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In today's economic climate, even contractors who typically work on private projects are testing the waters with federal and state construction works.  And unfortunately, these newcomers are finding themselves a bit lost in procedures when it comes time to get paid.

In the event a federal project (or GC on a federal project) goes sour, contractors and materials suppliers must turn to the Miller Act as a remedy.

We've written about the Miller Act in previous posts right here on the Construction Law Monitor.   But we're not the only act in town, take a look at the Miller Act conversations on the Construction Lien Blog, as well as the Federal Construction Contracting Blog.

In addition to these resources, I've just published a Legal Guide on Avvo.com titled "How to File A Mechanics Lien."  

It breaks down the process in four steps, easy on the eyes:

1. Determine if you have the right to file a claim
2. Send Miller Act Notice to the prime contractor within 90 days from last furnishing labor/materials
3. Sent Notice to the surety (optional)
4. File Suit Against the Bond within 1 year from last furnishing labor/materials

Take a look at it over on Avvo.com by clicking here.

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At the end of 2009, the U.S. Environmental Protection Agency (EPA) published effluent limitations guidelines (EGLS) and new source performance standards (NSPS) to control storm water runoff and the discharge of pollutants from construction sites. The new regulations took effect on February 1, 2010, requiring all permits issued by the EPA to incorporate the new requirements.

New Maximum Numeric Turbidity Limitations

For the first time, the EPA has set numeric limits for the discharge of storm water from construction sites. The EPA has set a maximum daily average numeric limit of 280 NTU (a turbidity measurement) for covered sites. 

In case you don't know, Wikipedia defines Turbidity as:

Turbidity is the cloudiness or haziness of a fluid caused by individual particles (suspended solids) that are generally invisible to the naked eye, similar to smoke in air. The measurement of turbidity is a key test of water quality.

The turbidity limitations will effect construction sites on a phase-in schedule. Construction sites with 20 or more acres of earth disturbance must comply starting August 2, 2011, and those sites with 5 or more acres of earth disturbance must comply starting February 2, 2014.

Covered sites must monitor the storm water discharge for turbidity, report the results of the monitoring and use control technologies (which are not defined) to ensure that the maximum levels are not exceed.

Other Changes (Non-Numeric BMPs)

The EPA has identified other mandatory Best Management Practices (BMPs) relating to: (i) Erosion and Sediment Controls (40 CFR § 450.21(a)); (ii) Soil Stabilization (40 CFR § 450.21(b)); (iii) Dewatering (40 CFR § 451.21(c)); (iv) Pollution Prevention Measures (40 CFR § 450.21(d)); and (v) Prohibited Discharges (40 CFR §450.21(e)).

Additional Resources:

Environmental Protection Agency Web Release of Regulations

Full Text of Regulations

Article by Barnes & Thornburg, LLP

Article by Vinson & Elkins, LLP 

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Here’s the situation: During construction, the rise in material costs have impacted your ability to complete the project as originally bid.

Who is responsible for the change in material costs? The contractor or the owner?

Material Prices Are Going Up, Up, Up

While the economy has struggled for two years, material costs have remained quite steady in recent times. In fact, Ken Simonson, chief economist for the Associated General Contractors of America, documents a 2.3% decrease in material costs in the first 9 months of 2009.

Simonson speculates, however, that this drop in prices in materials is bittersweet. Between the months of October and November 2009, material prices rose 0.6%, and Simonson writes that the construction industry should treat this rise as a “warning call.”

Simonson is not alone.

The San Francisco Business Times reports that "Material costs continue to squeeze contractors."   Likewise, New Jersey Biz writes that "Spiking materials costs may puncture project prices."

Prices Increases Creates Danger Zone for Contractors

The current economy presents a dangerous situation for contractors. On the one hand, material costs are on the rise. On the other hand, the lack of construction work makes the bidding process more competitive than ever.

So, how does a general contractor keep its bid low enough to win, without risking that price increases will render the job unprofitable?

This really boils down to the question of who is responsible for increases in material costs. If the owner, the project bid can be as competitive as possible given the current material costs. If the contractor, the project bid must take price increase into account.

Escalation Clauses In Contract

Here is the good news for contractors: there are ways you can protect yourself from being held responsible material price increases.

How? Well, your contract of course.

As every contractor and developer should know, the contract is the law between the parties.  An "Escalation Clause" in your agreement will shift the burden of material price increases from the contractor to the property owner, or another party.

ConstructionExec.com has a great overview article on escalation clauses:   Price Adjustment Clauses:  A Solution for Dealing with Changing Material Costs.  Or check out this equally good discussion at ModernContractorSolutions.com:  Material Price Escalation Clauses:  A Modest Proposal.

Essentially, if a contractor agrees to construct something for a lump sum price, the contractor typically assumes the risk of material costs increases.    An escalation clause shifts this risk to the other contracting party.  

Here is what it may look like:

The Contract Price is based upon construction material prices as of the execution of this Agreement.   Any significant price increases in lumber, drywall, _______________, and/or other construction material that occurs during the period of time between contract execution and substantial completion of the Project, shall cause the contract price to be equitably adjusted by an amount reasonably necessary to cover any increase.    As used herein, a significant price increase shall mean any increase in price exceed ____ percent (____%) experienced by the contractor from the date of signing.

Certainly, a contractor is motivated to have this type of provision in its contract...but why would the Owner agree?  One reason an Owner may be interested in an escalation clause is that it would increase the Owner's bidding pool and make contractors more comfortable to lower their bid amounts.

Responsibility for Price Increases When There Isn't An Escalation Clause

So, price increases have affected your project's bottom line and the contract doesn't have an escalation clause....now what?

If you're working under a lump sum contract, you likely have an uphill legal battle to get compensated for the unexpected price increases.   While not the case law everywhere, most U.S. courts will take the approached expressed by the landmark Louisiana decision in Standard Oil Co. v. Fontenot, 198 La. 644 (1941), where the Louisiana Supreme Court stated that in a lump sum contract "It is possible that the anticipated and expected profit may turn into a loss because of a low bid or advances in the prices of materials or the cost of labor."

So, how can you challenge this general principal?   Here are a few possibilities:

• Mistake:   The contractor must argue that its bid contained certain mistakes relating to the material prices....and that the mistake was both the contractors and the other party's.   This is a very tall order.

• Impossibility / Impracticability:   These are legal theories that a party cannot be required to perform on a contract if it is impossible or impractical.  While the contractor may feel like performance of a contract is impossible or impractical if material prices rise too much, courts will not likely share the feeling.   Material and labor price increases are not a secret, and therefore, it will be difficult to show that the increases were not foreseeable when agreeing to the lump sum.

• Force Majeure:  If prices increase significantly because of some act of God (i.e. New Orleanians can think of Hurricane Katrina's effect on material costs), the the contractor may be on to something.   Most construction contracts have a Force Majeure clause, and the contractor could potentially rely on this clause to escalate the contract price in the event an act of God effected material costs.
   

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Every construction project starts with good intentions and a shared goal:  successfully deliver the project to the owner on time and on budget.   Of course, that's much easier said than done.

A few groups collaborated to publish some guidelines on how to make this happen.  

The Associated General Contractors of America (AGC), the American Subcontractors Association (ASA) and the Associated Specialty Contractors (ASC) published the updated guidelines at http://www.constructionguidelines.org.   Or you can download the PDF directly here.

Contractors of all sizes can benefit from having these guidelines desk side.  Keep them handy, and pick them up whenever you have a question or concern about a certain phase of work.   While it may not answer your problem directly, it may get you thinking in the right direction.

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Ken Adams is the leading authority on modern and effective contract drafting, and I'm one of the many happy readers of his blog, Adams Drafting.

The blog focuses entirely on words, and how they effect the meaning of contracts. 

Too frequently, lawyers draft contract documents by resurrecting a form from their database and changing party names.   While a lawyer may spend hours inspecting a contract's wording when a dispute has arisen, they infrequently spend time inspecting the words when drafting the agreement.

Ken examines words and phrases used frequently in contracts, and discusses the problems they may cause.  

Ever think about the word "specific" in a contract?   Ken's post on the word specific discusses how it "more often than not...serves no purpose."  

Or what about the combination of words in a contract...we frequently see the terms "fraud" and "intentional misrepresentation" used in a contract together.  Ken asks, doesn't these two words mean the same thing?  And if so, why use both of them?

The Adams Drafting blog also has good tips on contract layout issues, like how to number pages and what to put in a contract's header and footer.

Words are so important to the practice of law, and as such, every lawyer should at least be thinking about their use of words.   Adams Drafting is a great resource for this.

But Adams Drafting is not just for lawyers.  Contractors and those in the construction business sign contracts left and right - sometimes they write those contracts, sometimes they negotiate its provisions, and sometimes they sign a provided form agreement.   They too can benefit from this blog's discussion of words, and how they can affect agreements.

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Big thank you to our friend Christopher Hill who operates the Construction Law Musings blog for allowing me to become his blog's first three-time Guest Post Friday writer.

This morning, Musing's published a blog post I wrote titled "A Lien By Any Other Name Can Sound Just As Sweet."  

The article provides readers with a broad overview of the lien-like remedies available to them, as they differ based upon the classes of projects. In large part, the article explains the difference between a traditional lien (filed against the property on private projects) and a "claim" type of lien (filed against a bond on a state and federal project).

Of course, this post only skims the surface, but sometimes, it's the basic information that is needed to help folks understand the details. And why is it important to understand these details? The article on Musings concludes with that answer as follows:

Regardless of what class of project you’re working on, a lien-like remedy is probably available to you in the event of non-payment. However, it’s critical to understand the different remedies available at the onset of construction, for each remedy carries different pre-lien or pre-claim requirements.

Take a look at the article by clicking him, and be sure to subscribe to Christopher's blog which posts great information relevant to those in the construction industry.

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Wolfe Law Group is happy to announce the launch two new blog focused on the Pacific Northwest, and particularly the states of Washington and Oregon.

The Northwest Construction Law Blog focuses on construction law issues and updates in Oregon and Washington.  We launched this blog to help your company stay informed about important legal updates in Oregon and Washington, but also to educate contractors and suppliers about legal issues they confront (sometimes unknowingly) everyday

At the Northwest Green Building Law Blog, we’ll be focusing on green building legal matters that affect the states of Washington and Oregon.

Wolfe Law Group practices law in Washington and Oregon, and focuses its practice on the construction industry. We have two full-time LEED AP attorneys who are familiar with green building issues and disputes.

Wolfe Law Group is the leader in the legal industry with its publishing of quality legal resources and information. All of our attorneys consistently publish articles and discussions on our legal blogs, and all of our content keeps you in mind. We strive to post articles and discussions that are relevant to your business, so you can stay advised of legal matters that are important to your company, and get a better all-around understanding of how the law affects your day-to-day work.

Take a look at our listing of industry leading blogs here.

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Happy New Year.  

Did you make it through 2009 alive?  It certainly was a tough year.  Perhaps your legal bills were more than ever before, or maybe you got by without spending much or anything at all on counsel.   In either case, let's make a resolution to avoid expensive legal bills in 2010.  

How do you do it?

Ask an attorney how to avoid legal messes and expensive litigation, and they'll likely start discussing legal precedent, contractual provisions and other technicalities.   Sure, all of that stuff is important when you're knee deep in litigation.  By that point, however, you'll already have an attorney to handle those issues.

What about before you're knee deep in litigation; how do you avoid legal messes?  

The most valuable piece of advice I give clients who ask me how to avoid legal fights and messes is to be organized. 

Organization is your best friend when entering a litigation scenario.   It proves your case when you're right, and it paints a clear picture of your risk and exposure when your wrong or possibly wrong.   And insofar as your contractual and legal duties are concerned, if you're organized and know what they are, you'll have a much better chance of fulfilling them.

Now, you're quite lucky that it's now 2010.   That's because the World Wide Web has been improving for over 20 years now, and it's got a million ways to help you organize your construction business (large or small) in the new year.    

Here are a few of our favorite web applications out there that can help you stay organized, and avoid legal bills and messes.

Keep Your Files Organized

Construction projects can have tons of paper exchanged.   Contract documents, job specs, change orders, correspondence...the list can go on.   And, to top it off, all these documents are being exchanged between you and your employees, and your subcontractors, suppliers, their subs and suppliers, the property owner...the list can go on.

How do you manage all that collaboration, and all that paper?

SugarSync:  This works with PCs, Macs, on iPhones and Blackberrys, on just about anything else...and it's easy as pie.   Add a file to a folder on your computer, and it instantly gets added to that folder on everyone else's computers.  You can share files or folders with other companies, allowing them to just see the docs or edit / trash it.

The possibilities are endless, and the cost is low.  This program can single-handely change the way you exchange documents on your construction project.

Box.Net:  Like Sugar Sync, this is another document management system to help you organize documents to a construction project and collaborate with others on the documents.  Insofar as features and collaboration are concerned, Box.net gets the edge.  You can sign documents electronically, send documents via fax, edit docs, send docs via postal mail, and more...all within the box.net interface.   Box.net is entirely web-based, however, meaning you can't just drag and drop a file into a folder on your PC and let it do its magic.  On the ease of use, SugarSync gets the edge.

Notice and Lien Deadline Management

It doesn't matter if you just work in one state, or if you work in every state.  Notice and lien requirements are confusing, and the effort required to comply with these requirements can feel constant.   How do you keep up?

ExpressLien:  Enter Express Lien.   This company provides two different sets of services. 

First, it helps you manage your lien and notice requirements and deadlines.   You put in your project data, and it calculates your requirements and deadlines and displays it to you all on an easy to read online interface.    How much?  It's free.

Second, if you want, you can order your notice and lien documents directly through Express Lien.   They will take your project data, create the documents, file/send them, and keep track of all the delivery and filing data in your online profile.   Document filing is done for a low flat fee.

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At the eleventh hour, the U.S. Senate added a provision to the controversial health care bill pending in Congress that has the construction industry on edge.    The Associated General Contractors of America released a statement on their website complaining that "without debate or advance notice, language was added to the Senate health care legislation that singles out small construction firms for harsher treatment than any other industry."

What is the rub?

Well, while employers with less than 50 employees are typically not required to provide health care coverage, the exemption for construction firms is only those with less than 5 employees!   Failing to provide health care coverage could subject the construction firm to fines.

The Wall Street Journal is running a great article about the construction industry's reaction to the recent addition to the Senate bill.  

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