otherwise before then, the exclusion amount will be reduced to $1 million, the maximum federal estate tax rate will increase to 55% from the present 35%, and portability will no longer be part of the federal estate tax law. What happens in 2013 and thereafter in regard to the transferred portion of the unused exclusion of a first spouse who died in 2011 or 2012 is unclear, but one would assume that it would still be available (but undoubtedly in a smaller amount, if everyone’s exclusion amount is reduced from the present $5 million).
There will certainly be changes proposed to the federal estate tax laws before 2013. The Obama administration has already proposed a return to 2009 levels, with a $3.5 million exclusion amount and a 45% maximum estate tax rate. Some Republications have called for an outright repeal of the federal estate tax laws, while others in Congress have urged continuation of the $5 million exclusion amount. Unfortunately, given the current political environment of seemingly unresolvable deadlock and the recent failures of Congress (and its “supercommittee”) in regard to the debt ceiling and deficit reduction (which political environment and failures will likely continue during the upcoming election year), we could very well return to a $1 million exclusion amount and a maximum estate tax rate of 55% (to which federal law will automatically revert as of January 1, 2013, if Congress fails to act before then). In my opinion, the best outcome we can expect is the continuation of present law, which I hope would be made permanent (instead of for a “patchwork” two-year period, like the 2010 Act), so that people can engage in more certain estate planning.
Thus, although nobody knows where federal estate tax laws are headed after 2012, in the event of any death in 2011 or 2012, where a benefit could be derived from a portability election with respect to a deceased spouse’s unused exclusion amount as explained above, it is critical that serious consideration be given to the filing of Form 706 for the first spouse to die. Form 706 is due nine (9) months after the date of death (although a decedent’s executor may request an automatic 6-month extension of the due date for Form 706).
Kimbal Gowland is a partner with the law firm Meuleman Mollerup LLP, representing clients with legal concerns in real property matters including purchases, sales, leasing, lending, title and development issues, general business matters, and estate planning matters. He can be contacted at 208.342.6066 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . More information is available online at www.lawidaho.com.
City of Lewiston and Idaho Procurement Law
Click here to print: The City of Lewiston and Idaho Procurement Law
Given an Inch, Sometimes Government Takes a Mile
By Geoff McConnell
(as published in the Idaho Construction Review)
From time to time, some governmental entities abuse their authority and behave as if the law does not apply to their actions. Unfortunately, more often than not, the victims of their abuse are private businesses with lesser bargaining power. The story below describes recent abuse by the City of Lewiston which was ultimately overturned by the Idaho Supreme Court.
Prior to 2005, the statutes governing the procurement of goods and services by local public entities (school districts, highway districts, cities, counties, etc.) were located throughout the Idaho Code. No uniformity existed. In large part, the only common principle that applied to competitive bidding was that contract awards were made to the lowest responsible bidder.
In 2005, the legislature enacted a uniform law governing the procedures by which local public entities purchase goods and services. In an effort to eliminate varying and sometimes conflicting statutes relevant to public procurement (and to eliminate varying and conflicting court decisions pertaining to those statues), the legislature enacted a uniform set of laws to be followed by virtually all public entities in the state.
In creating a single set of procurement statutes, the legislature codified the traditional means of competitive bidding and an alternative means of competitive bidding utilizing pre-qualification of bidders. The effort was collaborative and included input from the contracting community. In the end, it appeared that both the interests of the public entities and the interests of the contracting community were served as the legislature created a statutory scheme which provided: (1) a traditional means of competitive bidding; and (2) a method utilizing subjective criteria by way of pre-qualification.
Most public entities adhered to the new statute without difficulty. In large part, most public entities continued to award projects to the lowest bidder as they had traditionally done for years. A few public entities prequalified contractors pursuant to the statute.
Unfortunately, some public entities attempted to exploit what they perceived to be a loophole in the law. Instead of awarding jobs to the lowest bidder or going through the prescribed pre-qualification process, a few public entities sought to award projects on a completely subjective basis without regard to the statutory requirements. The City of Lewiston was one of those entities.
On Wednesday, November 2, 2011, the Supreme Court issued a decision rebuking Lewiston’s attempt to ignore statutory constraints and award contracts on the basis of the City’s subjective criteria. Rather than following the law, Lewiston invited bids without pre-qualifying prospective bidders for the City’s golf-course construction project, then, after-the-fact, the City decided to subjectively determine which bidder was most qualified, from the City’s standpoint. In essence, the City simply selected the bidder that it wished to do business with, without regard to the law. The 2005 law provides that a public entity may award contracts to the lowest pre-qualified bidder. However, Lewiston acted as if the law permitted it to subjectively select the winning bidder after-the-fact without regard whether the contractor had submitted the lowest bid amongst bidders pre-qualified by the City.
The City believed the statute permitted the City to qualify bidders in any manner the City saw fit, at any time, and even to permit a favored bidder to modify its bid after-the-fact. The district court in Lewiston supported the City’s decision, ruling that the law permitted public entities to award contracts to bidders without regard to price.
The Supreme Court in Hillside Landscape Construction vs. City of Lewiston corrected the City’s attempt to disregard the law. The Supreme Court held that the 2005 law did not give license to public entities to award contracts to whomever they wished. Rather, the Court held that public entities may pre-qualify bidders using the criteria set forth in the statute (and then award to the lowest pre-qualified bidder), or the public entity may simply award contracts to the lowest bidder without pre-qualification, unless the apparent low bidder is clearly not acceptable due to something like demonstrated irresponsibility on other projects, or licensing issues, or significant bid irregularities.
The Hillside case re-affirms the interpretation of the 2005 statutes as they were understood by the contracting community and the majority of public entities throughout the state. From time to time rogue public entities will exercise their power in ways far beyond their statutory authority. Fortunately, our judicial system still has the power to curb those transgressions.
Employer-Employee "At-Will" Employment Relationship
Click here to print: Protecting the Employer-Employee "At-Will" Employment Relationship
By Jeff R. Sykes
In Idaho, the employment relationship between the employer and the employee is presumed to be “at will.” “At will” means the employer may terminate the employment relationship at any time, for any reason, provided the reason is not an illegal reason (e.g., age, race, gender, etc.), without liability to the employee. Likewise, the employee may terminate the employment relationship at any time, for any reason, without liability to the employer.
The “at will” relationship can, however, be changed if there is an agreement between the employer and employee for the employment relationship to last for a certain duration of time or there is an agreement that the employment relationship will only be terminated for specific reasons or cause. Such an agreement can be oral or in writing.
Take, for example, the case of Stuart MacKay v. Four Rivers Packing Co., which was decided by the Idaho Supreme Court on July 28, 2011 (2011 Opinion No. 86, Boise, April 2011 Term). In that case, MacKay alleged that his employer offered him a long-term employment contract. MacKay alleged that he and his employer orally agreed that his employment was to continue until MacKay “chose to retire.” MacKay further alleged that he informed the employer he might not retire for as long as ten years. MacKay alleged that his employer breached the employment contract by terminating his employment before he retired.
The employer denied the conversations with MacKay. The employer asserted that the employment relationship was “at will” and it had no liability to MacKay. In the end, after hearing all of the testimony, the jury believed that the most credible evidence presented was that the employer had offered MacKay employment until he retired, that the employer breached the contract, and that the employer was liable for damages and attorneys’ fees for terminating MacKay’s employment before he retired.
Notably, the employer had no employee handbook or other documentation specifying that the employment relationship was “at will.” The employer had given MacKay a written employment contract, which specified the relationship was “at will,” but the contract was never signed by either party.
There is a lesson contractors can learn from MacKay. If it is the contractor’s intent to have an “at will” relationship with its employees, it is incumbent upon the contractor to make sure the employment “at will” status is maintained and protected so that alleged oral agreements do not change that relationship.
The contractor should not rely on the presumption of an “at will” employment relationship. One easy way for the contractor to maintain the “at will” status is to provide all employees with an employee handbook which documents that the employment relationship is “at will.” The employee handbook should affirmatively state that the “at will” relationship cannot be changed by an oral agreement, and that it can only be changed through a written agreement signed by both parties.
The employee handbook should be provided to all employees and the employee should acknowledge receipt of the handbook and that his/her employment is “at will.” Employees should be required to acknowledge receipt of all subsequent changes to the handbook. Alternatively, the contractor can insist upon an employment contract signed by the employee which documents that the employment relationship is “at will.”
A contractor’s failure to protect the “at will” status of the employment relationship may give rise to an unintentional claim based upon an alleged oral agreement between the parties. Has your company done all it can to preserve its rights? If not, you may want to contact your attorney or employment law consultant for advice.
Survivorship Life Insurance (Second-to-Die Policies)
Click here to print: Survivorship Life Insurance (Second-to-Die Policies)
By Jonathan R. Bauer
Life insurance has an important place in both construction businesses and estate planning for owners. Second-to-die policies can be an important part of effective planning for both small business owners and anyone who is a parent.
Survivorship life insurance policies are sometimes known as “second-to-die” policies for an obvious reason: the coverage insures both spouses and the proceeds are payable only after both spouses have died. The premiums on these policies are generally less than those for two single life policies. Additionally, underwriting standards are generally more liberal for second-to-die policies, which means that someone who has been denied coverage under a single life policy, or who has medical conditions that make premiums extremely expensive, may be eligible for insurance, or less expensive insurance, under a second-to-die policy. For these reasons, if a second-to-die policy fits your needs, it may be a perfect choice.
Conventional wisdom has been that second-to-die policies were good for two main purposes: to cover estate taxes after the second spouse dies and to provide for a “special needs” child. Although often estate tax planning can avoid taxes when the second spouse dies, sometimes, for a variety of reasons, such planning is not done (or is not done properly) and the second spouse’s estate is hammered with a huge estate tax bill. This can be devastating, particularly when a family business is involved.
Often, a family business is created by a husband and wife who, in their older years, hand the management of the business over to their children. However, the parents maintain a controlling ownership interest in the business to make sure that things continue to run smoothly. Often, this business is the couple’s most significant asset (sometimes worth several million dollars). Without appropriate planning, when the second of the two parents dies, the children may have to sell all or part of the business just to pay the estate tax bill. This often means the end of the business and the parents’ legacy. A second-to-die policy can help pay the estate taxes and allow the children to keep the business.
Parents with a disabled child often believe that so long as one of them is alive, they can care for that child. However, if both parents were to pass away, both income streams are gone and the disabled child may have no financial resources. A second-to-die policy can be an affordable way to alleviate these problems and provide money for the disabled child after the parents’ death. This can be particularly effective if the policy proceeds are placed in a “special needs trust” which is designed to allow the disabled child to remain eligible for government assistance while still making the insurance proceeds available to be used for the disabled child’s benefit.
One potential scenario for second-to-die policies that is often overlooked is when a couple has minor children. This situation calls for planning similar to that seen with a disabled child and a second-to-die policy (particularly a term policy) can be invaluable for the parents.
Often, families with young children don’t have significant discretionary income to put towards life insurance premiums. Also, often both parents work and are capable of earning a living in the event the one spouse dies. For these reasons and others, parents often feel that they may be able to “get by” without a significant amount of life insurance. However, what if both parents were to die while their children were young? They may have appointed guardians for their children in their wills, but what if they have not properly planned to provide those guardians with the assets needed to raise their children?
A second-to-die policy can be a perfect and relatively inexpensive way to give parents peace of mind. Parents can buy a term policy which is in effect for what they deem is an appropriate period of time (until their kids are 18, 21, 30, etc.). Then, when their children are grown and responsible for themselves (hopefully) the policy is simply terminated.
For many people, business and estate planning is geared towards avoiding catastrophe. Those seeking this peace of mind should at least consider including life insurance as part of their planning. However, not everyone can afford the perfect life insurance policy. Those people, in particular, should consider a second-to-die policy that may provide that peace of mind at a price they can afford.
Jonathan R. Bauer is a partner with the law firm Meuleman Mollerup LLP. He focuses his practice in the areas of business law (mergers/acquisitions/sales, financing, general corporate counseling), real estate law, and estate planning and probate. Mr. Bauer can be contacted at 208.342.6066 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it . More information is available at www.lawidaho.com.
Meuleman Mollerup sponsors Open House in Support of Land Trust of the Treasure Valley's Harrison Hollow Campaign
Does Your Contract Protect You Against Material Price Increases?
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Written by Richard L. Stacey
(as published in the Idaho Construction Review)
While the economy continues to struggle, prices for many construction materials have been on the rise. SteelontheNet.com reports a 25% - 30% increase in steel prices just since January 1, 2011. Ken Simonson, Chief Economist for the Associated General Contractors of America, reports that copper, diesel, plastics, asphalt, and gypsum have also experienced dramatic price increases so far this year.
The combination of economic downturn and increased material prices create a very dangerous situation for construction companies. Decreased construction demand keeps bid margins at a minimum while increasing the risks contractors undertake due to increased material costs. Bids must be low enough to be awarded the job but also must be high enough to take into account the possibility of an increase in material prices during the course of the project.
Now more than ever contractors are asking the following questions: (1) If a rapid price increase occurs, can I increase my contract price to reflect the increased cost of the material? (2) Can I terminate the contract without liability because I cannot afford to perform the work at the increased price? As always, the answers to these questions depend upon the terms of your contract; specifically, whether or not it contains a properly drafted price escalation or “force majeure” clause.
A force majeure clause is a contractual provision found within a variety of standard commercial contracts including construction contracts. It essentially allows you to seek price adjustments or to terminate your contract if a specified event beyond your control occurs. Standard force majeure clauses typically include protections against strikes or acts of a labor union, floods, earthquakes, acts of God, and acts of war.
Unfortunately, these provisions typically fail to cover other significant events such as material price increases. Because most courts narrowly interpret the events covered by force majeure clauses, it is important that you have a well-drafted clause in order to protect yourself against the risks of material price escalation. For example, a properly drafted clause should identify the construction material you are going to supply, the value of said material at the time the contract is executed, and explain that material price increases beyond a certain threshold amount, say 20% for example, constitute an event for which you are entitled to additional compensation or to terminate the contract without liability.
While a price escalation provision should be included in your contract to protect you against the risks of increases in material prices, these provisions can also be beneficial to the owner. Owners can expect contractors to submit lower bids if the contractors do not have to accept responsibility for increased costs resulting from material price escalation. Even if a construction contract contains a properly drafted force majeure clause, the contractor can still be responsible for increased material costs if the event or events resulting in the price increases were within its control. There are two important aspects of this rule.
First, you cannot invoke the clause if you could have taken reasonable steps to avoid incurring the increased material costs. For example, a contractor may still be responsible for increased material costs if the price increase occurs after the materials were reviewed and approved by the owner but before the contractor reasonably should have purchased the materials from its supplier.
Second, you cannot cause the materials to increase in price. For example, a contractor cannot utilize the provision to seek additional compensation for in-stock materials that were purchased prior to the execution of the contract when material prices increase after the contract is executed.
Now more than ever it is important to review your contract to ensure it properly protects you against the risks of material price escalation. If it does not, I encourage you to contact an experienced construction attorney to draft one for you. Because these provisions are narrowly construed by the courts, you want to be certain it will be enforceable if it is ever challenged.
Jeff Sykes Presents Employment Law Seminar: Defending Against an Unemployment Claim
BOISE, ID - Meuleman Mollerup LLP attorney Jeff R. Sykes presented a no-cost employment law seminar for firm clients titled, "Defending Against an Unemployment Claim." March 23, 2011.
Recent decisions by the Idaho Supreme Court make it clear that for an employer to defeat an employee’s unemployment insurance claim, the employer must accurately present quality evidence at an unemployment hearing. Further, the employer must prove that the employee is not entitled to unemployment insurance.
Clients and invited guests met to discuss Idaho’s unemployment claims process and what an employer must do to expertly defend against an unemployment claim.
Date: Wednesday, March 23, 2011
Where: The offices of Meuleman Mollerup LLP, 755 West Front St., Suite 200, Boise ID 83702
INFORMATION: Although this seminar has already been presented, please contact us if you'd like to be informed of future employment law seminar opportunities: This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 208.342.6066
Jeff R. Sykes is a partner with the law firm Meuleman Mollerup LLP leading the firm’s employment law practice. He represents businesses and individuals with legal problems and concerns involving contracts, construction, insurance, employment, and real property matters.
Jeff serves on the Board of Directors of the Human Resource Association of the Treasure Valley. He has served on the Board of Directors of the YMCA Youth Government Program and as a Judge Pro Tem for the YMCA Youth Court. He is a member of the Order of Barristers, the Downtown Rotary Club, the Boise Metro Chamber of Commerce, Idaho Associated General Contractors, and the Idaho Land Title Association. Jeff is a 2005 recipient of Idaho Business Review’s “Forty Accomplished Under 40” award.
Meuleman Mollerup attorneys have served the construction, real estate, and business communities for 30 years. The attorneys of Meuleman Mollerup offer the experience and expertise that come from years of focus on those specific industry groups. The firm can be reached at 208.342.6066, or on the web at www.lawidaho.com
Real Estate Law ● Construction Law ● Business Matters
Commercial Litigation ● Estate Planning / Probate ● Employment Law
Building Legal Solutions for your Business
Wayne Meuleman, Kimbal Gowland and Geoff McConnell Selected for The Best Lawyers in America 2011
BOISE, ID – October 1, 2010 – Attorneys Wayne Meuleman, Kimbal L. Gowland, and Geoffrey J. McConnell, partners in the law firm Meuleman Mollerup LLP, have been named to the 2011 edition of Best Lawyers® (Copyright 2009 by Woodward/White, Inc. of Aiken, SC.) for their accomplishments in the fields of construction law and real estate law.
Kimbal L. Gowland has 22 years as a real estate and estate planning attorney with emphasis in commercial real estate and shopping centers. From 1984 through 1987, Mr. Gowland was a tax consultant at Touche Ross & Co. (now Deloitte), where his duties included research, planning and tax return preparation in areas of individual, corporate, partnership, pension, estate and trust taxation. Best Lawyers states that Mr. Gowland is lauded as a conscientious and meticulous attorney. Mr. Gowland has served on the Boise Chamber’s Boise Valley Economic Development Committee, he is a graduate of the Boise Metro Chamber of Commerce “Leadership Boise” program, and a he is a former member of the Idaho Association of Commerce and Industry’s Tax Committee. Mr. Gowland, a Martindale-Hubbell AV Preeminent peer-rated attorney, has been recognized by Best Lawyers in America annually from 2005 to 2011, and he has also been named by Chambers and Partners USA, America’s Leading Lawyers for Business, since 2004.
Geoffrey J. McConnell was recognized by Best Lawyers in America for his expertise in Construction Litigation and Government Contracts. He has 24 years of experience in construction litigation representing general contractors, owners and subcontractors in state and federal courts and before federal boards of contract appeals. Mr. McConnell earned his Juris Doctorate at the University of the Pacific McGeorge School of Law, and he is licensed to practice law in Idaho, Utah and California. He has also been recognized for his legal expertise in construction law by Mountain States Super Lawyers since 2009, a designation given to only 5% of the lawyers in Idaho. Mr. McConnell is a member of the American Bar Association Section on Public Contract Law and the American Bar Association’s Forum Committee on the Construction Industry. Mr. McConnell is an active member in the exclusive lawyer referral organization, LEGUS International Network of Law Firms.
Wayne Meuleman, a founding partner of Meuleman Mollerup LLP, was recognized for his expertise in 
construction Law. He has 36 years experience representing clients throughout the western U.S. involving a variety of public and private projects. Mr. Meuleman served as the Chair for the Board of Directors of the Idaho Associated General Contractors from 1998-2003, he is the Executive Director of the Idaho State Building Authority and he served as counsel for the Nevada Real Property Corporation which provides lease-purchase financing of state governmental facilities for the State of Nevada. Mr. Meuleman, a Martindale-Hubbell AV Preeminent peer-rated attorney and a member of Who's Who in American Lawyers, has been recognized by Best Lawyers in America annually from 2005 to 2011 and by Mountain States Super Lawyers since 2007.
Best Lawyers in America is based on an exhaustive peer-review survey in which thousands of leading lawyers in the U.S. confidentially evaluate their professional peers. Because of the rigorous and transparent methodology used by Best Lawyers, and because lawyers are not required or allowed to pay a fee to be listed, inclusion in Best Lawyers is considered an honor. Corporate Counsel Magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”
Meuleman Mollerup LLP is a Boise firm specializing in the practice of law pertaining to construction law, real estate law, and business law including employment matters, commercial litigation, and estate planning. Meuleman Mollerup attorneys have served the construction, real estate, and business communities for over 29 years. The attorneys of Meuleman Mollerup offer the experience and expertise that come from years of focus on these specific industry groups. Mr. Meuleman, Mr. Gowland and Mr. McConnell can be reached at the firm by calling 208.342.6066. More information online at www.lawidaho.com.
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Understanding the Purpose of a Lien is Required to Ensure Payment
By Brian J. Holleran
Click here to print; Understanding the Purpose of a Lien is Required to Ensure Payment
It is generally understood that a supplier of labor, materials, or equipment on a private construction project can secure a mechanic’s or materialmen’s lien on the subject property. The purpose of such lien is to ensure payment to those supplying the labor, materials, or equipment.
Idaho’s materialmen’s and mechanic’s lien statute, however, does not allow a laborer, materialman, or equipment supplier to attach a lien to public, government-owned property. The laborer or materialman is therefore deprived of his or her typical security interest in the project. Recognizing this shortcoming, Idaho has adopted a series of laws designed to protect the rights of those providing labor, materials, or equipment to projects on public property.
This alternative remedy is the “payment bond.” Idaho law requires a general contractor on a state, county, city, or any other public works project to post a payment bond before the contract for construction is awarded. The public, contracting authority sets the amount of the payment bond, but it cannot be less than 85% of the entire contract amount. The general contractor will typically secure the payment bond via a licensed surety company. Pursuant to the statute, the payment bond is solely for the protection of persons supplying labor, materials, or equipment to such public works project.
A person seeking payment via the payment bond must meet various qualifications in order to sue for payment under the statute. First and foremost, the person seeking payment must qualify as a claimant under the statute. The statute limits claimants to first-tier and second-tier subcontractors. A “first-tier subcontractor” is a subcontractor that supplies labor or materials directly to the general contractor. A “second-tier subcontractor” (also known as a “sub-subcontractor”) is a subcontractor that supplies labor or materials to a first-tier subcontractor. Thus, a person that supplies labor or materials to a second-tier subcontractor cannot make a claim against the payment bond because his relationship to the general contractor is too remote.
The next requirement is of course that the claimant has provided labor, material, or equipment to the project. Quite obviously, a “laborer” performs some physical act at the project site. A person providing a professional service, such as a project manager, engineer, or architect may qualify as a “laborer” if such professional supplies 1) on-site; 2) physical toil; and 3) and the professional’s work is supervisory in nature. A claimant supplies “materials” to the project if, at the time of sale, he reasonably expects such materials to be used in the project. Finally, claimant provides “equipment” if he rents, leases, or otherwise supplies equipment to the project.
Next, the claimant must not have been paid in full within 90 days after last furnishing labor, materials, or equipment to the project. Here is where the distinction between first-tier and second-tier subcontractors is relevant. A first tier-subcontractor is not required to give notice to the general contractor of his claim within this 90 day period. A second-tier subcontractor, however, is required to give notice to the general contractor of his claim during the 90 day period. Specifically, the second-tier subcontractor must give notice directly to the general contractor via registered or certified mail, stating that such second-tier subcontractor has not been paid for the labor, materials, or equipment supplied. The notice must state with substantial accuracy: 1) the amount claimed; and 2) the name of the person to whom the labor, materials, or equipment was furnished. In addition, the notice must be sent to any place where the contractor maintains an office or conducts his business, or the notice may be sent to the contractor’s residence.
Finally, the claimant must institute a lawsuit against the payment bond within the appropriate amount of time. Here again, the first-tier/second-tier distinction is relevant. A first-tier subcontractor is entitled to file suit within one year from the date on which final payment under the subcontract became due. A second-tier subcontractor, however, has a shorter time period to bring suit. The second-tier subcontractor must bring suit within one year from the date on which he last supplied labor, materials, or equipment to the project.
It is also important to note that there are federal statutes providing a similar remedy for first-tier and second-tier subcontractors where the project is on federal land. However, because there are differences between the federal and state statutes, the subcontractor should consult such federal statutes before commencing a federal action.
Under Idaho state law, a prevailing subcontractor may be entitled to a reasonable attorney’s fee. On the flip side, a subcontractor who does not prevail may be required to pay the other party’s reasonable attorney’s fee. As such, it is highly recommended that a subcontractor contact a construction attorney before commencing an action against the general contractor's payment bond.
Brian J. Holleran is an attorney with the law firm Meuleman Mollerup LLP focusing in the areas of construction law and commercial litigation. Mr. Holleran earned his undergraduate degree in English from the University of Idaho, and he received his J.D. in 2010 from the Gonzaga University School of Law. Prior to law school, he served as Project Manager for an Idaho Commercial Development and Management firm. Mr. Holleran can be contacted at 208.342.6066 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Meuleman Mollerup LLP attorneys have served the construction, real estate, and business communities for over 29 years. More information is available at www.lawidaho.com
Real Estate Law ● Construction Law ● Business Matters, including:
Commercial Litigation ● Estate Planning / Probate ● Employment Law
Building Legal Solutions for Your Business
Brian J. Holleran
AREAS OF EXPERTISE
BUSINESS LAW
- Business transactions including new business formation
- Commercial transactions including drafting and reviewing letters of intent, asset sale, and purchase agreements
- Drafting and negotiating construction contracts, collections and liens
REAL ESTATE LAW
- Real property law including purchase and sale transactions, leases, and easements
ESTATE PLANNING
- Wills, Trusts, Estates, Powers of Attorney, Health Directives
PROFESSIONAL EXPERIENCE
2010 - Present: Associate, Meuleman Mollerup LLP
2010 - Spring semester, legal externship, Honorable Tari S. Eitzen, Spokane County Superior Court, Spokane, Washington
2005-2007 Project Manager for an Idaho commercial development and management firm
Experience in coordination of design and construction teams for project construction and development, and in buying, selling and leasing commercial and residential properties
BUSINESS AND INDUSTRY ACTIVITIES
- Idaho State Bar, Real Property Section and Young Lawyers Section
- Boise Metro Chamber of Commerce, Boise Young Professionals
EDUCATION
- J.D., cum laude, Gonzaga University School of Law, 2010
- University of Idaho, B.A. English, 2004, minor in Business Administration
AWARDS
- National Society of Collegiate Scholars, Sigma Tau Delta International English Honor Society
- Golden Key International English Honor Society
- Earl and Ada David Scholarship
