Due to growing public pressure, the general contractor for a disputed Maine $1 billion electricity corridor project has agreed to temporarily halt construction. With the future of the project unclear, it remains to be seen what effect this work stoppage will have on the project’s subcontractors.
The New England Clean Energy Connect (NECEC) is a 145-mile power transmission line intended to deliver 1,200 megawatts of Canadian hydropower to Maine and surrounding areas. Billed as a green initiative to move away from the region’s reliance on fossil fuels, the NECEC claims it will “reduce energy costs, enhance reliability and contribute to greenhouse gas reduction requirements.”
The hydropower produced in Canada is estimated to be enough to power one million homes in the Maine region and may stabilize energy prices in the area.
Despite these goals, many Maine residents are not convinced of the project’s benefits and remain concerned over the impact on the state’s forests. Much of the project will make use of existing energy corridors, but an extra 53-mile channel will need to be cut through the state’s western woods.
Ultimately, Last month, a majority of Maine residents voted to kill the project despite work already being underway. Despite this, construction workers were instructed to continue with their work as NECEC proponents filed a lawsuit against the public referendum.
The lawsuit, filed by Central Maine Power’s corporate body Avangrid, claims the referendum is unconstitutional and violates a provision intended to protect contracts. The group is seeking an injunction so it can continue with construction work while the referendum’s constitutionality is debated.
After a public letter from Maine Governor Janet Mills, in which she urged Dickinson to “honor [the people’s] will by immediately halting any further construction on NECEC” until courts could make their decision, Dickinson agreed to temporarily pause work on the project.
With the legal battle heating up, the project’s subcontractors may be stuck wondering how they factor into the debate.
When public projects go wrong, who gets stuck with the bill?
When projects go south after work has already begun, it’s not always clear what avenues are available to project participants to make sure they get paid.
The mechanics lien is an incredibly useful tool for the construction industry to manage payment issues. Unfortunately, mechanics liens are not available on public projects. Instead, most public projects make use of a payment bond.
In Maine, all public projects over $125,000 require the general contractor to post a payment bond. This protects project participants further down the payment chain from not getting paid for their labor or materials.
According to Alex Benarroche, Legal Associate at Levelset, this is good news for the NECEC project’s subcontractors and suppliers, who will be able to make a claim for any unpaid labor or materials furnished. Unfortunately, any other concerns are likely to be more difficult.
“Collecting demobilization costs and loss of profits is [going to be] a hard sell,” said Benarroche. And because the general contractor can’t make a claim against the bond that they posted, their only avenue is to file suit against the government entity that originally commissioned the project.
While how things play out is largely dependent on the contract’s exact provisions, it appears the work stoppage may certainly pose risks to project participants.
With so many factors at play, it’s hard to know the impact of the work stoppage on project contractors
“Generally, when a job is in question or when a job falls apart, there’s a bit of a scramble,” said Matt Viator, Senior Legal Associate at Levelset. “The top of chain parties will preach patience, while the smaller outfits will struggle to keep their business afloat and their workers paid.”
According to Viator, materials are a particularly tricky element to keep track of when projects go sideways. Contractors may find themselves stuck wondering what to do with unused supplies.
If there’s a chance the project continues, how long should they sit on the materials before making other plans? If materials have to be sold at a loss, who takes the hit? With supply chain problems contributing to volatile prices, today’s prices might be different tomorrow, and selling off materials can quickly become a complex problem.
Viator also pointed out that both the prime and subcontractors can find themselves in tight spots when it comes to cash flows. “Public works jobs are often massive, high-dollar undertakings,” said Viator. “Most contractors won’t have the cash flow to take on other jobs while waiting for the public work issue to resolve itself.”
“At the same time, abandoning the project while it’s still in flux could create massive liability, particularly if the job resumes but they aren’t prepared to pick work back up,” he continued.
Similarly, subcontractors must weigh their options when a project stalls. Should they take short-term jobs while waiting? Should they abandon the job for more stable work?
With 97% of construction professionals experiencing stress from cash flow problems, Viator warned that they certainly “can’t sit on their hands.”
“Laborers, specialty trades, and independent contract work will likely jump ship first,” according to Viator. “There’s a lot of work to go around, and they simply won’t accept being told to sit and wait.” If the project starts back up, it will likely be a major challenge to get everybody back, which can contribute to significant delays.
Court documents reveal a dense legal battle wading into the Maine State Constitution and complicated legal arguments concerning the separation of powers.
With both sides of the debate digging their heels in, the fate of Maine’s hamstrung energy project is not clear. Project participants may need to re-evaluate their situations and determine what path is right for them.
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