For subcontractors working in the Centennial State, a ruling by the Colorado State Court of Appeals may have made some legal aspects of construction trades considerably more complicated. Colorado laws establish two different time limits for filing lawsuits against subcontractors for deficient work: The statute of limitations and the statute of repose. A new legal interpretation of the second can affect how you do business going forward.
Statute of limitations (SOL)
The statute of limitations for filing an action in Colorado is two years from the time someone knew or should have known about the existence of a defect. Within the construction industry, the SOL begins to toll upon "substantial completion" of the entire project. This can include situations when a building needs only finishing touches or is awaiting final inspections or occupancy permits.
Statute of repose (SOR)
The statute of repose provides a six-year time limit for filing lawsuits when the defect remains undiscovered - or undiscoverable. Unfortunately, the date that time period begins to toll has been subject to interpretation.
Many in the industry view the SOR in the same way as the SOL, i.e. six years from substantial completion of the project. However, subcontractors to multi-year projects may provide their services years before substantial completion, leaving them on the hook much longer than six years.
The court's new interpretation
A recent lawsuit, Sierra Pacific Industries Inc. v. Bradbury, didn't affect Colorado's SOL for filing lawsuits, but it did change how the industry applies the SOR. The court ruled that six-year clock starts with completion of an individual contractor's work despite the fact that it may be substantially completed years prior to completion of the entire project.
Ramifications for Colorado contractors
The state court appears to have changed the industry's common understanding of SOR time limits, and this will likely alter how contractors and subcontractors interact. Those who perform or provide initial services may find that they now come under higher levels of scrutiny by general contractors and developers. Contractors - and their insurers - may find they are on the hook for defects completed by subcontractors, and contractors and subcontractors alike may also be subject to increased insurance obligations and performance bond issues.
If you are in the construction industry in Colorado, learn about your rights, duties and options by contacting an experienced construction litigation attorney. The court's interpretation may change how you do business.