How Does a Construction Contractor Not Slip and Fall Over Its Own Contract?

Ensuring that a construction contract clearly defines who is responsible for work-related injuries and related workers compensation benefits is critical, otherwise unanticipated statutory liability could surface, like a roofing contractor learned in Associated Aluminum Products and Builders Mutual Insurance Company v. Elvira-Menez et al., No. 2301-13-2 (Va. App. Sept. 16, 2014). In this recent case out of the Virginia Court of Appeals, the Court found that the prime contractor, Associated Aluminum Products (“AAPCO”) had to pay workers compensation benefits to a worker that slipped and fell off of a roof at its worksite, even though the worker was employed by a subcontractor, a Mr. Rodney Blair.

Blair arranged workers compensation insurance through a third party, Mr. Ronnie Jenkins. Jenkins received the payments from AAPCO, and the Court found that this arrangement was a mere ruse to let Blair latch onto Jenkins’ licenses and benefits. AAPCO believed that Jenkins was the subcontractor, and that Blair was the sub-sub, but none of these assumptions were documented in a written contract. Ultimately, the Court found that Blair was the actual employer, and not Jenkins.
The Appeals Court found that the following factors meant that Blair was the actual employer:

• AAPCO received payment requests directly from Blair;
• AAPCO contacted Blair regarding available projects;
• Blair completed projects without any involvement from Jenkins;
• AAPCO did not give any updates to Jenkins regarding project work; and
• Jenkins was only aware of the project’s status after it was completed.

Because Blair was uninsured, the Court found that AAPCO was liable for workers compensation benefits as the injured worker’s statutory employer.

The take-away lesson of this case is for contractors to always ensure that a written contract is in place before a construction project begins. The contract must carefully define which party is actually responsible for workers compensation benefits and accidents on the worksite. Failing to do so can result in unforeseen liability and costs and these pitfalls can be avoided by ensuring a proper contract is in place before the project starts.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP, and the head of its construction law team. Katie can be reached at klipp@berenzweiglaw.com.

New Construction Arbitration Rules Promise Cheaper and Faster Construction Arbitrations

Companies involved in construction arbitration can now benefit from new rules which allow them to better predict time frames and costs to resolve disputes. The American Arbitration Association® developed new Supplementary Rules for Fixed Time and Cost Construction Arbitration effective June 15, 2014.

Companies can benefit from the new Supplementary Rules, because:

• Reduced Discovery/Document Exchange: they are ideal for disputes with distinct issues, because these disputes benefit from reduced discovery and document exchange.


• Two-Party Dispute: the rules generally only apply to two-party arbitrations.


• Surety exception: a surety can be a third-party to a dispute, if it is represented by the same attorney as its principal, and has not made a separate claim against any party.


• Time Schedules:  the rules include a schedule linking time frames to claim amounts.


• The time frames from filing to award range from 120 to 360 days – the time frame increases with the claim amount.


• Mandatory Administrative Conference: within 3 days of filing the Demand or Submission for arbitration, a mandatory Administrative Conference takes place to expedite the proceedings


• Mandatory Meet and Confer Conference:  within 14 days of the Administrative Conference, the parties must participate in a Meet and Confer Conference to select an arbitrator; hearing time, place and date; number of hearing days; and determine necessary discovery.


• Limits on Time Extensions beyond Schedule Time Frames: extensions beyond the schedule’s time frames are frowned upon – they have to be granted by the arbitrator upon request.


• Limits on Additional Hearing Days: have to be granted by the arbitrator upon request.


• AAA Fees: the rule schedule also links claim amounts to AAA fees.
  
• AAA fees range from $2,500 to $10,000
• Exclusions: arbitrator fees for hearing and study time.


• Maximum Fees: the maximum total fees range from $10,500 (claim of $75,000 –  $250,000), to $52,000 (claim of $1M – $5M). 
• Exclusions: conference calls, travel time, site visits, and post-hearing brief review.


• Expedited Award Time: arbitrators must render their award within 20 days of the hearing.

Arbitration is quickly evolving to mimic traditional litigation; therefore, companies should be aware of these new construction arbitration rules which may help cut arbitration costs and time expended on dispute resolution.


Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP, and the head of its construction law team. Katie can be reached at klipp@berenzweiglaw.com.

5 Ways Construction Companies Can Avoid Copyright Risks

Architectural copyright law gives judges the power to impose hefty damages for infringement. This area of copyright law covers architectural works, which broadly encompasses not only plans, but also buildings themselves. As a result, companies should take protective measures to avoid copyright risks. Below is a short checklist of actions that companies can take to insulate themselves from significant liability, and also protect their own intellectual property.

1. Require Indemnification.
   If your company is reviewing architectural plans for a project, you need an indemnification clause to protect against the risk that the plans infringe on an existing copyright. The indemnification should cover all forms of intellectual property claims arising out of your company’s review and use of the plans.
2. Back up with Insurance.
   Double-check your insurance coverage to ensure your company is protected against architectural copyright infringement claims and other forms of intellectual property claims. Many standard policies do not include this kind of protection, and damages flowing from an architectural copyright infringement claim can be wildly unpredictable and far-reaching.
3. Insist on Independent Creation of Architectural Plans or a Warranty of Non-Infringement.
   In addition to getting an indemnification clause, companies should also insist on a certification of independent creation, or a warranty of non-infringement, which confirms that an architect has either created its plans independently, and/or has a license to use others’ copyrighted work.
4. Protect Intellectual Property with Non-Disclosure Language.
   While it is not essential for all construction companies to seek copyrights to protect their intellectual property, non-disclosure agreements should be obtained from any person who will have access to your company’s sensitive intellectual property or information. Examples of information that should be protected are client lists, marketing materials, proposals, and any other documents that will reveal sensitive information created by your company.
5. Know that Innocent Infringement is not a Defense.
   Companies must be aware that innocent infringement cannot be used as a defense in copyright litigation. However, taking the above steps can provide some additional protection against a meritless architectural copyright infringement claim. 

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.

Virginia Courts Reject Fraud Claims Disguised as Breach of Contract Claims

A Virginia federal court recently confirmed that fraud claims seeking breach of contract damages are not allowable under Virginia law. This principle is referred to as the economic loss rule, and mandates that parties cannot “double-dip” and allege tort damages for contractual breaches in the form of fraud claims, on top of their breach of contract claims.

In other words, if you are choosing to accuse someone of fraud and breach of contract in Virginia, your lawsuit must be carefully drafted or you risk the loss of your fraud claim being dismissed at the outset of the case. Many parties fall into the trap of including as many counts as possible in their complaint, which can backfire, because if you are essentially seeking breach of contract damages with your fraud claim, such a claim will likely not survive.

The United States District Court for the Western District of Virginia, Roanoke Division recently confirmed  this principle in County of Grayson v. RA-Tech Services, Inc., 2014 WL2257155 (W.D. Va. May 29, 2014). Chief Judge Glen E. Conrad emphasized that constructive fraud claims need to specifically allege the time, place, and contents of the false statements, and preferably should include who made the fraudulent statements. The timing is critical for fraudulent inducement claims, because they must occur prior to any contract execution to stand alone and proceed past the motion to dismiss phase. The plaintiff’s constructive fraud claim failed to include the “time, place, and contents” details, and vaguely alleged that the defendant contracted with plaintiff with no intention of fulfilling its contractual responsibilities. The Western District found that it was essentially a breach of contract claim disguised as a fraud claim, dismissing plaintiff’s fraud in the inducement claim.

While many cases have viable contractual and tort claims, the construction law team at Berenzweig Leonard has experience with successfully defending our construction law clients against improper fraud claims, and preserving clients’ remedies for breach of contract and fraud.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.

Major Court Ruling Protects Subcontractors’ Right to Get Paid

The right of subcontractors to get paid on federal projects is more iron-clad thanks to a recent decision out of the Ninth Circuit Court of Appeals, handed down on April 29, 2014. The decision explains that state law cannot frustrate the federal statute providing subcontractors and other companies an avenue to payment for their work.

The federal law that provides companies and persons with such a remedy is the Miller Act. This Act protects persons who contribute to the performance of a federal construction contract, including subcontractors and those who directly contract with subcontractors, such as sub-subcontractors. Recently, a Ninth Circuit case confirmed that state law cannot bar a contractor’s federal Miller Act lawsuit for payment.

The Miller Act makes general contractors on federal construction projects provide a payment bond “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract.” 40 U.S.C. § 3133(b)(2). Under the Miller Act, any person who has furnished labor or materials for work on a federal construction project, and who has not received full payment within 90 days after their last day of work or furnishing of materials or supplies can bring a civil lawsuit on the project’s payment bond for the amount due at the time the lawsuit is filed. 40 U.S.C. § 3133(b)(1).

The federal Miller Act is remedial in nature, and the Supreme Court has confirmed that its rights and remedies cannot be conditioned by state law. The Ninth Circuit recently affirmed this principle in a case of first impression, joining the Supreme Court and the Eighth and Tenth Circuits.

In Technica, LLC v. Carolina Cas. Ins. Co., No. 12-56539 (April 29, 2014), the prime contractor and surety for the federal payment bond at issue tried to argue that Technica, a sub-subcontractor on the federal government project, could not maintain its Miller Act lawsuit because it lacked a California contractor’s license. A California law precluded any unlicensed contractor from filing a lawsuit to collect for unpaid services, but the Technica Court held that the California law could not limit Technica’s rights under the federal Miller Act.

While many construction laws have strict time limits and procedural requirements, the Technica Court made it clear that state laws attempting to limit a claimant’s rights and remedies under the federal Miller Act will be struck down. The construction lawteam at Berenzweig Leonard has experience navigating the complexities of the federal Miller Act and its intersection with local state laws.

Katie Lipp is an attorney with the Washington, DC regionalbusiness law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.

The President’s Minimum Wage Announcement Ignores Current Rates

President Obama recently announced his intent to sign an Executive Order which would unilaterally increase the minimum wage for certain workers on federal projects. The current federal minimum wage rate is $7.25 an hour, and President Obama is looking to raise it to $10.10 per hour. At first glance, one may think that such an increase will have a widespread impact on the Washington, DC metro area, given its large concentration of federal contractors.

This will not be the case. Such a change would only apply to new or revised federal contracts, and not to current federal contracts. More significantly, the majority of federal contractors are already being paid wages that are over the proposed minimum $10.10 rate, depending on their wage classification.

For example, a bulldozer operator on a federal project in Fairfax County can make a minimum rate of $20.40 per hour, and a court security officer in Washington, D.C. can make a minimum rate of $24.72 per hour. These rates are controlled by the Department of Labor through the Davis-Bacon Act and the Service Contract Act. Additionally, many federal contractors are union members, meaning that their wage rates and benefits are controlled by collective bargaining agreements. As a result, the President is targeting an issue that is already largely covered by federal law, wage determinations and collective bargaining.

President Obama plans to highlight his Executive Order in tonight’s State of the Union address. While the potential increase may derive from good intentions, it imposes a requirement on an already heavily-regulated industry, and many business owners know that they are already in compliance with the increase.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.

A Contractor Makes a Dangerous Gamble When Its Bid Price Assumes the Approval of Local Permitting Authorities

Should a federal government construction contractor assume that its permit request for a construction project will be approved by local state authorities? Absolutely not, according to the United States Court of Appeals for the Federal Circuit. The Federal Circuit found that the plain language of FAR’s Permits and Responsibilities Clause, which was incorporated into a Federal Bureau of Prisons contract, allocated any financial cost associated with permitting solely on the contractor.

Bell/Heery was awarded a design-build construction contract to build a new federal prison in New Hampshire. The project specifications detailed a “cut-to-fill” site, meaning that the project land had to be leveled by excavating, or “cutting” materials from one area of the work site and using the same materials to fill lower areas. Bell/Heery’s proposal incorrectly assumed that the local environmental officials, the New Hampshire Department of Environmental Sciences (NHDES), would approve the cut-to-fill operations – and as an unfortunate result, Bell/Heery had to incur approximately $7.7 million in excess costs to perform, because NHDES did not approve the anticipated efficient cut-to-fill operations.

Bell/Heery attempted to recover the excess $7.7 million from the Federal Bureau of Prisons, arguing that the agency was contractually required to engage with NHDES about the cut-to-fill specifications and that the agency breached its duty of good faith and fair dealing by failing to engage with NHDES, among other allegations. The Federal Circuit did not agree, citing the FAR Permits and Responsibilities Clause, which made the contractor responsible for all permitting costs. Contractors putting together bids for federal government work should keep this decision in mind when pricing their bids, to ensure that they account for the possibility of permitting roadblocks and how these hurdles will impact their bottom line.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.