Arent Fox’s Troubled Projects Program (TPP) brings together and leverages the experience of our construction lawyers and our bankruptcy lawyers, providing a coordinated resource for parties involved in troubled construction projects.
A “troubled” project is an active construction project in which a key participant such as the owner, the contractor, or a major subcontractor is unable or refuses to continue the performance of its contract obligations because of insolvency, bankruptcy, or for any other financially driven reason. This inability or refusal to perform constitutes a material default.
Inevitably, a default by any one of these players leaves the construction project at risk and the other parties to sort out myriad conflicting rights and liabilities. This default also puts the creditors of each player at financial risk. The Arent Fox TPP was formed to provide a single point of assistance and coordinated response for parties who find themselves and their projects in this situation. The types of services performed by the TPP depend upon whether the defaulting party has filed a petition in bankruptcy.
When a key project participant cannot or will not perform but has not yet filed for bankruptcy, for example, we step in, on an expedited basis, to assist the remaining project participants in evaluating the situation and developing strategies focused on moving forward with the project. Depending on which party is in default, pre-bankruptcy assistance might include advice about:
- Termination – preparation of termination documentation and mechanics of termination
- Subcontracts – deciding whether to assume or reject subcontracts
- Materials/equipment – mechanics of taking possession of materials and equipment onsite
- Liens – including removing or enforcing mechanics liens
- Retainage/contract balances – assistance in connection with decision making regarding utilization or release of retainage and earned contract balances
- Sureties and lenders – including negotiation of workouts and enforcement of bond and loan documents
- Completed work – documenting the status of work in place
- Protection of work – securing the worksite
- Recovery – including preparation of a recovery plan and rebidding the work
If a key participant has filed a petition in bankruptcy, the parties’ options change. In this case, we assist with:
- Completion and recovery – including developing an overall strategy to ensure the project is promptly made attractive to investors, purchasers, or end users
- Competing priorities – including enforcing and litigating competing priorities for unpaid contract balances and retainage by and among owners, contractors, lenders, sureties, subcontractors, and suppliers
- Executory contracts – including negotiating the assumption or rejection of construction contracts by a trustee or debtor-in-possession as “executory contracts” under the Bankruptcy Code
- Stay relief – including motions for relief from the automatic stay to foreclosure, enforcement, or defense of mechanic’s liens, issues involving payment and performance bonds, seizing a debtor’s materials and equipment
- Trust fund litigation – including the enforcement of construction trust fund statutes in bankruptcy to secure payment for subcontractors and suppliers
- Preference litigation – including defending and prosecuting preference actions commenced by debtors and/or trustees in connection with construction claims
- Lien avoidance and setoff – including litigating against trustees in bankruptcy in connection with lien avoidance litigation, setoff litigation, and enforcement of the rights of recoupment and reclamation
- Enforcement of arbitration provisions – including removing dispute resolution from the Bankruptcy Court in order to enforce arbitration provisions and clauses
- Claims against sureties and guarantors – including the prosecution of enforcement actions by beneficiaries (including subcontractors and suppliers) against payment and performance bonds as well as actions to enforce and collect against nondebtor guarantors