Colorado’s Construction Trust Fund Statute – What is it and Who does it Protect?

Construction lawyers often receive calls from property owners, subcontractors, sub-subcontractors, vendors, and suppliers about difficulties related to obtaining payment on construction projects. Prudent owners, contractors, subcontractors, and material vendors are constantly attempting to allocate risk, obtain payment and maximize profit margins. Colorado’s Construction Trust Fund Statute can be a useful tool for Owners, Subcontractors and Suppliers to obtain relief for non-payment on construction projects. 

The statute requires funds distributed under a construction contract be held in trust for the subcontractors, sub-subcontractors and vendors.  If a contractor does not distribute funds received from the owner due to a subcontractor or supplier, the owner, subcontractor or supplier may use Colorado’s Construction Trust Fund Statute to obtain payment.

For example, an owner distributes funds to a contractor for work on the owner’s project. The contractor, being a contractor on multiple projects, uses those funds to pay obligations unrelated to the owner’s project. The contractor in turn does not pay the roofing subcontractor for the work performed because the funds were used elsewhere. Under this scenario, the owner and the roofing subcontractor would have a claim against the contractor for a violation of the Trust Fund Statute. The roofing subcontractor may not need to resort to filing a mechanic’s lien on the owner’s property for the contractor’s failure to pay. A variation to this example would produce a similar outcome. For example, once the general contractor pays its roofing subcontractor for the work performed the subcontractor has an obligation to disburse the funds owed to any of its sub-subcontractors.  Here, the sub-subcontractor may have a claim against the subcontractor for a violation of the Trust Fund Statute.

There are exceptions to the statute’s enforceability.  A contractor may withhold funds if there is a “good faith belief” that a subcontractor or vendor claim to payment is not valid due to the conduct or lack of proper performance entitled the contractor to a setoff.  There are additional potential exceptions for consideration.

When successful, the statute allows the claimant to recover its attorney fees, costs and three times the amount of damages.  Additionally, officers, directors, owners, managers and others who control funds subject to Colorado’s Construction Trust Fund Statute, and fail to pay pursuant to the statute, are exposed to personal liability.  It is important to also note that where a judgment is obtained against an individual for violation of Colorado’s Construction Trust Fund Statute, the judgment is not the type of debt typically subject to relief in bankruptcy proceedings.

Trust Fund Statute, C.R.S. §38-22-127

For more information about construction law and construction claims, contact Miller|Kabler, P.C. at 720-306-7733 or visit our website at www.millerkabler.com

What is an “Act of God”?

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September Rain Storm Floods Stapleton’s Westerly Creek

In light of the recent flooding in Colorado some builders have taken the position that water damage to homes is an “act of god” and deny they are responsible for making repairs to the home.  The builders apparently rely on the theory that flooding is a natural event that cannot be controlled and the builder is not responsible for damage that water causes to homes.

Black’s law dictionary defines as “act of god” as follows:

“A natural event that causes loss. No human force is used and the event cannot be controlled.  An overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.”

When homeowners are faced with circumstances where a builder or insurance company denies responsibility for water damage, it is essential to determine what actually caused the damage.  It may be that the homeowner is entitled to relief from the builder or insurance carrier because the damage may not be due solely to uncontrollable acts of nature.

Often, builders fail to establish proper grading and drainage to allow water to flow away from the structure of the home.  This can result  in water intrusion into the home  entering window wells, through basement walls and into crawl spaces.  If the builder fails to establish proper grading/drainage and the cause of the water intrusion is the improper grading and drainage, the builder’s reliance of the “act of god” defense may be inappropriate.  This is because the water intrusion and resulting damage may be caused by the builder’s failure to use proper construction techniques and not a natural, uncontrollable “act of God.”

Similarly, some insurance companies may deny claims under the theory that water damage was caused by a flood and, in the absence of flood insurance,  that insurance carrier does not have a duty to provide the property owner with benefits to correct the resulting water damage.  Here again, the analysis needs to focus on the cause of the water damage.  The cause of the water damage may not be the natural flood event.  Rather, the cause of the water damage may be the result of a failure to adequately design or construct the property in such a manner that would have prevented the water from entering the home or other structures.

For more information, contact Milo Miller of Miller Kabler, P.C., at mmiller@millerkabler.com