Archive for the ‘Federal’ Category

Around The Web: Housing Bubble On The Rise Again?

Back in 2008, along with major sections of the U.S. economy, the U.S. housing market tanked. This was a terrible time for home builders and most contractors in the industry. There was a ripple effect that was felt industry wide. Signs of the the rebound have been few and far between. We are now one quarter deep into 2012 and there are a few positive signs that the end of the drought may be near.

Just last week CNN reported very good numbers for building permits nation wide. According to the article, new home building permits are up from month to month and a large amount from this time last year. There is also an increase in the number of new apartment / condo permits that are being requested nationwide. The article stated that major contractors and home suppliers are seeing increases in stock value and revenue stream.  Some sites like yahoo.com published a Reuters article stating that there is a “housing comeback.”

A wide range of cities nation wide are reporting similar findings, such as Portland, Oregon and Dayton, Ohio. If this trend keeps up there is a good chance that the housing market will rebound and home sales will start to improve.

Posted in:     Around The Web, California, Construction News, Federal, Law Changes & Updates, Louisiana, Oregon, Washington  /  Tags: , , , , , , , , , , ,   /   Leave a comment

Chinese Drywall (almost) Global Settlement

Today there was a big announcement, and very positive news from the front lines of the ever controversial Chinese Drywall Multi-District Litigation (MDL). A global settlement has been agreed to in terms and will be filed with the Federal Court on December 20, 2011. For those of us working every day with Chinese Drywall claimants, not all of the information is a complete surprise, but there are a few new wrinkles which make today’s announcement very appealing.

First and foremost, the reason why I put the almost in my title is due to the fact that this “global settlement” will not cover all homes containing Chinese Drywall. Rather it will cover all homes with KPT (Knauf Plasterboard Tanjin). Undoubtedly, this is a large majority of the claims here in South Louisiana and most of the deep south. Only 20% of my clients have board other than KPT in their home and are not eligible for the “global settlement.”

For those who do have KPT drywall, most have been notified that they are eligible for the current Pilot Program. The new announcement creates three options for persons with KPT in their home. First, to have your home remediated by the selected contractor, Moss Construction, of Fort Lauderdale, Fl (same as pilot program), Second, choose your own contractor and then get reimbursement along the way, or take a discounted all cash settlement buyout.  The fund created to pay for this will be an uncapped fund and will assure all homes with KPT board get fixed.

There are capped funds set up to cover all attorney fees and then a separate fund created for claimants who are seeking personal injury damages or other economic loss – ie homes lost to foreclosure or short sale.

The fact that this settlement has come in under three years from the major discovery of Chinese Drywall in homes is the most monumental achievement of them all. Unfortunately, homeowners with other brands of Chinese Drywall in their home will have to continue to wait until we can hail the Chinese company responsible into our American Courts.

Posted in:     Chinese Drywall, Federal  /    /   1 Comment

Common Law Analysis – Pay-if-paid, Pay-when-paid & Liquidating Agreements in Construction Contracts

In a recent decision, Sloan & Company v. Liberty Mutual Insurance Company (“Sloan”), the US Court of Appeals for the Third Circuit has an in depth discussion regarding some technical yet very important clauses found within many construction contracts between general contractor, subcontractors, owner and the surety. Although the court interprets Pennsylvania law, these concepts are good to know for any jurisdiction.

Pay-If-Paid & Pay-When-Paid

The pay-if-paid discussion starts on page 9 and is defined as “a subcontractor gets paid by the general contractor only if the owner pays the general contractor for that subcontractor’s work.” The court goes on to next define pay-when-paid in contrast to the pay-if-paid. “[A] pay-when-paid clause does not establish a condition precedent, but merely creates a timing mechanism for the general contractor’s payment to the subcontractor.”

The basic difference here is pay-if-paid may never happen if the the owner does not pay the general contractor for the work performed by the subcontractor, in theory. But the pay-when-paid acts more as a timing mechanism for the general contractor to pay the subcontractor, regardless of what the owner has paid for.

Generally courts will look to the four corners of the contract between the parties to determine which way to interpret the meaning of the clause. The interesting part of this holding and a common practice in construction contracts is a clause which modifies the pay-if-paid clause to become a pay-when-paid and this was done here by eliminating the condition precedent after a stipulated amount of time.There are many reasons why this may be done but typically many subcontractors will not agree to an absolute pay-if-paid clause, as the end result can place too much of the risk of loss on the subcontractor. Click here for Daniel S. Brennan’s The Construction Contracts Book.

Liquidating Agreement

Another technical term that is not often discussed in construction, yet is present in many construction contracts is the mechanism know as a “liquidating agreement” Sloan pg 16. The Sloan court defines a liquidating agreement clause as a “process by which a general contractor may assert the claims of its subcontractors against the owner.” This is similar to subrogation in the insurance context. Do not confuse a liquidating agreement with liquidated damages. A liquidating agreement clause can act like a lien, in that it gives causes of action to the subcontractor against the owner where there is no privy of contract. Sloan pg 17.

“Liquidating agreements that enable pass-through claims, such as the one in the contract before us, can also serve to limit the subcontractor’s damages to the amount the contractor recovers from the owner. See Carl A. Calvert & Carl F. Ingwalson, Jr., Pass Through Claims and Liquidation Agreements, Constr. Lawyer, Oct. 1998, at 32, 33.Sloan pg 18.

Conclusion

The end result here, is that typically the general contractor bears the risk of loss when the owner does not pay up, but they can use contractual mechanisms to lower that risk and allocate some of it to the subcontractors. Liquidating agreements and pay-if-paid/pay-when-paid clauses, carefully negotiated at the contract phase of construction projects can lead to limiting liability at the end of a project when things do no go as planned. In the Sloan holding, the general contractor did not bear all of the loss but was forced to pay its subs in a proportional manner to the work performed, keeping nothing for itself. Sloan pg 20. Prevent this from happening to your construction company by working through these clauses when forming your next contract.

Further reading: California Pay-if-paid Wm. R. Clarke v. Safeco Insurance (distinguished by other jurisdictions); Pay-when-paid. A google search of these terms will provide a wealth of information. Always consult with an attorney before negotiating contracts in the construction industry no matter how large or small the project.

Posted in:     Construction Contracts, Construction News, Damages, Federal, Insurance, Litigation, Payment Requirements, State & Federal Contracting  /  Tags: , , ,   /   1 Comment

New Legislation Could Change How Contractors File and Pay Taxes

Last week, The American Job Builders Tax Reform Act of 2011 was introduced in the house as a bi-partisan bill (sponsored by Reps. Wally Herger (R-Calif.), David McKinley (R-W.Va.) and Shelley Berkley (D-Nev.)) to update how contractors are taxed. The introduction was immediately applauded by the Associated Builders and Contractors, who claim the bill will modify the tax code to help small construction contractors that are facing increased costs in energy, labor and materials.

You can track the bill on GovTrack here.

This isn’t the first time at the rodeo for the American Job Builders Tax Reform Act.  It was introduced last session, but died without any action. ABC and small contractors around the country are hoping for a different fate this session.

The proposed effects of this bill are best explained by the ABC in their press release last week as follows:

“The problem facing construction contractors is that they have been forced to pay income taxes on projects based on estimates rather than having the option of paying taxes when the contract is completed,” said Robin Word, chairman of ABC’s Tax Advisory Group and president of Word CPA Group in Jackson, Miss. “However under this bill, the definition of ‘small contractor’ will enable more contractors to report contra ct income at the conclusion of their jobs.”

Under current law, construction contractors cannot use the completed contract method (CCM) of accounting if average annual gross receipts exceed $10 million – a figure that has not been adjusted for inflation since the threshold’s inception in 1986. Instead, contractors are required to use the percentage-of-completion method (PCM) which does not accurately reflect profits because of the required use of estimates. The American Job Builders Tax Reform Act increases the threshold to $40 million and also indexes the threshold for inflation.

To put it simply, if a contractor has gross revenue over $10m, it must “estimate” its profits on any active construction projects when filing taxes. The actual profits it receives may be more or less than this estimate, whereupon the contractor has to alert the IRS of the difference and either get a credit or pay the difference.  Those contractors with less than $10m in revenue can simply wait forthe project to be completed before being obligated to pay taxes on the profits.  The new bill proposes raising the exemption figure from $10m to $40m, encompassing a larger number of contractors in the US.

We’ll monitor this bill and report any updates.  A tip of the hat to New Orleans City Business’ blog for calling my attention to the bill.

Posted in:     Construction News, Federal, Regulations  /  Tags: , , , , , ,   /   Leave a comment

IRS Aid to Help Victims of Chinese Drywall

Just last week the Internal Revenue Service (IRS) announced a plan to help homeowners who have corrosive Chinese Drywall in their home with tax breaks on items that have been destroyed as a result of the Drywall.

IRS website gives a good break down on the relief effort affecting repairs for drywall losses from drywall installed between 2001-2009. Entitled Revenue Procedure 2010-36, the procedure covers the following:

  • Homeowner must pay for the repair of the loss and make the claim in the year of payment.
  • You cannot make a claim that has been paid for by insurance or reimbursed by another source.
  • If the homeowner does have a pending claim or suit they can claim reimbursement for 75% of the unreimbursed amount.

Many news sources have reported on this same topic: New York Times, New Orleans Times Picayune.

This is the first major federal effort to help compensate homeowners with tainted drywall. The drywall has affected homeowners in many states with the most concentrated in Florida and Louisiana.

Posted in:     Chinese Drywall, Construction News, Federal  /  Tags: , ,   /   Leave a comment