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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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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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This fall, the Louisiana 1st Circuit decided Bonvillain Builders LLC v. Gentile, finding that a property owner was not required to pay nearly $50,000 in requested change orders because the extra work was required under the original contract.

In Gentile, the construction contract required the contractor to meet all prevailing building codes. A situation arose with regard to the parish's drainage requirements, as the original design did not accommodate the code. The drainage study and total completed price for the drainage work was eventually tallied to cost $47k more than estimated.

The contractor wanted the property owner to pay for this, because it was an "unknown condition." The owner rejected the change orders arguing the contractor was responsible to meet prevailing building codes.

The Gentile court agreed with the property owner. According to the first circuit, the contract unambiguously required the contractor to comply with prevailing building codes. The fact that the designer and the contractor overlooked the drainage requirements and failed to properly provide for the the same in its plans and bid…did not pass the burden of paying for the drainage onto the owner. Instead, the contractor/designer was liable for the mistake.

The court found that the drainage requirements were not a "hidden condition" of the property, but merely, something the contractor and designer overlooked.

What Does It Mean For You?
Nearly every construction contract has a provision similar to the one in Gentile where the contractor (or sub) is required to meet prevailing building codes. When bidding on a project, its critical to bid responsibly. Failing to understand and accommodate the prevailing building codes applicable to the site can end up destroying the project's bottom line.

The real key is understanding what is and what is not a "change order." The term gets used so frequently by those working on a construction project, we sometimes forget its true meaning and warp the term to work to a party's convenience.

A change order is not issued overtime the cost of work or scope of work is greater than anticipated. It's only issued when the scope of work is changed.

If the owner adds a new complex to the plans, or requires a different quality of materials - this will likely result in a change order. However, if you simply didn't correctly estimate the amount of work that would be required for a task or misunderstood the prevailing building codes…a change order will not be an available remedy.

Like the situation in Gentile, you will be legally responsible for your own mistake.

Of course, this Gentile case will not likely apply to a scenario where a change is required because of a hidden site condition. If a hidden site condition is found, a change order is appropriate. The court in Gentile just clarified something that may seem a bit obvious: failing to take into account the building codes in the parish was not a hidden condition, regardless of whether it was or was not scoped in the original plans.

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 No long introduction required here.  With iPhones, Blackberrys and laptops, everyone in the 2009 workplace knows that work can follow an employee home and to vacation (ABCNews published a good overview of the issue).  

Recently, however, terminated employees are seeking compensation for this "overtime" work through costly litigation with high-stakes for employers across the country.

What will the courts say?  It's not clear.

The U.S. Fair Labor Standards Act was passed in 1938 with working conditions for factory workers in mind.   These workers punched into work, and out of work, with very little opportunity to continue their work duties after-hours while at home or on vacation.   

But how times have changed.    And now, when you take the FLSA's rule that workers must be paid overtime whenever they work 40+ hours (regardless of any permission from an employer), and apply it to the "after-hours" work performed by so many of the country's workforce...the result is complicated.

In today's economic client, construction companies are looking to be leaner and meaner, and that sometimes means less salary workers and more hourly employees.  It also means companies are working to maximize the return on each worker.

More and more, construction workers and project managers are being outfitted with mobile devices to communicate about the project through email and text messages...and even to take photographs of the jobsite and work through project management systems.  When the mobile devices go home or on vacation...is your company prepared to pay overtime?

Right now, the law on this issue is simply unclear, and the best practice for those in the construction industry is to discourage workers from working at home or on vacation (don't bother them!), or to ask workers to log this time and turn it into your company for payment.  

There's no telling how the courts will decide this issue, but if it goes against employers, the failure to pay employees for out-of-office work could be expensive.

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Just last week, New Orleans marked the 4 year anniversary of Hurricane Katrina.  Coverage of the anniversary looked back on the somber experience, and then looked forward to the city's continued progress.  

Construction Outlook is Optimistic

The construction market in New Orleans has managed to largely avoid the national recession, giving Hurricane Katrina a silver lining.  As four years have now passed since the storm, many are wondering:  can the construction boom continue?

Fortunately for regional contractors, the answer seems to be yes.

In July, we reported at the Construction Law Monitor that the Army Corps of Engineers were seeking more contractors to perform federal levee projects.   Just last week, the Corps reported more good news for infrastructure projects in Louisiana stating plans to spend $1 billion to restore wetlands.

And while much has already been spent to rebuild the Crescent City, on Katrina's anniversary President Obama vowed to speed the nation's recovery effort.  In the New York Times article covering the topic, it was reported that the government has freed up "hundreds of millions of dollars in assistance that has not been distributed."

Legal Information About Public Works Projects

There's a lot to be optimistic about in the South Louisiana construction industry...but, most heavy spending projects are publicly funded.   Those who have experience working on public projects aren't concerned about this, but many companies who ordinary focus on private work may be shaking in their boots.    There's no need to be concerned.

While public contracts certainly have unique requirements and details, it doesn't need to be foreign territory.   Here are some blog posts here at the Construction Law Monitor to help the private contractor better understanding public contracting:

• The Public Contracting Category.   You can start by reading the articles posted in the "Public Contracting" category.
   
• The Stimulus Package and Your Construction Business.   This blog posts discusses the difference between public and private contracts, and explains how your company can get federal and public work.
   
• E-Verify.   A hot topic in federal contracting, your company should read and learn about the new e-verify requirements when preparing work on a federal contract.   
   
• Getting Paid:   Here are some posts on getting paid (and filing claims to get paid) in public works projects.

 

 

 

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If you look closely at your contractor's or subcontractor's certificate of insurance, you're likely to find a disclaimer that reads something like this:

This certificate is issued as a matter of information only and confers no rights upon the certificate holder.   This certificate does not amend, extend or alter the coverage afforded by the policies below.

Normally, the certificate of insurance is produced specifically for the purpose of demonstrating that a particular party is a "certificate holder" or "additional insured."  But the very document itself has a boldfaced disclaimer that the certificate cannot be relied upon.

This begs our question:  Is the certificate of insurance worthless?

Legally Speaking...Yes

It will be the burden of the insured (or the party claiming coverage) to prove the existence of a policy and coverage.  Tunstall v. Stierwald, 809 So.2d 916 (La. 2002).   

There is clear case law that reliance on certificates of insurance may be easily misplaced.   In T.H.E. Insurance Co. v. City of Alton, for example, the US 7th Circuit held that a party "could not simply rely on the certificate [of insurance] for the terms and conditions of coverage."  227 F.3d 802, 806 (2000).

A certificate of Insurance is not an insurance policy, and the certificate itself is not ordinarily issued by the insurance company.   Simply speaking, a party claiming coverage will likely not meet its burden of proving insurance coverage by pointing to a certificate of insurance only.  

So, How Do You Confirm Insurance?

Our friends in Mississippi who run the Construction Law Toolbox blog posted last week asking "Can I Rely On My Subcontractor's Certificate of Insurance?"   They provide a good analysis of the problem with certificates of insurance in their article, and they offer a "best practices'" for those in the construction industry:

The best business "policy" is to always obtain and read the actual insurance policy itself. In reviewing the policy, take into consideration the circumstances related to each particular project.

While this is more difficult than the ordinary receipt and filing of your contractor's or subcontractor's certificate of insurance, it's the only way to confirm that the insurance policy required by your contract has been properly provided.

Options If You Have a Certificate, But No Insurance

What to do if you have a Certificate of Insurance...but no actual insurance? 

While you may not have a perfect claim against the insurer, you have a number of alternative claims.   Some example claims:  A suit against the insurance agency for negligent or intentional misrepresentation, or for errors and omissions, or a suit for breach of contract against the person or entity who was required to provide insurance.

These claims may expire quickly, so if you a certificate of insurance (but, no actual insurance), it's important to promptly seek the advice of counsel.

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We've monitored the federal government's potential E-Verify requirement for nearly a year now.   After a number of delays starting in 2008 and continuing until this summer, the E-Verify requirement was finally given the green light in July 2009.

While backed by the new President and slated to take effect on September 8, 2009, there seemed to be just one more hurdle:   The litigation challenging it.

Today, AGC's Smart Brief reports that a federal district court has ruled on the legality of the controversial E-Verify requirement, holding that the requirement is legal.  

On September 8th, therefore, systems are a-go for the E-Verify requirement.

 

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E-Verify, a government web-based system that helps employers verify a workers legal status, has been in the news before.  

Originally a George W Bush executive order, E-Verify was slated to become mandatory for federal contractors beginning January 15, 2009.   The change in executive administrations and a handful of lawsuits, however, pushed the requirement back indefinitely.

This week, the Obama administration chimed in on the subject, and announced that it would support the E-Verify requirement, and that it would take effect across the country starting September 8, 2009.   Appropriately, the day after Labor Day.

Any federal projects or businesses receiving money under the federal stimulus program will be subject to the rule, and required to register and use the E-Verify system.

Differences Between Obama E-Verify and Bush E-Verify

When comparing the Obama E-Verify requirement and the Bush E-Verify requirement, one difference stands out:   Obama has ditched the "No-Match" system.

As a result, for better or worse, the requirement going into effect this September will have substantially less teeth.

Ditching the "No-Match" component of the E-Verify requirement will benefit employers because they will not be required to terminate (on such a tight time-line) employees whose social security numbers do not match with the system.

It will benefit workers, too, because Obama will not allow the federal government to use mismatched SSN data to find illegal immigrants in the workplace.

Is It Really Going To Happen This Time?

The short answer:  Yes.

While it has been delayed repeatedly in the past year, and there's always a possibility for more delay, it looks like the latest effective date will stick.  

The Obama administration has reviewed the requirement, and is now standing behind it, and by ditching the most controversial aspects of the rule, there will be fewer legal and political challenges.

Beginning September 8, 2009, therefore, the government will award contracts only to companies in compliance.

Who Needs to Be Prepared?

A lot of people need to be prepared for this E-Verify requirement.  

While the controversial components of the requirement have been removed by Obama, the scope of the rules applicability has actually gotten broader.   The requirement will not only apply to contractors and subcontractors on federal projects, but it will also apply to any business receiving money under the federal stimulus project.

With the influx in federal and state spending on construction projects, and the decrease in private work available, more and more contractors are being forced into bidding and working on public works.  And with the now wider reach of the E-Verify program, contractors and subcontractors need to prepare themselves.

In February 2009, we wrote a post here at the Construction Law Monitor titled "The Stimulus Package and Your Construction Business."  

The post discussed the differences between private and public works, and addressed some of the issues private contractors face when working on its first public project.   

Add the new E-Verify requirement to the list, and the article is still a good read.

Is this Still Controversial?

Even with Obama's backing of the system and some tweaks to its enforcement power, the E-Verify program definitely still has its detractors.

The San Bernardino Sun News just ran an article about how the E-Verify system puts Obama at odds with some democrats.   

Despite the controversy, the E-Verify requirement will take effect on September 8th, and construction companies around the country must be prepared.

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Over the weekend, the New Orleans Times Picayune had some promising news for contractors in the area, and even out-of state laborers and contractors:

Over the next several months, the Army Corps of Engineers plans to advertise three dozen construction contracts that could cost upwards of $3 billion -- more than it has spent since Hurricane Katrina...

So vast and compressed is the construction schedule that corps representatives have advised contractors to consider importing out-of-state labor, lining up temporary housing for employees and working around the clock.

This is certainly welcome news for Louisiana contractors, who are constantly reading grim economic forecasts for the rest of the nation.   Thus far, the post-Katrina market has seemingly insulated the region from economic peril, as New Orleans and Baton Rouge have maintained robust construction markets throughout the downturn.

If your company is going to bid for a piece of the Corps spending, be sure to enter into contracts carefully and protect your company's right to payment throughout the job.

Here are two important things to keep in mind:

Contracting:  Contacting an attorney - like Wolfe Law Group - to review your contracts can pay dividends on the project.   A simple contract review can cost as little as $1000.00, but give your company a better understanding of its rights and obligations under the agreement, and sometimes even point out provisions that can be altered to your company's benefit.

Just because a contract is put before your company, doesn't mean it needs to be signed in that form.  Frequently, contractors and project owners are willing to negotiate common terms, and simple changes to critical provisions can later save your company thousands.

Read more about construction contracts on our blog here.

Liens:   Since they will be funded by the Corps, these projects are all likely to be public.   However, just because a project is public doesn't mean your company is without "lien" rights.   Louisiana's Public Works Act allows unpaid companies to file "Statements of Claims" that protect a company's right to get paid...and since federal and state projects are nearly always bonded, the Statements of Claims can be a very powerful and effective collections tool.

However, filing successfully under the Public Works Act begins before you step foot on the job-site.  

Learn more about public liens and the Public Works Act here.

And for more information about the Corps projects and legal representation from Wolfe Law Group on these types of projects, contact us today.

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In February 2008, the Louisiana Supreme Court decided Frey Plumbing Co., Inc. v. Celeste Foster, 996 So.2d 969, which dealt with the question of whether an agreement between a homeowner and a plumber was an "open account" or a construction contract.

Distinguishing between open accounts and construction contracts is important for a number of reasons, and namely because one can statutorily recover attorneys fees and interest under Louisiana open account law.

At trial level, the court granted the homeowner's summary judgment, agreeing that that plumbing agreement was a "construction contract" and not an open account.  The trial and La. 4th Circuit based its decision on a jurisprudential "factors test."

In Frey, the Supreme Court reversed this decision, and overruled all cases in Louisiana that relied on these "factors" to determine whether an agreement is a contract or an open account.   The Supreme Court stated that the statute (§9:2781) must be simply applied as written.

Here is how "open accounts" are defined in the statute:

'Open account' includes any account forth which a part or all of the balance is past due, whether or not the account reflects one or more transactions and whether or not at the time of contracting the parties expected future transactions.  'Open account' shall include debts incurred for professional services, including but not limited to legal and medial services. 

The defendant in Frey warned that such a liberal reading of the statute would be problematic:

Frey reads out the repeated references to 'open account' and 'account' and would have this Court hold that all unpaid debts fall within the purview of the statute.  Frey's interpretation of the statute is contrary to well established principals of statutory construction and leads to absurd results clearly unintended by the Legislature.

The Plaintiff in Frey didn't deny this allegation, saying instead that there's no explanation or indication that "this is not what the legislature mandated pursuant to the express provisions of the open account statute."

The Louisiana Supreme Court did not comment on the debate between the parties as to the exact broadness of the open account statute.  However, the court did make it clear that construction agreements are not automatically exempt from open account analysis.  

The prior "analysis" was trashed, and the court now requires that the facts of the case be applied to the plain language of 9:2781(D).

The Frey decision dealt with an unwritten plumbing agreement that was billed to the property owner after the work was complete.   Wolfe Law Group just this week filed a memorandum with the 22nd Judicial District Court analyzing the Frey decision and how it might apply to a more traditional lump-sum construction contract.

The memorandum can be read on JDSupra here.

We'll update with the judge's decision when received.

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Rarely do we attempt to "wax political" on pressing legislative issues. So, again we will keep most of our opinion to ourselves and let the BIAW, the Building Association of Washington, do our reporting for us.

The Building Association of Washington is a Washington State Non-Profit Corporation formed back in 1966 to provide assistance to building industry companies who find difficulty uniting to fight government interests to regulate their trades. The BIAW provides more information about its services online and its mission statement is as follows:

The Building Industry Association of Washington is the voice of the housing industry in the state of Washington. The association is dedicated to ensuring and enhancing the vitality of the building industry for the benefit of its members and the housing needs of the citizens.

To accomplish this purpose, the association's primary focus is to educate, influence and affect the legislative, regulatory, judicial and executive agencies of Washington's government. The Building Industry Association of Washington will offer its membership those services which can best be provided on a state wide basis and will disseminate information concerning the building industry to all association members and the public.

Now that we have fully disclosed their interests - your business's interests - it will be easy to see why they so staunchly oppose several pending initiatives before the Legislature.

In a recent newsletter, which you can receive with membership, the BIAW expresses special concern with two specific initiatives.

HB 1393 - Mandated Warranties

The first of these initiatives will hit most of you the hardest. On March 11, 2009, the WA House of Representatives passed Rep. Larry Springer's (D-Kirkland) new home warranty bill, HB 1393. In short, the bill strives to mandate a new home warranty for all new residences, something that Washington state builders have been able to avoid in the past.

Unlike other states which follow the FHA model new home warranties, WA has stayed away from passing legislation in the past which would mandate such warranties.

The BIAW stresses several reasons why the bill is simply - a bad idea.

1) The warranties must be back backed by insurance which is not available -

    Simply put, the bill mandates warranties which must be backed by an insurance policy. Unfortunately, the insurance "product" is not available, and when made available, the costs will render projects impracticable or severely costly. The fear is that many good subcontractors will go under as a result of such a mandate.

    BIAW General Counsel, Timonthy Harris, states:

"Its not as simple as requiring builders to purchase an already-available warranty product"

"This isn't a warranty bill as much as it is a new and easier way to sue builders."

2) The bill prohibits waiving the implied warranty of habitability -

    Similar to the above, the concern is that the bill merely seeks to make consumer-based litigation more simple and easy. BIAW believes that the effect will simply put businesses out of work, limit the pool of contractors, reduce competition, and force unprecedented costs on the homeowner.

The BIAW pledges to fight the bill as it goes before the Senate later this month.

SB 5895 - Mandated Inspections and Bonding Increase

Another bill seeks to impose harsher requirements on contractors. The bill was introduced in the Senate as SB 5895 by Sen. Rodney Tom. In short, the bill seeks to impose "condo-like" warranties on all new homes, mandating third-party inspections prior to closing.

One of the issues that might keep contractors on the fence is the provision to double the contractor bond from $12,000.00 to $24,000.00. Though this raise undoubtedly costs the general contractor additional bond premiums, other contractors - subcontractors and suppliers on jobs - would likely be willing to support such a proposal.

In a time where collecting against defunct general contractors has become difficult and costly, subcontractors have been left to fight over the measly $12,000.00 bond that general contractors must post with Labor & Industries. Mandating a larger bond would provide additional security to contractors who are reluctant to provide labor on larger jobs.

Regardless, the BIAW is more concerned with fighting the costs that are imposed upon contractors in general, and the fact that this proposal is lumped with additional warranty demands makes this bill a target of the BIAW.

SB 6035 - Reto-bution Bill

This bill has been discussed for quite some time. The lingering has provided enough time so that BIAW could put together its defense of this bill.

In short, SB 6035 has been termed "retro-bution' because it seeks to force retrospective ratings programs - such as the one provided by BIAW - to disgorge refunds received from the State of Washington to employers. You can read more about how the retrospective programs work at the Northwest Progressive Institute, who provides a different perspective.

SB 6035 has been termed retrobution against BIAW and the Master Builder's Association (MBA), who each supported Gov. candidate Dino Rossi during the past governor's election.

The funds remaining after refunds are paid to employers are held by the program associations - like BIAW and MBA - to be used as they please. In the past, these funds were used by the organizations to support candidates like Rossi, in their election bids.

It is now alleged by both MBA and BIAW that this bill is simply a democratic party's attempt to restrict the organization's right to free speech, by limiting political contributions and political speech.

Stay tuned for more information and reporting on these battles in Olympia. The BIAW certainly does not intend to back down from protecting its ability to help contractors in Washington state.

 

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Are Contractors Regulated in Louisiana?
Generally, yes.   In Louisiana, contractors are regulated by the Louisiana State Board of Contractors (http://www.lslbc.louisiana.gov/).   The website has a number of good resources for contractors or those interested in becoming a contractor, such as the state's licensing laws and a helpful Frequently Asked Questions section.

Not every participant in a construction project is required to have a license.   Licenses are only required on the following projects:

• Commercial projects where the party's undertaking exceeds $50,000;
   
• New residential construction (ground up) where party's undertaking exceeds $75,000;
   
• Residential "improvement" construction when party's undertaking is between $7,500 and $75,000;
   
• Electrical contracting work when amount of undertaking exceeds $10,000 (recently lowered from $50,000).

How Do You Become Licensed?
Getting licensed in Louisiana is generally not an easy task - it's really a three step process.   (1) apply; (2) test; and (3) wait.

All applicants for a Louisiana contractors license must request an application pack directly from the Louisiana State Board of Contractors.  Although a sample application is available on the board's website, an applicant must use the actual application mailed to him or her by the board.

Therefore, the first step to getting licensed is to make a formal request to apply.   The turn-around time for this is generally 2 weeks.

Filling out the application is fairly straight-forward, but applicants must be aware of these two issues:

1)  You will be required to select a "classification."   Unfortunately, the application makes this entirely too confusing.  

There are major classifications and sub-classifications.   If you are licensed under a major classification, you are allowed to perform work on any of the subclasses.   You will be tested on "business law" and the classification(s) selected.  

Since many of the sub-classes mix in an ordinary construction project, it is prudent (and usually cheaper) to just select a main classification when applying.

2)  You will be required to provide the board with financial data, and the requested financial information must be prepared by an independent account and certified by the same.   The Board is looking to see whether your company has at least $10,000 in assets.

In addition to submitting an application, you will be required to sit for an examination.  The examination will test you on "business law" and your chosen classifications.  Preparation materials are available from the Louisiana Board of Contractors.

What Happens to Unlicensed Contractors?
There are generally 3 types of consequences for contracting without a license in Louisiana:

• Criminal penalties.  Although not the most commonly used manner of enforcing the licensing laws, it is a misdemeanor crime to contract without a license in Louisiana.
   
• Contract problems.  In Louisiana, a contract with an unlicensed contractor is null & void - clearly a cause for concern to someone who gets caught without a license and depends on the terms of a contract.
   
• Civil penalties.  The Louisiana Board of Contractors is given broad power to enforce the licensing regulations.   Civil penalties can be accessed against the violating party for as much as 3% of the contract price, and work on the project can be ordered to a stop.

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Washington state officials released figures to the media on Thursday, illustrating that the state is due to receive some $225 Million in funding. Initial planning earmarks all of that cash for major public building projects.

A story released by the Seattle Times, indicates that the bulk of funding will be distributed for military projects, including a new water-distribution system at Whidbey Island Naval Air Station, a training facility at Fort Lewis, replacement of a Tacoma pier that supports the Army Reserve Boat Mission, and installation of advance metering systems at Navy hubs that will help monitor energy consumption.

Additional funds will be earmarked for public housing and transportation. One highly anticipated project will likely be the new Amtrak maintenance facility at King Street Station. That project is likely to exceed $40 Million. Ongoing restoration of King Street Station is costing the City of Seattle, its new owner, over $26.5 Million.

In related news, the State Legislature released its $4.3 Billion transportation plan. Under the plan, the State will be able to pay for the new Alaskan Way Viaduct, Highway 520 bridge, and purchase new ferries.

There has been some recent distaste for the laboring that has ensued over the Viaduct and 520 projects. Senate Transportation Committee Chairwoman Mary Margaret Haugen, D-Camano Island probably said it best:

"I really probably shouldn't say this, but I hope those people building those megaprojects would make some decisions and move forward, because the Legislature's only going to have so much patience."

"We're really delighted that a decision has been made on the viaduct. We hope it can be made on 520 also."

The projects continue to come for Seattle. Its hard to imagine more public building - in a city where projects are ever present.

 

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There is a growing fear that the construction market is dead - or at least headed that way. Recent figures indicate that overall building is on the decline and that, specifically, public contracting has falled at least 12% over the month of February.

Despite rashes of optimism that new building is up, the figures tend to tell a different story. Both private and public investment in new building are both on the decline. The drop off indicates that there is certainly a lack of funding and construction "players" who drive the industry.

But some states tell different stories. Some actors seem to be driven by falling costs in the construction market, and secured future sources of funding.

Take the State of Washington for example, who has recently experienced a bounding growth in publicly managed and publicly subsidized projects. Here is a peak at what is going on in the Northwest corner:

 

• Pave Those Highways - Try to drive anywhere in the Seattle area and you cannot miss the traffic. Recent highway projects have taken over Interstate 5 with the intention of improving drive quality for commuters. The state estimates that over $2 billion of repairs are needed to improve I-5 in the Seattle metropolitan area. Unfortunately, the state has earmarked on a small fraction of that amount in order to complete reconditioning. Luckily, Department of Transportation administrators are not backing down, despite potential funding issues. DOT said that 2009 will be "one of its most intense and complicated construction seasons in its history."

 

• Beacon Tunnel Acceleration - The Beacon Tunnel has become one of Seattle's most anticipated projects. The tunnel was funded initially in 2003 by voters who wanted faster transit from the sprawling Tukwila area, north into downtown Seattle. With fears risihing about missing the projected opening of the Seattle Light Rail project, lawmak sought to accelerate the completion of the projects,adding contractors around the clock to complete the final testing stages of the tunnel. Sound Transit, the project's managing agency, is spending millions in order to ensure that the work is completed timely. But recent reports indicate that the $2.4 billion project is on schedule and $125 million under budget.

 

• Clean Energy Money to Spur Wind Power Growth - Klickitat County is a small rural area in the South of Washington state. At times the county had one of the highest unemployment rates in the State of Washington - over 12% in January 2009. However recent trends toward "clean energy" have shown vast investment in the area and resulting job growth. The main reason for this growth, is the influx of wind energy farms, no doubt assisted by the promise of over $129 billion in financial incentives for clean energy. In Klickitat, the incentives are pushing further investment in wind farms, especially for San Diego developer Cannon Power Group. The CA company has invested in two farms which will stretch 26 miles of ridgline on the north shore of the Columbia River, capable of producing power for 250,000 homes. The projects are expected to produce over $15 million annually in property taxes as well as over 500 jobs.

 

• Microsoft Building with Stimulus Bucks - The Seattle Times reported that Microsoft will use around $11 million of federal stimulus funds to build a bridge over Highway 520 in order to connect its westside and Redmond campuses. The funds are being disbursed by the Puget Sound Regional Council, who has been earmarked to receive over $214 million of those stimulus funds. Some are not too thrilled about the use of these funds to assist a multi-billion dollar company, who recently cut around 5000 jobs. Regardless, the project is certain to spur some growth in an otherwise stagnant building industry.

 

• Puget Sound Rebuilding - There has been quite a bit of coverage about the battle of development versus the Puget Sound. Several ecologists are gearing up for the Summer of 2009 with an open eye towards educating builders and local officials on conservation techniques. One interesting technique pays landowners to preserve their land, by making public officials competitors with developers looking to build on land abutting waterways. Unfortunately, the substance missing from all of this reporting is the alternatives - how do builders continue with growth, without disturbing the wilderness?

 

 

 

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The Seattle Times is reporting that a local Seattle steel supplier provided falsified statements to the Federal Transit Administration (FTA) concerning the quality of steel provided for the Seattle Light Rail project. In the Times' report, David Appleby, the owner of Appleby NW could face up to five years in prison and fines of $250,000.00 for his misrepresentations to the FTA because the the Light Rail project is a federally managed project, overseen by the FTA.

According to the Times, Appleby supplied over 1.5 million pounds of Oregon-made steel rated for 36,000 pounds per square inch (psi) of force under a $240 Million dollar contract. Unfortunately for Mr. Appleby, the project specifications for the massive Light Rail project, which is managed by Sound Transit and funded by the FTA, required steel rated for at least 50,000 psi.

Appleby's charge stems from mill certificates that he forged, once learning that the steel was underrated for the specifications. General contractors are obligated to follow the strict terms of specifications provided to them.

Appleby's attorney, Irwin Schwartz, admitted that Appleby intentionally changed the certificates.

"People panic and they cover up"

Especially on public works projects, contractors must obtain consent from the managing government authority in order to wane or deviate in any way from given specifications. Permitting a contractor to vary from the specs is not only dangerous, but is competitively unfair to other job bidders who lost out in their bids to perform the work.

In this case, it is certain that the Sound Transit would not have agreed to such a change. Early estimates are that the 50,000 psi demand was a conservative requirement. Thus the 36,000 psi steel may be sufficient to withstand the project's engineering requirements. Based upon this assertion, Appleby intends to defend against any claims for backcharges against his contract.

One final note, the contractor is also under the bus for entering into an oral contract with a subcontractor that provided Appleby's drilling on the project. The Sound Transit, like many public entities, requires that all contracts be in writing.

Though the jockeying has just begun, it is fairly certain that a civil suit between the contractor and Sound Transit is readying, over dollars being withheld from the contractor's pay.

 

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The Employee Free Choice Act has not had a dearth of news coverage, and just last week, the Democrats in Congress officially unveiled the controversial bill.

While predicted to "sail" through the House, it faces a serious challenge in the Senate according to the Wall Street Journal.    The WSJ reports that many leading Senate Democrats who previously voiced support for the bill have backed off recently, perhaps in light of the controversy garnered by the act.  Louisiana veteran senator, Mary Landrieu, is among those democrats reconsidering their positions.

The most controversial aspect of the act - by far - must be the proposed eliminate of "secret ballots" to determine unionization, and the substitution of the secret ballots with a "card check" system.

While labor unions has previously urged that it would not compromise on the EFCA, with the bill's potential failure in the Senate, AOL News reports that democrats may be open to compromising on the proposed card-check system.

As the debate continues, so will news on the EFCA.   You can follow our discussion of the act's progress at this tag:  Employee Free Choice Act

 

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The federal E-Verify program has been a hot immigration topic throughout the past year.  

The internet-based hiring tool operated by the SSA and Department of Homeland Security simply allows employers to verify the SSN used by employees.  For the time being, the e-verify program is used by employers on a voluntary basis, but its use has been the subject of much legislative contention.

An executive order signed by President Bush was going to make use of the E-Verify program mandatory by federal contractors...but legal challenges to the program put that order's effective date on hold.   The rule seemed to be scheduled to take effect until President Obama's inauguration put it on further hold.

The Construction Law Monitor reported on the program's ups and downs here.

While the program is on an indefinite hold, it's certainly not out of the news.

This past weekend, the Seattle Times reported that Puget Sound employers are voluntarily using E-Verify to check the legality of its employers.   Running a search on Twitter, a popular microblogging platform, shows that conversations about E-Verify are not lacking.

Contractors should be especially interested in the E-Verify controversy.   

On the one hand, if the program does become mandatory, the construction industry will certainly be one of the most scrutinized by regulators.

On the other hand, since the construction industry is at the center of the immigration debate, contractors can protect themselves by being careful with who they hire, and voluntarily using the E-Verify program.

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 The Seattle Times reported in its Sunday edition that four South King County areas - Auburn, Kent, Renton and Tukwila - are at a high risk for flooding this upcoming fall and winter because of January damage to a flood-control dam on the Green River.

Unfortunately, the Army Corps of Engineers and other authorities concede that there's very little they can do to mitigate the risk, advising residents of these areas to buy flood insurance and be prepared for evacuations.

Having offices in New Orleans, LA, and experiencing the devastation of Hurricane Katrina, Wolfe Law Group brings a unique perspective to the issue.   

Here are some legal considerations:

• Flood Insurance.   The authorities recommend getting it, and there really isn't a reason to procrastinate.  Compared to other insurance products, flood insurance is fairly inexpensive, and in the event of a flood-loss, it will be very necessary.   Your other insurance policies will very likely exclude flood damage, and flood damage - unlike earthquake or wind damage - usually completely ruins everything in its path.
   
• After a flood loss, document your damages and be very through in your insurance claim.   Take pictures and inventories of everything, and offer your insurance adjuster the chance to see the damages first hand.
   
• Contractors:  flooded areas bring a large amount of contracting work.   Be careful of getting ahead of your company financially, however.  While work may be in abundance, the money to pay for that work could get tied up in insurance disputes or just the lenghly claim process.   Be careful about doing too much work without payment.
   
• Property Owners:  Be very aware of post-disaster fraud.  

 

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Last week we blogged about a controversial "one-sided" labor bill in the Washington legislature that would prohibit companies from requiring employees to participate in meetings related to political or religious matters, including labor issues.

The bill was coming before the legislature for vote today, but was instead scrapped because - as Gov. Chris Gregoire stated - an email from a state labor group raised "serious legal and ethical questions."   

While the email has not been released, the Seattle Times reports that "knowledgeable sources who have read the e-mail confirmed that it came from the Washington State Labor Council," and that it linked "campaign donations" to the legislation.

The controversial bill is part of a recent flurry of labor law changes and conversation, and the bill's high profile death will certainly be celebrated by business interests.

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On February 6, 2009, President Obama overturned previous Bush administration policy regarding labor usage on federal projects, by passage of an executive order. The order eliminates the Bush prohibition of the use of "project labor agreements" on federally-funded projects. In the past, the Bush administration had sought to limit the use of these agreements to lessen Union strength in the bargaining process.

"Project labor agreements" ("PLA") are similar to collective-bargaining agreements but they are issued prior to the initiation of work on a project. The Associated Builders and Contractors, Inc., states that a typical PLA requires that all contractors become bound to:

• recognize unions as the representatives of their employees on that job
• use the union hiring hall to obtain workers
• obtain apprentices exclusively from union apprenticeship programs  
• pay into underfunded and mismanaged union benefit plans 
• obey costly, restrictive and inefficient union work rules

In the end, the alleged benefit to the federal government, and to the contractors down the chain, is that labor rates are set, benefits are provided, and strikes are prevented.

Duane Morris LLP, a San Francisco multi-purpose firm, first reported the effect of the order against large construction firms:

"......many construction firms may be compelled to agree to PLAs on federally-funded construction projects for the first time. Not only will these firms face likely difficulties in navigating the uncharted waters of participating in the negotiations for a PLA, but they may also be forced to pay higher, union-level wages and benefits to their workers than they are otherwise accustomed to paying on projects. Many construction firms may be compelled to agree to PLAs on federally-funded construction projects for the first time. Not only will these firms face likely difficulties in navigating the uncharted waters of participating in the negotiations for a PLA, but they may also be forced to pay higher, union-level wages and benefits to their workers than they are otherwise accustomed to paying on projects."

Duane Morris also finds that the order will only promote the use of PLAs on projects over $25 Million. However, the order opens the gate for the use of PLAs on lesser projects, where they are no longer prohibited.

While several organized units are certainly thrilled at the reinstatement of PLAs on federal projects, construction companies raise considerable concern. The Associated Builders and Contractors states:

"ABC strongly opposes union-only PLAs on construction projects. These agreements not only exclude merit shop contractors from bidding on projects paid for by their own tax dollars, but also drive up the cost of construction by reducing competition for the work."

Construction companies who engage in federal projects should be keen to new changes in labor law. One thing is for certain, President Obama aims to bring swift changes to the way the U.S.A. does business with private interests.

 

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The Washington Supreme Court decided yesterday to add to the already growing worries of contractors in the State of Washington, and perhaps across state lines. The High Court decided to apply an open-ended statute of limitations to claims brought against a contractor who built Safeco Field, the Seattle Mariners' home ballpark. The opinion controverts the previous belief that the construction claim would be limited by a 6 year limitation period on such claims. (RCW 4.16.040)

Due to the Court's findings, contractors must now be aware that work that they provide on a publicly-funded stadium will be subject to the open-ended statute, as opposed to the normal 6 year period for other constructions.

Washington Construction Law, a blog by Davis, Wright and Tremaine LLP, has reported that the Seattle Mariners and the State MLB Public Facilities District stand to recover more than $3 Million in damages for faulty construction completed by Hunt Construction Group and Kiewit Construction Group, which was substantially completed back in 1999.

The opinon, which can be found at Washington Construction Law's website, illustrates that the Court was unwilling to apply RCW 4.16.040 which provides a 6 years limitation period for contract claims. Instead, the Court applied RCW 4.16.160 saying:

We hold that the construction of Safeco Field by the PFD involves the exercise of sovereign powers traceable to delegated sovereign powers of the State, and claims based on its construction fall within the “for the benefit of the state” statute of limitations exemption in RCW 4.16.160.

Washington Construction Law states that the opinion is the first of its kind in the United States. Regardless, it certainly sets the tone for further litigation across the states.

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An editorial in the Seattle Times this week suggests that two bills before the Washington legislature related to state labor laws would "run afoul of free speech rights and tread into a venue that belongs to Congress."

The two bills are being considered at a fairly turbulent time for labor legislation at the federal level.  With the inauguration of the Obama Administration, many have suggested that the county may experience a historic shift in employment and labor law matters.

So what is so controversial about the "one-sided labor bill" in Washington?

Essentially, the bill would provide employees the right to not attend an employer-called meeting if they have a "reasonable belief" that it is about religious or political matters.  

While altruistic on its face, the Seattle Times editorial notes that meetings about union-related issues (pensions, medial plan, union representation, etc.) would be considered a political matter.   The editorial comments:

The bill's real purpose is to undermine meetings employers call when they are in a fight with a union...

The bill is entirely one-sided:  It restricts employers but not unions.  It tilts the balance in a way that has not been done in any other state.  And already Washington is one of the most union-friendly states.

We'll see how far the bill gets in the legislature - but with the toiling economy, the shift in federal politics on labor law issues, and other union-friendly factors, it's likely not safe to assume its defeat.

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The National Law Journal published an article last week titled "Stage is Set for Legal Labor Brawl," and the opening line of the article sums it up perfectly, stating:

Business calls it "Armageddon." Labor says it's "a modest step."

The article discusses one of the hot topics in labor law these days, the Employee Free Choice Act.  Around the blogosphere and news agencies, discussion of the EFCA is on fire.   A Google Video search of the topic yields propaganda from both sides, and on Chris Hill's Construction Law Musings, I recently published a guest post summarizing argument from both proponents and opponents of the bill.

While the EFCA is certainly on the forefront of the labor law debate, its clear that its not the only argument in town. 

To the contrary, since the recent inauguration of President Obama, there has been a substantial shift in labor law issues facing the construction industry, and it's expected that more is on the way. 

One of the most controversial actions by President Obama in the construction industry is the repeal of Executive Order 13502, which prohibited project labor agreements (PLAs) on federal and federally funded construction.   ABC issued a press release specifically directed at this action, contending that it opposes PLAs because they "eliminate merit shop contractors from competing for and winning construction projects."  The ACG also came out against the repeal of 13502 here.

Another labor-law related act already performed by President Obama is the signing of the Lilly Ledbetter Fair Pay Act of 2009.  The act was signed by the President on January 29, 2009, and extends the time period allowed for employees to seek compensation for unequal pay practices.  The act is retroactive to May 28, 2007, and applies to all claims of pay discrimination on or after that date.  Read more about the act at the AGC website here, or on CNN, which covered the Act as "Obama's First Law."

From the perspective of the construction industry, it's a love/hate relationship with President Obama thus far, just one-month into his tenure.

On the one hand, as the Wall-Street Journal reported in mid-January, the construction industry has counted on Obama to put together a strong stimulus package that invested in federal contracting projects (and he pulled through).

On the other hand, however, President Obama is leading a potentially historic shift in employment and labor law matters that will seriously impact construction businesses.

Time will tell how the relationship between President Obama and the construction industry will fare.  So far, however, it's been a mixed bag.

Continue Reading...

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Yesterday, we wrote an article on the Stimulus Package and what it may mean to the construction industry.   Today, we're focusing on what it may mean to your specific construction business.

While the private contracting business has suffered setbacks in the current economy, one bright spot has remained:  the growth of public and federal construction spending.

The passing of the new stimulus build with large investments into America's infrastructure and other public works promises to put even more money into the public contracting business.  

ConstructionBusinessOwner.com published two very informative articles about how your business can take advantage of the increased public spending. 

The Differences Between Public and Private Projects
The first article, titled Three Key Steps for Shifting To Public Works Projects, explains some the key differences between private works and public works, and identifies common mistakes made by companies when entering the public sector.

The article encourages companies to consider bidding for and taking on more public work, but warns against doing so without proper preparations.  Here is a revealing quote:

Making the shift to prevailing wage jobs takes preparation. Without proper planning, contractors run the risk of underbidding jobs-and, subsequently, losing money-or getting slapped with steep penalties for improper recording keeping. Establishing protocols for certified payroll and AIA progress billings and having solid audit trails for each transaction are vital if you want to succeed in the government-financed construction market.

So what are the 3 Key Steps to shifting from private to public work?

• Get Educated
• Automate Your Accounting Practices
• Bid on Projects Based on your Strengths

How To Get Federal Work
The second article, Claim Your Share Of Rising Federal Construction Spending, was published immediately after passage of the new stimulus package, and really explains how businesses - and especially small businesses - can intervene in the federal works bidding process and claim some work.

In its discussion of why small or minority owned businesses have a dog in the federal contracting fight, the article states as follows:

Unfortunately, far too few small businesses take advantage of federal contract opportunities, even though the federal government is required by Congressional mandate to direct 23 percent of its contracts toward small businesses. Despite this mandate, the latest figures from the Small Business Administration indicate that the federal government fell short of this figure.

Although there are various factors behind this shortfall, two things are pretty clear. First, if more small businesses were competing for these contracts, more would win them. And second, small business owners who are savvy about the process of securing government contracts are the ones most likely to land them.

Summary of the article's tips for preparing to bid on federal projects:

• The government will want basic information and methods of Identification.   Get a DUNS number (free from Dun & Bradstreet), a Federal Tax ID number (EIN), understand your NAICS and SIC classification, and have accurate financial routing information for your business available.
   
• Create a profile on the Central Contractor Registration database. The CCR is where all government agencies and prime contractors turn when they are looking for potential vendors.
   
• The federal government is obligated to award a certain percentage of its contracts to various underrepresented and disadvantaged groups. If you think your business may qualify, you should register with the U.S. Small Business Administration (SBA), whose Small Disadvantaged Business (SDB) and 8(a) programs are designed to help specific groups secure federal contracts and subcontracts.
   
• Consider Subcontract work.  Getting your foot in the door is sometimes the hardest part in landing government contracts. First-time bidders can be at a disadvantage because the government often relies on established relationships when selecting contractors. Fortunately, large construction projects often depend on a host of subcontractors, which could be your ticket in.

See also Industry Week's article, Your Best New Customer May Be Uncle Sam, for other helpful information.

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It's official:  The Stimulus package has passed Congress and is expecting the President's signature early this week.   

Now that the parameters of the "economic recovery" package have been set, the construction industry can step back to determine whether and how the stimulus can help.

It's no secret that the construction industry has been closely monitoring the economic stimulus legislation.    With residential construction spending sinking to new lows each month, organizations like the Associated General Contractors of America have been lobbying the legislature to "invest in the country's infrastructure" as an attempt to equalize some of the woes of the private sector with growth in the public sector.  

Notwithstanding the lobbying efforts of trade organizations and the monitoring of the stimulus bill, it's nearly unanimous among commentators on the subject that construction companies will likely be the biggest beneficiaries of the stimulus deal.

The clear next question, of course, is "how?"

Frost Brown Todd, LLC published a blog article about "What Contractors Need To Know" about the House version of the stimulus package.  While not a direct analysis of the final bill, the article is still very relevant to it, explaining a number of details about the bill, where stimulus money will be allocated and why the construction industry may benefit from the spending.

Perhaps the best break-down of information comes from The Associated General Contractors of America website, which provides a state-by-state stimulus impact chart. 

The AGC's website also provides PDFs for each state, with a detailed status-briefing of the construstry industry and an explanation of how the stimulus package may help.   You can download the reports on Washingon here, and Louisiana here.

The AGC's summary of the Economic Impact of the Stimulus Investment in Louisiana is as follows:

An additional $1 billion in nonresidential construction spending would add about $2.2 billion to the state’s Gross Domestic Product (GDP), about $698 million to personal earnings and create or sustain 23,000 jobs.

The AGC's summary of the Economic Impact of the Stimulus Investment in Washington is as follows:

An additional $1 billion in nonresidential construction spending would add about $2.4 billion to the state’s Gross Domestic Product (GDP), about $753 million to personal earnings and create or sustain 20,000 jobs.

This article has discussed the stimulus package and how it may impact the construction industry.  Tomorrow, we'll discuss how the stimulus package may affect your construction business....and give you tips on how to take advantage of the increase in public construction spending!

Now, for some comic relief, here is a clip of Mr. Stephen Colbert's discussion of the Stimulus debate:

 

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This morning, Chris Hill graciously allowed me to publish a post on his Construction Law Musings blog about the Employee Free Choice Act. 

In the posts' explanation of the Employee Free Choice Act and how it may impact the construction industry, I quote Dave Seitter of the Midwest Construction Law Blog from a very informative post on the act:

The untold implications of eliminating the secret ballot election are many, and are derived from the protections crafted under the NLRA over the last half-century. Most importantly, employees will be denied access to the normal pre-election debate that shapes informed decision-making, and employers will lose the opportunity to present an alternative point of view.

This radical change will also erode employees' free choice. Importantly, there are currently no restrictions in the EFCA on the time period during which labor organizations can collect authorization cards. A union that collects a single card each week from a workforce totaling 200 employees could potentially acquire cards from the majority of the workforce over the course of two long years.

Read my post at Construction Law Musings by clicking here.   A big thank you to Chris Hill for giving us the opportunity to speak to his readers.

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This post was contributed by Holly McCarthy, who writes on the subject of a construction management degree online. She invites your feedback at hollymccarthy12 at gmail dot com.

After working in heavy construction or homebuilding for many years, some feel like they are ready to take on small jobs on their own or maybe even start their own small business.  This can be a great and satisfying way to earn some money and be your own boss. 

Regardless of the size of your construction operation, there are some main guidelines that need to be kept in mind when running a reputable small construction business.  Not taking care of things in the right way could end up costing you a lot of time and money if you’re not careful.  So, make sure that you take care of business before going into business for yourself.

Make Sure You’re Covered

If you are planning on taking on jobs of even a very small scale, you need to have the proper insurances in order.  General liability policies are fairly affordable and won’t cut in to your overhead too much.  The average general liability policy for a small scale independent contractor is between one and five million dollars.  Rates will vary from location to location, but the money you spend may end up saving you from major liabilities later on down the line.

OSHA Compliance

From safety goggles to steel-toed boots, whatever the OSHA requirements for the job you’re working on happen to be—comply with them.  You may think that a luxury of owning your own business should make this less important, but all safety precautions must be taken at all times.  Often, if you are investigated by the insurance company and are found to be negligent, your claims may not be covered, and you will be personally liable.

Maintain Equipment and Vehicles

Properly maintained vehicles and tools will save you time and money down the road for sure, but will also help prevent any unforeseen accidents related to the equipment.  Make sure that you have pneumatic tools serviced regularly, which is often done for free by fastener sales reps when you purchase from them exclusively.  Vehicle maintenance should be done at a reputable location; save all receipts and records of maintenance on vehicles and equipment.

Verify Employees

With new compliance laws going into effect for large companies in the coming weeks, there will be a light of employment issues in the news.  Don’t get caught up in the politics.  Simply make sure that your employees are properly documented and you shouldn’t have any problems.

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This weekend, I read a post on the South Carolina Construction Law Blog about Texas' Prompt Payment Act.  It caused me to do a little online research on similar acts around the country, finding them in Alabama, Tennessee, Georgia, Wisconsin, New York, federally, and elsewhere.  

A "Construction News" pamphlet from Baker Donelson [pdf] in the Winter of 2004 has a good article about the statutes in AL, TN & GA, the theme of each act simply being this:  "Prompt Payment Acts Set Payment Guidelines for Construction Work."

It's no secret that payment problems are rampant in the construction industry.  And unfortunately, the old statement that "possession is 90% of the law" has some truth to it. 

Large well-funded construction companies can hold progress payments at the end of a project for trivial reasons, and strong-arm its subcontractors into settling for less.  Prompt Payment Acts aim to equalize the playing field a bit, applying penalties against those who misapply funds or try to strong-arm subs and suppliers.

So, do they exist in Louisiana and Washington?   Mostly....no.  

Both Louisiana and Washington lack a pure "Prompt Payment Acts."  Those victim to the misapplication of funds must rely on jurisprudence or other possibly applicable statutes, discussed below. 

Misapplying Funds in Louisiana
Buried within the Private Works Act in Louisiana is La. R.S. 9:4814 (A), which provides as follows with regard to the misapplication of funds:

No contractor, subcontractor, or agent of a contractor or subcontractor, who has received money on account of a contract for the construction, erection, or repair of a building, structure, or other improvement, including contracts and mortgages for interim financing, shall knowingly fail to apply the money received as necessary to settle claims to sellers of movables or laborers due for the construction or under the contract. Any seller of movables or laborer whose claims have not been settled may file an action for the amount due, including reasonable attorney fees and court costs, and for civil penalties as provided in this Section.

This provision actually works as a "prompt payment" requirement, but as is evidence from its terms it only has limited applicability. 

First, the contractor must "knowingly" misapply the funds.  Second, the only parties qualified to recover the penalties of the provision are "sellers of movables" and "laborers." 

The Private Works Act in Louisiana specifically distinguishes between laborers and subcontractors, and so subcontractors who provide labor to the project would not likely qualify for the penalties under La. R.S. 9:4814 - although the matter has never been decided.

Unfortunately for everyone not mentioned by §9:4814, Louisiana doesn't provide a remedy when funds are misapplied, and the parties must rely exclusively on the conditions of its contract.

Misapplying Funds in Washington
In 2006, the Washington Court of Appeals published an interesting reversal in Westview Investments, Ltd. v. U.S. Bank National Association [pdf of decision], addressing the issue of misapplying construction funds in Washington.

Since progress payments are not funds held in "trust" by statute in Washington, the court explained that they may be considered trusts if appointed as such by the parties - namely, through contract.

According to the Westview decision, progress payments made by a project owner to a general contractor constitute "trust funds" for the benefit of subcontractors, when the agreement between owner and contractor is based on AIA A201 (1997).    

Interfering with any "trust funds" would be a tortious conversion - and the Westfield court even goes so far as to rule that banks may be liable for misappropriating trust funds when it uses these funds to  pay down the borrower's debt to the bank (see discussion here).

Time for A Prompt Payment Act?
Is it time for a Prompt Payment Act in these Washington and Louisiana?  

While many statutes and regulations have drawbacks, there doesn't seem to be a downside to requiring contractors to pay its bills!

Litigation is costly and time-consuming - and it doesn't seem fair that after a long, expensive battle with a better-funded opponent, subcontractors and suppliers must settle for the principal debt. 

There are ways to punish contractors in Louisiana and Washington when funds are misapplied, but it's always dependant on circumstance.  A Prompt Payment Act would help equalize the playing field for subcontractors and suppliers who rely heavily on prompt payments.

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A recent survey by the Louisiana Workforce Commission found that 1 in 5 Louisiana companies may be violating the state's workers compensation laws.  

The unsettling survey is part to blame for the state's new fraud program, which is aimed at identifying and bringing into compliance businesses not providing workers’ compensation coverage.

As reported by nola.com, violators will face penalties of $250 per employee, per incident. Repeat offenders could face criminal penalties and have the businesses shut down

The fraud program should be a warning call to non-complying contractors in Louisiana. 

While the commissions hasn't singled out the industry, it's safe to assume that contractors will be the target of the commissions new fraud program.   The construction industry faces some of the highest workers comp rates, and most frequently encounter the fine line between an "employee" and an "independant contractor."

When describing fraud problems, Chris Broadwater, director of the LA Workforce Commission, told nola.com that many business list "workers' jobs as less hazardous than they are, or by claiming that their employees are independent contractors."

The Rates
Provided examples of high and low workers comp rates were, not surprisingly, between construction workers (up to $13 per $100 paid) and clerical workers (60 cents per $100 paid).

The difference is clearly huge, and perhaps it's why the first comment to nola.com's story on the fraud program complained about the cost of compliance:

Well, bring the rates down and maybe businesses here in Louisiana could afford to stay in business with less exorbitant rates from a monopoly insurer for all new businesses (LWCC). Small businesses are often forced into questionable cutbacks to feed the "gimmie" attitude of our state!

The comment likely resonates with contractors in Louisiana, who are competing in a down construction market with other contractors who aren't providing workers compensation (remember, only 20% of businesses in Louisiana do).   It's seems nearly impossible to compete with other businesses who - from the start - can discount their bids by 13-15%!

Not surprisingly, construction companies have substantial motivation to classify workers as independent contractors rather than employees.

Employee v. Independent Contractor
The Louisiana Workforce Commission has written an online article about this very problem, reminding contractors that the difference between employees and independent contractors is not a subjective determination - but something subject to specific statutory criteria.

With regard to the applicable statute, the Louisiana Workforce Commission states:

La. R.S. 23:1021 defines an independent contractor as any person who renders a service, other than manual labor, for a specified recompense for a specified result either as a unit or as a whole, under the control of his principal as to the result of his work only, and not as to the means by which such result is accomplished. Independent contractors who meet this definition are not covered by the Workers' Compensation Act.

Interestingly in Louisiana, a key factor in determining whether someone is an employee or independent contractor turns on whether they are required to perform "manual labor."

According to the article, Louisiana courts "have defined 'manual labor' liberally, looking at the hands-on feature of labor combined with the strenuous quality of the work to determine whether a task is manual or not."

If a substantial part of an independent contractor's work time is spent in manual labor, your inquiry is over, and the worker will be covered by the provisions of the Workers' Compensation Act.

Confused?
The workers compensation laws in Louisiana are confusing, and your business may be avoiding the law simply because it's so difficult to understand.   However, the cost of non-compliance is great.  Not only will your business be penalized by the commission, but you'll also find yourself liable if someone gets injured on the job.

The Office of Workers' Compensation Compliance Division has set up a number for businesses with questions about the requirements at 225-342-5658.  Fraud can be reported to the Fraud Division at 225-342-2226.

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We've written about the controversial E-Verify program scheduled on February 20, 2009, to become a mandatory component of all hires by federal contractors [see articles here and here].

In what Chris Hill has described as a possible "sudden rash of common sense," the program has been temporarily shelved by the Obama Administration. 

While a relief to federal contractors, it's not yet time for any celebrations.  The Obama Administration is only shelving the program so it has time to review it, and this is just one program of many being analyzed.

As things currently stand, unless President Bush's executive order is tossed after the review, the E-Verify requirement will go into effect on May 21, 2009. 

Aside from President Obama's review of the reg, the program faces another legal challenge over its accuracy.   The suit, captioned AFL-CIO v. Napolitano, No. 07-cv-4472CRB (N.D. Calif.), has been delayed until April 10th to allow the government additional time to reply to a motion for summary judgment.

Stay tuned..

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In a news release, the Department of Homeland Security (DHS) announced that they are "delaying implementation from the original Jan. 15 starting date to Feb. 20 as a result of negotiations associated with a lawsuit filed by the chamber and other business groups"

The Federal Construction Contracting Blog recently stated that opponents of the new rule hope that the delay will allow the Obama administration ample time to evaluate the impact it could have on the world of government contracting.

Since the new rule is the result of an executive order from President Bush, President-elect Obama could make significant changes to the proposed requirements.

If you are a contractor that does federal work, stay tuned to the Construction Law Monitor for more information about the status of this suit, and the status of the E-Verify requirements.

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Everyone wrestles with the difficult choice of whether or not bring a lawsuit for their loss. With fraudulent contracting and capital-empty businesses running rampant, there is always a risk of non-recovery from your legal action.

The modern world makes it more simple to determine whether or not your potential defendant has property, and therefore whether or not that person has the incentive to work to resolve your claims.

But even in a world where a lawsuit looks like a homerun, many are still stuck with a judgment in hand and no means to recover. Louisiana law provides several means of recovering your judgment.

You may seek to execute a writ of fieri facias, an mechanism which asks the sheriff to seize assets for the purposes of satisfying the judgment. You may also seek a writ of attachment, so that you can attach to proceeds active in another lawsuit or disbursement. A final method, the writ of garnishment, provides an opportunity to seek garnishment of wages earned by your debtor.

But alas, each of these methods are extremely costly and excruciatingly time consuming. Remember the mantra of Wolfe Law - the lien is a powerful tool. We have, over time, offered many takes on the manner in which the lien can be used as an effective tool in recovering your damages. Now you can turn your judgment into a similar tool.

Sometimes little used, the judgment lien can be an effective tool against debtors. A money judgment - a judgment for a sum certain - creates a judicial mortgage against the property of your debtor. You can secure this judgment by filing a judicial mortgage under La. C.C. Art. 3299, et seq. A judicial mortgage will provide you with a privilege to the property, which acts similar to a mortgage against the property.

Once you hold a privilege against the property, you are in a good position to settle your debt. Working towards settlement is much less costly, strenuous and lengthy process towards gaining recovery. A lien provides incentives to settling these claims - and quick.

A judicial mortgage can be drafted by your attorney. 

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Except that it's back.

As per an executive order by President Bush, starting January 14, 2009, most federal contractors and subcontractors will be required to use an E-Verify system to confirm the resident status of its employees.

The Midwest Construction Law Blog has posted a blog post with a great summary on the E-Verify history, controversy and requirements. Read it here. That post also discusses a recent lawsuit filed by the Society for Human Resource Management to prevent its enforcement.

And so here we are again - more controversial regulations aimed at construction businesses, and more uncertainty for contractors as to whether the requirements are indeed required.

On what basis is the executive order being challenged? Here is a quote from the Midwest Construction Law Blog post:

E-Verify was designed to allow U.S. employers to use a federal government database to confirm the work eligibility of applicants for jobs. Critics point out that the system has a high error rate. And some have challenged the Bush administration's authority to mandate E-Verify for contractors.

"The E-Verify system is far from ready to be mandated on employers. Plus, the authority to mandate it lies with Congress, not a federal agency," commented Michael Aitken, SHRM's director of government affairs, after the suit was filed on Dec. 23, 2008. "SHRM believes the administration is overreaching its authority by mandating an employment verification program designed by statute to be voluntary."

If you are a contractor that does federal work, stay tuned to the Construction Law Monitor for more information about the status of this suit, and the status of the E-Verify requirements.

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This is just another reminder to contractors, subcontractors and other tradesman who do dangerous business that safety should be taken seriously. One small fall can cost your project bad press, an OSHA investigation, workers compensation claims and rate increases, insurance battles, and more.

Chris Hill, a construction attorney with Durrette & Bradshaw, published an article recently on his "Construction Law Musings" blog titled: Be Ready In Case Of A Construction Disaster.

Chris' point?

"If you are unlucky enough to be an owner, architect, engineer, or contractor on a project that results in disaster, you need to get legal counsel, immediately contact your insurance company and have an independent third party evaluate the situation. For further steps, please check out this article I wrote for Business Law Bulletin of Virginia."

His article in the Business Law Bulletin of Virginia is a great resource for contractors all over the country faced with construction accidents or disasters. More resources can be found at our prior post here.

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Just last week, I was alerted to an incident in Atlanta where a pedestrian bridge under construction had collapsed leaving one dead and 15 others injured.

On the morning of that accident, a construction company began what they thought was just another morning. As 2009 approaches, it's nearly certain that they are restlessly pouring through their insurance policies, speaking to authorities, worrying about OSHA fines and lawsuits, calculating the project's new delay and having other thoughts that make it increasingly difficult for them to continue work as usual.

A construction accident like this is devastating for two reasons: First, people die and get hurt. Second, your construction business has enormous liability exposure and can plummet into a downward spiral of bureaucracy and legal headache.

The legal and economical problems associated with a construction accident like this are nearly unmeasurable. A problem like this can happen to your company, and so it's important to take precautions.

A good place to get started? Try the OSHA online assistance center for the Construction Industry.

Here are some other blogs about construction safety that publish great information about the topic on a day-to-day basis:

• Entrepreneurial Health & Safety Leaders - Construction
• OSHA Underground (Not An Official OSHA Publication)
• The Safe Workplace Blog
• The Safety Daily Adviser
• The Safety Blog from Safety Services Company

While we haven't posted on construction safety in the past here at the Construction Law Monitor, we will be keeping an eye on these important issues and making further mention of them. Stay tuned.

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Slowly but surely, these industries have responded to the demand, and there are a number of products available to green builders and property owners to help limit their exposure in the event of a green building problem.

Green Building Insurance
It appears that Fireman's Fund Insurance was the first to offer green building insurance products in the fall of 2006. The "Green-Card Insurance Suit" self-proclaims itself to provide insurance solutions to builders and owners whether "you've built green from the ground up, have made green renovations to existing buildings, or would like to rebuild as green in the event of a loss."

Quickly thereafter, the Insurance Journal predicted more insurance products to come, and over the next two years Aon, Allstate and Travelers' all rolled out their contributions to the green building insurance market.

The insurance policies being offered are interesting in that they protect against green building defects and deficiencies, and in some instances also allow owners to "upgrade" when green building requirements change.

While these experimental programs are exciting for the green building industry, it's too soon to predict how they will be interpreted, what exact coverages will be allowed, and how they will hold up in the courtroom. Stay tuned...

Green Building Bonds
Contractors and property owners are quite familiar with the concept of "performance bonds." Not so familiar, however, are "green building bonds."

With certain government projects mandating green building standards, and green building requirements finding its way into construction contracts across the country, there is some talk about whether contractors should purchase and file "green building bonds."

The issue of green building bonds and the complex questions surrounding them are discussed in detail in two good posts by the Green Building Law Update blog here. One of the most peculiar presented complexities relates to the general identification of the bond - is it a performance bond, or a license / compliance bond?

With bond requirements popping up through governmental regulations, it seems surety companies are not certain how to exactly issue the bonds.

Once again, like the insurance programs, it's still too soon to predict how this issue will resolve itself. For now...green builders ought stay tuned.

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For several years now, legislators in the State of Washington have taken strides to provide more and more protection to construction consumers. With a rise in contractor fraud sweeping the nation, both consumers and honest contractors alike, share an interest in finding safeguards to valuable projects.

Contractors who play by the rules have become sick and tired of having the fearful "contractor" label painted on their backs. Not only do good contractors have pride in their workmanship, they fear the inundation of the construction market with unqualified, sub-par contractors. An honest contractor sets up its company, registers with Labor & Industries, pays its taxes and insurance, and complies with legal requirements. But these honest contractors have been harmed by the state's inability to properly police fraudulent contractors who fly by the radar of state enforcement officials, and more importantly.....consumers.

It is obvious that consumers encounter difficulty when working with contractors. First of all, consumers are without the proper knowledge to accurately bargain with contractors. Second, many are not keen to the state's requirements of registration, bonding, insurance, and reporting. Because of this knowledge gap, fraudulent contractors are able to snatch up projects at lower costs than an honest contractor will be able to bid.

Here in lays the problem: How do we even the playing field so that consumers do not get cheated and honest contractors do not get undercut? Efforts have stepped up to find an answer. Government officials have openly reached out to the construction industry, its members and their organizations for intelligent ways to protect consumers and to discipline contractors for not playing fairly.

In July 2007, the Washington Legislature passed a bill to crack down on the plague that is unregistered contracting. The law provides safeguards for consumers, disciplinary tools for local officials, and automatic right deprivation for non-compliant contractors. The laws require the use of an expanded Model Disclosure Statement. Wolfe Law Group commented on the new form in an article posted this past summer.

The Model Disclosure Statement is, briefly, a statement indicating the contractor's registration, bonding and insurance. It provides the consumer with enough information to ensure it is dealing with a legitimate contractor, and allows for the consumer to do further evaluation of the contractor, through Labor & Industries' website.

The new laws require that the Model Disclosure Statement be delivered at the time of contracting, hence virtually demanding that you include a copy of the document with your contract. As a contractor, you are required to obtain the consumer's signature on the Statement, and retain this document for a period of three years! Failure to comply may result in the loss of lien rights, or further discipline from officials. The Department of Labor may demand you provide this documentation at any time!

Further changes to the law expand the definition of "contractor" to include those persons who own to "flip" houses, or immediately resell. These "owners" can no longer hide under the owner exception, and are now required to be registered or hire a registered contractor.

Legal outcomes have more effect than ever, thanks to the new bill. Labor & Industries must reject any registration where the contractor has an unpaid judgment. Further, it may require triple bonding for those contractors with three or more judgments obtained against them.

Labor & Industries also gain more power to police contractors. Under the new law, Labor & Industries can obtain a warrant to access any work site for review of permits and registrations. Further, the penalty for failing to be registered was elevated to a gross misdemeanor.

As you can probably tell, the new contractor registration laws carry a heavy hand for fraudulent contractors. If you want to be on top of the changes, you should immediately begin inclusion of the Model Disclosure Statement in all of your proposals, agreements and contracts. Even if you are an oral agreement kind of contractor, you still MUST have this document signed to protect yourself from penalty and to secure your lien rights against the property.

Obtain a copy of the Model Disclosure Statement from our website. This document is in PDF format and should work on all computers. Remember that the document must be retained for three years!

Changes to the law are happening consistently. Check back at the Wolfe Law Group Construction Law Monitor for more vital information.

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In the construction industry where litigation is frequent and costly, legal preparations are especially important. And while you can never completely isolate your organization from legal exposure, it will benefit from a conscious effort to place it in the best possible situation in the event of a dispute or injury.

Here are some ways your organization can be legally proactive to avoid costly and unnecessary legal expenses in 2008 and 2009:

1) Have a great written contract. Entering into a construction project of any size without a written contract is a recipe for disaster.

Your organization should have a "form contract" that meets your business' requirements, and addresses certain legal hot topics such as the scope of work, the indemnity requirements, the obligations of each party in the project, dispute resolution mechanics and procedures, etc. Written contracts should be a way of life for your organization, with contracts executed between contractor and owner, contractor and subcontractor, contractor and supplier, owner and architect, etc.

An attorney should be consulted to help make changes and insert provisions as required project-by-project, as each project has different needs. Even AIA or ConsensusDOCS form contracts are frequently edited by the parties to accommodate the needs of a particular project or agreement.

In the event of a dispute, a well-drafted written agreement can save your organizations thousands, and even hundreds of thousands or millions depending on the project's size.

2) Never Sign A Bad Contract. This is particularly a problem with subcontractors who enter into written contracts with subs or GCs who are larger and better funded then themselves. In these situations, it is common for the larger party to present the smaller party with a very one-sided contract.

The larger contractor uses its size and the allure of the project to strong-arm the smaller entity into agreement. Be very weary of this type of practice.

In the event of a dispute under one of these unilateral contracts, your organization can sustain a fatal blow. In our experience, we've unfortunately witnesses companies who have had to file bankruptcy or dissolve themselves not because their work was poor or they were legally wrong, but because they just couldn't afford to fight their position under the contract.

One proactive measure your organization can take to avoid costly litigation is to avoid signing these types of agreements.

While the heavy-handed form contract might seem mandatory, in fact these corporations are usually used to making certain changes to the contract terms. Have an attorney consult with you regarding the consequences of the contract provisions, as well as suggested changes - and propose these changes to the other party.

If you cannot get the contract altered to meet your concerns, you may want to seriously consider whether the project is worth the risk in liability and exposure.

3) Create and Follow In-House Collection Procedures. The importance of your in-house collection procedures will vary depending on the type of construction business you run. Certainly if your organization enters into hundreds or thousands of smaller contracts every year, collection procedures will be very critical to your operation. Conversely, if your organization has just a few big contracts each year, collections are likely more under control.

In any event, your organization should have a clear "plan of attack" in the event of non-payment.

In today's construction market and vulnerable economy, credit applications are often denied and cash flow can be tight. A high accounts receivables number can cause displeasure to your company.

The most effective way to prevent bad collection scenarios is not litigation (which is costly), but consistent collection practices and pre-litigation preparation.

Of course, a non-paying client can warrant litigation - and should, if payment is not tendered after collection procedures are employed. However, by taking in-house or outsourced collection measures prior to litigation your organization can limit the number of lawsuits required, and by preparing for litigation in each non-payment scenario, your organization will decrease the overall amount spent in court.

Collection procedures are most effective when they are structured, consistent, and employed early. By sending prompt demand letters you accomplish two important things: (a) you let the non-paying client know you are serious about collecting the account; and (b) you start the clock to collect attorneys fees, interests, etc. that you may be qualified for under contract or by law.

 

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Some have warned that we are facing an "economic pearl harbor," while others have cautioned Americans to avoid panic.

From a legal perspective, it seems clear that while the economic situations may not turn small business owners upside down, we are facing a time where cash flow is tight and accounts receivables should be kept as low as possible.

We have previously written about the importance of good collection practices in avoiding high accounts receivables and noncollectable - you can read these articles here. As clients and customers are becoming slower and slower in paying their bills, and credit is tight, it's now more important than ever for your business to have good collection procedures.

Wolfe Law Group has published as "Collections Toolkit" for contractors that discusses collection laws relevant to the industry, information on filing construction liens and even form letters and templates to use in your accounting department.

See a preview of the book here: http://www.lulu.com/content/3854624

Purchase a copy of the book in ebook ($69) or print ($139) format here:
http://www.lulu.com/wolfelaw

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HGTV Pro has a Hurricane data center on their website.

Essentially, the website provides a wealth of information (including informational articles and videos) about what builders need to know about preparing their jobsites for the hurricane season.

Contractors and property owners alike will find the information useful. The data center also provides information about how to prepare a jobsite for an impending storm, and how to recover after the storm passes.

View the Hurricane Videos now, including videos on the following:

• Shear Wall Bracing
• Garage Doors in Hurricanes
• Hurricane Water Intrusion
• Hurricane Resistant Design
• Drying Out After a Hurricane

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Taking a reactive approach to collections instead of a proactive approach
Sometimes, unfortunately, the best collection procedures and attorneys on earth cannot fix a collections problem. An insolvent company who owes you $100,000.00 may owe you that amount forever. Good collection procedures, therefore, begin before you are owed any amount of money; they begin at the time of contracting."An ounce of prevention is worth a pound of cure" rings true for those seeking to avoid a high receivables account. Starting with a good contract and following through with smart project management can help keep your uncollected accounts low. Common contract provisions that may help avoid a collection scenario is discussed in a related blog post at:

Getting "Too Deep"
The worst collection problems are usually the most avoidable. Frequently, construction company will continue dumping materials and resources into a project without compensation.
It's important to reject the urge to perform your services upon a "promise" to pay. These promises are all too common between contractors, and in most cases, are all too empty as well.
Learn to notice cues from your prime contractors or customers that money is tight, and react by demanding exactly what you're entitled to: payment. You may fear that the paying party will seek someone else to perform the work, but not only are they likely contractually restricted from doing this, but the substituted company will certainly expect payment as well.

Being Unprepared for a Non-Paying Customer
The longer an account goes unpaid, the less likely you'll ever collect. One of the biggest mistakes you can make when faced with an overdue account, therefore, is to delay your attempts to collect.

It's easy to put off attempts to collect when you're not prepared. However, with a collection procedure in place, you can start collecting easily and automatically
as soon as an account becomes overdue. Collection procedures will keep you proactive, consistent and more successful at collecting on unpaid accounts.

Disorganization
Finally, the most common and avoidable collections mistake is being disorganized, and specifically being incapable to prove what you are owed. As soon as an account goes into collections, it will go into dispute. The paying party will disagree with the amount of work performed, the quality of the work, its scope, the project's change orders, etc.

In construction as you likely know, there's no such thing as a perfect project, and so it's not difficult for an adversary in collections to dispute the quality of your work because of paint chips or an incorrect doorknob.

Organization and a detailed record of the work you performed will help you avoid these time-consuming and expensive arguments. If you have photographs, time-sheets, job logs, etc., you'll have the evidence necessary to combat these arguments and keep your overdue account from turning into a settled account.

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Here is an example situation: The Owner wants to change the scope of work, but the parties cannot agree on how this will affect the contract price. The Owner urges the increased scope should cost $50,000.00, but the Contractor estimates the work at $65,000.00. The dispute leads to a stand-off, where the Contractor refuses to make the change, and the Owner claims a breach in contract.

The Owner issues a Construction Change Directive under the Contract Documents, requiring the Contractor to proceed forward with the change...Now what?

Depending on the terms of your contract, the Contractor may be required to perform the work for the lesser amount, or - in certain circumstances - without payment until the parties can resolve the dispute through ADR or litigation!

Clearly, a Construction Change Directive can greatly affect the success or non-success of a construction project. It's important, therefore, that you deal with the perils of these Owner-friendly devices during contracting, and not when an unpleasant situation arises.

Construction Change Directives Treatment in the AIA and ConsensusDOCS Documents
If you're working with form contract documents, they will almost always allow an Owner to issue an interim change directive. And in almost every circumstance, in the case of non-agreement over a change, the Owner is allowed to require the Contractor to proceed forward while the dispute is pending.

Importantly, however, these contracts differ on the procedures for resolving the dispute between the parties.

Under the AIA A201 General Conditions, if the parties cannot agree on the impact of the change directive on the Contract Sum, the Architect makes the determination and her determination is binding upon the parties. If the contractor disagrees with the Architect, it can dispute the decision through the dispute resolution procedures of Article 15 (2007 ed.), but it may be left having to fund the entire cost of the directed change until the final resolution is reached!

The ConsensusDOCS - a new set of contract documents introduced in September 2007 - seems to offer a more balanced approach. Most importantly, ConsensusDOCS provides interim relief to the contractor in the case of disagreement, requiring the Owner to pay the Contractor 50% of its estimated cost to perform the work while the Parties dispute the remaining amount.

Contractors signing the AIA A201 agreement should be cautious about the Construction Change Directive provisions. Without altering the AIA language, a dispute over a construction change directive will likely weigh heavily in favor of the Owner.

Construction Changes When Using Custom Documents
It's no secret that thousands of construction projects are embarked upon without the use of an set of contract documents from the AIA or some other association. In fact, its safe to assume that most construction projects in the United States are regulated by more custom and simple contracts.

It's easy for a lawyer to analyze the impact certain situations may have on a construction project when looking through the prism of time-tested contract forms, but in everyday life, its more difficult to make these predictions.

In regards to Construction Change Directives, for example, when two parties not using the AIA or ConsensusDOCS forms find themselves arguing about the cost of a change order, they may find themselves with very clear or very ambiguous options.

On the one hand, they may have a contract that speaks very clearly to the point. The contract may give the Owner unfettered ability to direct a change, or it may state that the contractor is unequivocally not required to deviate from the original scope without a written and signed change order.

On the other hand, the contract may be completely silent on the point. In this circumstance, unfortunately, the Owner and Contract might be for a lengthy and trying dispute proceeding.

When contracting with custom documents, contractors should analyze that documents treatment of change order and construction change directive procedures. If the contract is silent on the issue, have an attorney draft some language to regulate what will happen in the event of a dispute. If the contract speaks to the issue, ensure that your company won't be left to dry when the Owner decides he or she wants a kitchen ten times the cost of the original scoped kitchen.

Conclusion
Change Orders and Construction Change Directives are the root of most disputes in the construction industry. Understand what your contract will require from you and the other party in the event a change is necessary, and ensure that your contract is reasonable in the event of a dispute.

Related Articles:
Construction Contracts 101 - Use of Standardized Forms
A Cure for Construction Litigation: Proactive Thinking
Wolfe Law Group Practice Areas - Construction Contracts
Wolfe Law Group Practice Areas - Construction Disputes

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In construction, owners, general contractors, subcontractors, and suppliers are all susceptible to bankruptcy. If any one of them chooses to declare themselves bankrupt, they not only leave the project vulnerable but the remaining parties are put at risk for not being paid, at all or in part.

Bottom line, any bankruptcy filing leaves the construction project irretrievably impacted and every party facing increased expenses in both time and money. In order to be paid, they've all got to work on two fronts now: the construction site and the bankruptcy courtroom.

Overview of the Bankruptcy Process - How It Begins

Declaring bankruptcy is a legal right guaranteed by the United States Constitution. Federal law and regulation defines and protects that right, and special federal courts have been created solely to deal with bankruptcy matters.

So much federal law has been created to control the bankruptcy process that it has been gathered together (codified) in a group of laws named the Bankruptcy Code. Within that code are several chapters, organizing various aspects of bankruptcy law by topic.

When an individual or a company involved in construction declares bankruptcy, they will most likely do so under one of three chapters:

•· Chapter 7 ("liquidation"), which essentially distributes the bankrupt venture's assets (some assets are exempt from this process under the law) to the creditors and thereafter, the business dissolves;

•· Chapter 11 ("reorganization"), where the bankrupt business is reorganized or restructured, and continues in business in a new way; and

•· Chapter 13 ('wage earners"), the most common choice overall, where unincorporated ventures (e.g., owners), keep their assets and pay creditors according to a court-approved plan usually for less than the full amount owed.

Immediately upon filing a petition for relief with the local bankruptcy court under one of these three chapters, the bankrupt will receive a case number as identification, and an assignment to a particular court and its presiding judge. Hearings will be held in the matter before that judge, and all correspondence to the court must contain the case number identifying the matter.

As soon as the bankruptcy case is created in the courts, the law stops everything with a procedure known as the "automatic stay." This stay cuts off any actions by or against the debtor and forces everyone involved to participate in the judicial process overseen by the bankruptcy judge.

News of Bankruptcy -- The First Response

It is wise to hire experienced legal counsel to deal with bankruptcy proceedings, and lawyers usually diversify their practices between debtors and creditors, large and small. Word of mouth is usually the best way to select good bankruptcy counsel.

An attorney can be very helpful in these situations. For example, if you want the general contractor to finish the job, your attorney can file the appropriate documents with the bankruptcy court to request that the automatic stay be lifted and the bankrupt company be allowed to finish the project. If the court grants your request, then the contract will continue as a "post-petition obligation," with all the rights and duties contained within it.

An attorney can also advise you on the nuances of bankruptcy law and how it changes your previous arrangements. For example, the standard contractual provision that filing bankruptcy is an automatic default will not be respected under federal law: the contractual provisions defining default as being unable to properly man the job, or to pay subs and suppliers, must also exist in order to lift the stay and terminate the contract.

Your attorney can also file a proper "Proof of Claim" for you. This will be accepted by the court as valid unless the bankrupt disputes it in some way. If you do not file a proof of claim with the bankruptcy court, you cannot be paid. Always file a Proof of Claim.

In large bankruptcy cases, the court will segregate the creditors into secured and unsecured groups, and create committees for both with certain creditors serving on both committees as representatives of the whole. There are advantages and disadvantages to serving on a Committee, such as you may or may not be paid for your time, and it is best to discuss this option with your attorney before agreeing to serve.

There's a Bankrupt on the Project: What Now?

When it's a general contractor that files bankruptcy, the entire project comes to a sudden halt. The owner can rely upon his performance and payment bond surety - if the work has been bonded - to get things going again. If not, then the owner can ask the Bankruptcy Court for permission to try and find some assurance that the contractor will continue his work to completion.

When a subcontractor or supplier files bankruptcy, the project will not be completely stymied. Construction will work around the gap made by the bankrupt. Meanwhile, the general contractor will ask the Bankruptcy Court for permission to either terminate the bankrupt's contract or to set up some type of assurance that they'll get their commitments to the project met.

Regardless of who has filed, when they learn of any bankruptcy filing on a project, subcontractors and suppliers will usually file lien claims immediately in order to protect their rights to payment. This is a good strategy as long as the applicable state law defines their right as existing before the bankruptcy filing. Federal law allows perfection of pre-existing security interests.

No one should act based upon a contractual provision that attempts to deal with bankruptcy by stating such things as filing bankruptcy is an automatic default under the agreement. Every single action connected with the bankrupt must occur under the auspices of federal bankruptcy procedure, which means that you must appear before the court and obtain the judge's approval before taking any action pursuant to the contract or otherwise. Act based upon the contract alone, and you will face the wrath of the bankruptcy judge.

Furthermore, everyone should check their payment records for any monies received from the bankrupt in the past ninety days. This is because federal law allows the bankruptcy court to order a return of payments received from a bankrupt for up to 90 days prior to the date the bankruptcy was filed. These are called "preference claims," and while they were traditionally sought for only large amounts ($7500+), today preference claims for amounts as small as $250 are not uncommon.

Having an attorney is especially important if you want to fight a preference claim. There are legal defenses available to you, such as demonstration of a contemporaneous exchange of value, that can allow you to avoid a refund.

Depending upon the situation, the construction project may or may not proceed with a bankrupt debtor participating in the process. Regardless of whether or not they continue, or they are terminated, the project's expense will increase for everyone in both time and money by the mere filing of the bankruptcy.

Preventative Measures

It goes without saying that the profit margin is shortened, if not erased, for many when a bankruptcy is filed. To minimize this cost, certain steps can be taken before starting any project:

1. Choose reputable parties to work with on each project you undertake. Established business ventures (5+ years) are less likely to fold.

2. Have legal counsel to review any construction contract before you sign it, with concerns not only for your legal rights and duties, but the ways you can protect yourself from the unfortunate circumstance of another party's bankruptcy filing. Your construction law attorney should undertake the basics of bankruptcy law as it applies to the construction industry.

3. When you hear rumors of a project participant being in financial trouble, do not wait for notice of a bankruptcy filing. Check with your lawyer on what you can do proactively to protect your interests: he may suggest liens be filed, or various defenses to preference claims be established, as well as contingency plans including having alternatives at the ready (a new supplier if the current one goes belly up; an alternative electrical subcontractor if the project's electricians go out of business).

4. Immediately seek the advice of counsel when you receive notice of a bankruptcy filing. There are set deadlines within which you must act or you will lose your right to any payment whatsoever for your work on the project.

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Efficient payment is critical in construction. Without timely, dependable payments to those who are actually doing the work and providing the materials, construction projects of any size become vulnerable.

Non-payment or slow payment can cause abandonment of the job, sub-standard work, and decreased productivity -- as well as an increase in claims and liens. Reputations in the community can also be tainted by slow and unreliable payment procedures, resulting in harm which can take years to repair.

Still, slow payment and non-payment remains one of the biggest risks facing a contractor. Owners withhold payment for many reasons: they are dissatisfied with the work; they want to push a project that is behind schedule; or they may just be strapped for cash. Regardless of who is at fault, payment controversies can destroy a project.

Prompt Payment Acts - When They Apply & How They Help

Every state in the union has passed legislation that is similar in character to federal law requiring the prompt payment of government receivables. Prompt Payment Acts cover a variety of industries, but they are particularly important when construction is involved.

In any work performed for a governmental entity, payment of the invoices will be covered by the Prompt Pay law regardless of whether or not a contract exists to support the work. Invoices submitted to the government legally must be paid within a relatively short period of time or interest will be assessed, which the governmental entity will be required to pay, as well. The time limits vary from state to state and may or may not mirror the federal time limit of 30 days.

These statutes also set requirements for the invoices that are presented: if the invoice does not conform to the statutory requirements, then it will not be honored. The Acts will not force a timely payment on an improper invoice. Therefore, the preparation of applications for payment becomes very important in governmental work and many companies use automated software designed especially for this task.

Automated Payment Systems

A simple web search reveals a cornucopia of software packages available for the construction payment process. Pricing and product features run the gamut. However, good quality automation need not be expensive: QuickBooks offers a highly regarded system for under $200 which should be well within range for most subcontractors and craftsmen.

What if it's Not a Government Project?

Projects that do not involve a public entity usually will not be covered by prompt pay legislation. However, those statutes can be used as a guide on how fast payments should be made, as well as how detailed payment applications should be. More importantly, however, will be the basic written contracts that the parties have signed: what the contract language relates -- or fails to address -- will control the project's payment process.

For example, in Louisiana, payment is not legally due in private contracts until the project is completed -- unless the contract language provides otherwise. (For more information here, see Wolfe Law's May 2007 article on Pay When Paid clauses, link shown below.)

Without a written contract, state law will control. Which state's law? The state where the construction is located controls. Thus, the importance of a strong contract in the construction payment process cannot be underestimated.

Securing Payment and Performance: Bonds Versus Liens

There are various methods of securing payment and performance of a construction contract that are recognized across the industry, in every state. These usually involve bonds or liens.

Owner's Security

One common method that owners use to insure that there will be performance under the contract is a performance bond. Here, a bonding company ("surety") issues a bond which documents that the bonding company is guaranteeing payment of a set amount ("face value") to the owner should the contractor fail to finish the job. The surety agrees to pay this sum to the owner if the contractor fails to perform all the required services and deliver all the required materials and equipment. Usually, the bonding company reserves the right to take action before paying on the bond, such as having the general contractor remedy any outstanding claims, or hiring another contractor to finish the work.

Contractors' Security

Mechanics' liens are used by contractors to secure payment. These are writings filed with the public real property records pertaining to the property involved in the construction, giving public notice of the contractor's priority interest.

Overall, there are two forms of mechanics' liens: general and particular. General mechanic's liens allow the owner's property to be held, and sometimes sold, to pay the unpaid amount that is due and owing to the contractor. Particular liens are those filed by contractors claiming a right to retain certain, identified property because of money or labor they have invested in that specific property. A security system company, for example, may have a particular mechanics' lien on all alarms and related equipment.

Contractors can create liens in a variety of ways. Mechanic's liens can be created by an express contract, in a standardized document that the parties sign. These liens can also be created under the law by "implied contract," which usually occurs as part of a particular usage of trade or from the dealings between the parties. When goods are delivered to a subcontractor that he needs in order to complete his part of the project, for example, that subcontractor has a legal right to hold those goods until he gets paid for his work.

Payment Under The Contract

Today, most construction projects will see the use of one of two American Association of Architects ("AIA") contracts: either AIA Form 201 (most popular) or AIA Form 200. However, these forms both have problems when issues of slow payment or non-payment arise if they are signed without revision. For example, while AIA Form 200 does include language regarding the creation of a lien in the event of non-payment, it fails to include any specific time period for making payments to subcontractors. Similarly, AIA Form 201 does not prevent the commingling of funds, and fails to address possible delays in disbursements.

Both of these popular forms of written construction contracts have been criticized for their inadequacies in dealing with payment controversies. In response to this, in part, 2007 saw the introduction of an industry alternative to the AIA contract forms, the Associated Owners & Developers Standard Form of Contract Between Owner & Contractor ("AOD Form").

The AOD Form simplifies matters by requiring owners to pay general contractors within an agreed-upon time (e.g., 30 days) and requiring general contractors to hold monies due to their subcontractors and suppliers in trust, paying them within 7 days from the time that they receive payment.

The AIA has responded to the criticisms of the AOD by upgrading its own set of construction contract forms. Experienced contractors as well as owners using either set of forms, however, are careful to work with experienced construction attorneys to insert clear contractual provisions at the outset.

No contract form (AIA or AOD) should be signed without first obtaining the advice of legal counsel. Experienced construction attorneys may see holes in the forms that fail to address payment issues, as well as other concerns, that are particular to the project. Particular contractual provisions, or clauses, may be needed that the attorney will know are appropriate.

Clauses which owners should consider regarding payment include those addressing:

description of the work; contractor's cost of the work plus fee; separate contractors; subcontractors and subcontracts; applications for payment; retainage; conditions for final payment; insurance; warranties; changes; no damages for delays; defaults and remedies to default; right to terminate without cause; alternative dispute resolution; concealed conditions; and unknown conditions.

Clauses which general contractors should consider regarding payment include those addressing:

incomplete or deficient plans and specifications; architect's right to withhold funds; changes in taxation; architect's approval or disapproval of payments, or final payment; warranty; concealed conditions; weather delays; separate contractors; change orders; schedule of values; stored materials; substantial completion inspections; retainage; and right to terminate for convenience.

Subcontractors: Contingent Payment Clauses and Liquidating Agreements

To buffer themselves against a slow-paying or non-paying owner, general contractors have developed several methods of sharing this burden with their subcontractors and suppliers. Two of the most common are contingent payment clauses and liquidating agreements.

Contingent payment ("pay when paid" or "pay if paid") clauses are inserted into agreements by the general contractor, making the sub-contractor or supplier wait along with the general contractor for the owner to make payment. These provisions are not legally recognized in all states. (For their use in Louisiana, see the May 2007 Wolfe Law Article on Pay When Paid Clauses.)

Liquidating ("pass through") agreements are contracts entered into between a general contractor and a subcontractor, where the subcontractor agrees to be paid only when, and if, the general contractor is paid by the owner. The agreements may not, however, provide for the subcontractor to have any remedy against the general contractor should the owner decline to ever make payment. Accordingly, pass through agreements are not recognized as valid contracts in every state.

Suppliers: The Joint Check Rule

Joint checks are commonly issued to pay both a subcontractor and a supplier at the same time. Since these are often accompanied with a number of legal issues (endorsement, allocation of proceeds, etc.), many states have enacted a "joint check rule" which requires any supplier endorsing a joint check to collect its proceeds from that check or be legally barred from later asserting a lien or bond claim on that amount.

State law bases this rule upon a variety of doctrines (release, waiver, estoppel), but all share the perspective that a joint check is intended to protect the issuer from the supplier's claim, as well as protecting the supplier by ensuring payment, and the owner from any lien.

Tools developed by the construction industry, as well as protections created in the law, to deal with the issues of payment during the construction process are numerous, and they are constantly evolving. While standardization across the county has removed many of the payment pitfalls, the best protections for smooth payment remains strong, written contracts entered into by all the construction participants.




For more information:

Federal Prompt Payment Act
39 USC 3901 et seq
http://caselaw.lp.findlaw.com/casecode/uscodes/31/subtitles/iii/chapters/39/toc.html

Louisiana Prompt Payment Act
La. Rev. Stat. Section 38:2191; 9:2784
http://www.legis.state.la.us/

Washington Prompt Payment Act
RCW Sections 39.04.250; 39.76.010-39.76.040
http://apps.leg.wa.gov/RCW/default.aspx

QuickBooks Construction Application for Payment Solution
http://marketplace.intuit.com/AppID-859-Reviews.aspx

Wolfe Law Article: Payment Provisions and "Pay When Paid" Clauses
http://www.wolfelaw.com/main/news/index.php?atype

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New federal regulations will hold employers financially and criminally accountable for the legality of their workers. Those employing construction workers all over the United States should be on alert, and should be examining their hiring and employment practices in anticipation of the effectiveness of these regulations.

Introduction

Congress just passed a new law regulating immigrant workers, and more importantly, the employers who pay them! In the wake of the recent immigration debate, you may have heard about these new regulations setting tougher standards for businesses that receive "no match" letters, but it's crucial you understand the impact these regulations have on your business.

These new regulations set steep fiscal penalties for violating employers, and even criminal prosecution, and so it's time for your business to comprehensively examine its employment and immigration practices.
(--more--)
The regulations were supposed to go into effect on September 14, 2007. In August 2007, however, the ALF-CIP, American Civil Liberties Union and other labor groups sued the federal government claiming the new rules unfairly burden employers and threaten workers' rights, and a Temporary Restraining Order was issued suspending the effectiveness until a hearing on October 1st.

While the effective date of this legislation has been postponed, employers should by no means consider this a pardon from complying with the statute. Instead, employers should use the extra weeks to ensure their employment paperwork is in order.

What is a No-Match Letter?

Employers should be familiar with two common employment forms: the I-9 and the W-2. Each new employee is supposed to fill out an I-9 to establish their status as an authorized worker in the United States. Further, employers are required to report employee wages annually on W-2 forms.

Well, upon receipt and review of the annual W-2 forms by the Social Security Administration (SSA), if an employee's name and social security number does not match the SSA's records, the SSA will send the employer a "no match" letter, essentially notifying the employer of the discrepancy.

How Will My Business Be Affected?
Every business should be concerned, or at least alert, to the new Department of Homeland Security regulations. The Social Security Administration is just weeks away from sending some 140,000 no-match letters to employers all over the country, and if your business is a potential recipient, it faces serious consequences for tardy and/or inaccurate responses.

Under the new regulation (8 C.F.R. Part 274a), an employer must take steps to clear up the discrepancy within a certain time period (in most cases, 90 days) or face fines between $250.00 and $10,000.00 per undocumented worker.

This is a federal policy intended to crack down on workers who are in the country illegally. The Immigration and Customs Enforcement (ICE) has stated that it believes criminally charging and seizing the assets of employers will create the kind of deterrence that was previously absent in worksite enforcement efforts.

Effects On The Construction Industry

Some construction industry experts are predicting "economic chaos" will result if the new federal immigration regulations are launched. No one knows for sure the number of illegal workers in the construction industry, but many have suggested that it could be as high as 65%.

In New Orleans specifically, a study by professors at Tulane University and University of California have suggested that there has been a sharp increase in illegal hispanic construction workers since Hurricane Katrina, with about 25% of the construction workers rebuilding the city being illegal immigrants.

If you are a contractor its important to have a good understanding of the new DHS laws and regulations to ensure that the "economic chaos" in the construction industry doesn't spill into your company.

What To Do If You Receive a "No Match" Letter?
So what should you do if you receive one of the 140,000 SSA "no-match" letters?

Under the regulation, an employer who receives a "no-match" letter will be provided with a "safe-harbor" from the Department of Homeland Security if the employer takes "reasonable steps" to resolve the mismatch.

With each no-match letter, you will also receive a set of instructions and procedures that your company should follow verbatem, providing within tight time periods (mostly 90 days) either a resolution to the mismatch or requiring the employee to promptly resolve the discrepancy with the SSA.

Once your business receives a "no-match" letter, they are considered to have "constructive knowledge" of the unauthorized employee, and if they fail to qualify for the "safe harbor," they will be subject to the statutory penalties.

Conclusion

As mentioned, the effective date of the regulations have been postponed by a federal judge's Temporary Restraining Order. While the regulation was previously scheduled to take effect on September 14, 2007, it has been postponed until at least October 1st.

Wolfe Law Group is monitoring the status of this litigation and will provide additional information as it becomes available. In the meantime, contractors should familiarize themselves with the new regulation and ensure that their employment procedures and paperwork is ready for testing.

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