Construction contractors often have to deal with classification of employees, particularly those who work in the home office. Today’s guest post by Alexandra Shulman and Leah Lively addresses a recent court decision affecting the wage protection of employees under the the Fair Labor Standards Act (FLSA).

On November 15, 2024, a federal court in Texas vacated a U.S. Department of Labor (DOL) rule (the “2024 Rule”) that increased the minimum salary threshold for employees classified as exempt from overtime and minimum wage protections under the FLSA. The Texas court’s decision nullifies the 2024 Rule nationwide, effective immediately.

Exempt Employee Background
To be exempt from the FLSA minimum wage and overtime requirements an employee must generally meet the following three tests: (1) the salary basis test (the employee is paid a predetermined and fixed amount that is not subject to reduction because of variations in the amount of worked performed); (2) the salary level test (the amount of salary paid to the employee meets a minimum specified amount); and (3) the duties test (the employee must perform executive, administrative, or professional duties).

Under the 2024 Rule, the salary threshold for professional, administrative, and executive exemptions was set to increase from $684 per week ($35,568 annually) to $844 per week ($43,888 annually) on July 1, 2024. A second increase would have raised the salary amount to $1,128 per week ($58,656 annually) on January 1, 2025. Employers were faced with reclassifying exempt employees who did not meet the new minimum salary threshold or increasing their salaries to meet the new threshold.

The 2024 Rule also would increase the salary threshold for highly compensated employees (HCEs) as of July 1, 2024, from $107,432 (with at least $684 per week, paid on a salary or fee basis) to $132,964 (with at least $844 per week, paid on a salary or fee basis). A second increase would have raised the amount to $151,164 (including at least $1,128 per week, paid on a salary or fee basis) on January 1, 2025.

The Texas Lawsuit
In June 2024, following a legal challenge by the state of Texas, a federal district court in Texas temporarily blocked the 2024 Rule from taking effect for Texas state employees. Several business groups joined the lawsuit, seeking to vacate the 2024 Rule nationwide. The court consolidated these challenges and issued its decision setting aside and vacating the 2024 Rule—nationwide—on November 15, 2024.

In reaching its decision, the court determined that the DOL exceeded its authority, stating that the agency “does not have the authority to effectively displace the duties test with such a predominant salary-level test.” It added that this reasoning applied equally to the highly compensated employee exemption and the associated increases to the minimum compensation thresholds.

The court further concluded that the DOL lacked the authority to implement automatic adjustments to the required salary levels for executive, administrative, and professional employees, as well as the HCEs’ compensation amounts, on a three-year cycle.
What This Means for Employers

The Texas court’s decision vacates the 2024 Rule in its entirety. As a result, the compensation threshold will not increase on January 1, 2025, as planned, and the July 1, 2024, increases are invalidated. Effective immediately, the salary level test amount for executive, administrative and professional employees returns to $684 per week ($35,568 annually), and $107,432 annually (including at least $684 per week, paid on a salary or fee basis) for HCEs.

The DOL may choose to appeal the court’s decision, and an appeals court could either uphold or overturn the lower court’s ruling. This process could take place before President-Elect Trump assumes office. If the appeal is unresolved when President-Elect Trump takes office on January 20, 2025, the incoming administration is expected to withdraw the appeal, as the 2024 Rule is considered anti-business.

Employers who have already reclassified employees or increased employee compensation in response to the 2024 Rule may be contemplating whether to revert employee classifications or reduce salaries to align with prior DOL requirements. If you are considering reclassifying employees, lowering compensation, or deciding not to implement previously announced increases, it is advisable to consult with legal counsel to carefully evaluate your strategy and the potential legal implications.

Reminder of State Laws
Several states have their own criteria for determining exempt status, which may be more stringent or have their own salary threshold requirements—e.g., Alaska, California, Colorado, Maine, New York, and Washington. Employers must evaluate exempt status under both state and federal (and sometimes local) tests to ensure compliance with wage and hour laws.

If you have questions about the impact of this decision, make sure to contact Alexandra or Leah.

As a single dad of seven, resolving daily disputes is a common occurrence in my house. Whether it’s whose turn it is to pick the next Netflix stream or who gets the last Crumbl cookie, disagreements are inevitable. Fortunately for my kids, they don’t need to go to an arbitrator or judge to resolve these battles. Instead, they have me, their dad, as the sole decision-maker—immediate, fair (at least in my mind), and no legal costs involved! But for construction industry players, the resolution process isn’t as simple.

In the world of construction, disputes often arise and the language in the parties’ contract makes all the difference. A common challenge is to decide whether disputes between the parties will be resolved by litigation or arbitration. As one contractor recently learned in a New Mexico Court of Appeals decision, the words matter!

In Atlas Electrical Construction Inc. v. Flintco LLC, a dispute arose between a subcontractor (Atlas) and a general contractor (Flintco) over work performed on a large renovation project at the Albuquerque International Sunport. The subcontract included a dispute resolution clause that gave Flintco the sole discretion to choose whether any disputes would be resolved through arbitration or litigation. When Atlas filed a breach of contract claim in court, Flintco invoked this clause and successfully moved to compel arbitration.

Atlas argued that the clause was unfair because it was one-sided—Flintco, the general contractor, had all the power to decide the method of dispute resolution, while Atlas, the subcontractor, had none. The appellate court agreed with Atlas, finding that the arbitration provision was “substantively unconscionable.” The court ruled that the clause was so one-sided it was unfair and unenforceable. The subcontractor had no say in whether a dispute would go to court or arbitration, and this imbalance tipped the scales too far in Flintco’s favor.

So what?  Here is the primary lesson learned from the Atlas decision—whether you are an owner/developer, contractor, subcontractor or supplier, take the time to review every provision of the contract.  Don’t skimp. Don’t get lazy. Don’t assume things will work out.  You see, words matter!

Even if you believe that the contract negotiation has gone your way, understand that a decision-make might come to a different conclusion down the road.  While I, as a father, can make quick decisions to keep the peace in my house of teenagers, construction industry players don’t always have that luxury. This recent court decision is a reminder of how important it is to carefully review and negotiate the terms of your contracts.

I recently blogged about the use of AI and ChatGBT in the construction industry. Today’s guest post by Alexandra Shulman and Leah Lively addresses the recent guidance by the USDOL on the issue of using AI when hiring in recruitment, which is applicable to those constructions who use AI in the recruitment process.

AI in hiring: About 80% of U.S. and almost all Fortune 500 companies use AI-powered hiring software. AI may be used to target online advertising for job opportunities and to match candidates to jobs on employment platforms (e.g., LinkedIn, Indeed). AI may also be used to reject or rank applicants using automated resume screening and chatbots based on knockout questions, keyword requirements, or specific qualifications or characteristics.

With the growing use of AI comes a growing concern by the government (and argument by plaintiffs) that AI tools present a risk of worsening workplace discrimination based on race, gender, disability, and other protected characteristics. AI tools are trained on vast amounts of data and make predictions based on patterns and correlations within that data. However, many of the tools used by employers are trained on data from the employer’s own workforce and previous hiring practices, which, it is argued, may reflect institutional and systemic biases already present in the organization.

The Department of Labor responds to AI: If your company uses (or is thinking of using) AI in hiring, you need to be aware of the U.S. Department of Labor’s (“DOL”) recently issued “AI & Inclusive Hiring Framework.” The Framework is designed to “help organizations advance their inclusive hiring policies and programs, specifically for people with disabilities, while managing the risks associated with deploying AI hiring technology.” The Framework was published by the Partnership on Employment & Accessible Technology, which is funded by the DOL’s Office of Disability Employment Policy.

The AI Framework includes ten focus areas designed to address five overarching themes:

  1. Advertising employment opportunities and recruiting inclusively. Employers utilizing AI in hiring should continue to consider the rights and user experiences of job seekers with disabilities and members of other protected classes.
  2. Impact of procuring AI hiring technology. Employers utilizing AI in hiring technology should consider its impact on their DEIA (diversity, equity, inclusion, and accessibility) initiatives.
  3. Providing reasonable accommodations to job seekers. Employers must continue to provide reasonable accommodations to applicants and employees.
  4. Selecting candidates and making employment offers responsibly. Utilizing AI in hiring does not absolve employers of the responsibility of ensuring that they are complying with applicable federal, state, and local laws in hiring.
  5. Incorporating human assistance and minimizing risk. Employers should develop human oversight policies to address possible AI errors.

What this means for employers. Employers must continue to be mindful of anti-discrimination laws as they begin to integrate AI into the workplace. Employers should take the time to evaluate their AI practices and ensure that proper safeguards are in place to identify and rectify any discriminatory impact. This can be done through:

  • Conducting AI audits. Employers need to know when and how AI is used in the hiring process. Employers should audit the AI tools and algorithms they use in hiring to identify potential bias or discrimination. This can be achieved by having third-party experts, like employment counsel, evaluate the data inputs and outputs.
  • Ongoing monitoring. AI hiring bias compliance cannot be a one-time effort. Companies must implement ongoing monitoring programs to regularly reassess their tools as models are updated and new data is incorporated. To ensure full transparency, feedback loops that provide detailed hiring outcomes are essential.
  • Do not forget the human factor. AI should not be allowed to make final hiring decisions autonomously, as its effectiveness depends on the quality of the data it processes. We recommend that companies equip their HR teams/hiring managers with technical knowledge of AI systems to better manage and evaluate their use.

If you have questions about using AI in the employment process, or would like additional information about compliance with the DOL’s new Framework, make sure to contact Alexandra or Leah.

Alexandra Shulman
    Leah Lively

    When Hurricane Helene struck North Carolina, it caused severe disruptions to construction projects across the state. Baxter International’s North Cove facility in Marion, N.C., was completely shut down after floodwaters damaged the site and bridges leading to it. Elsewhere, landslides and floods wiped out large sections of Interstate 40, making transportation of materials and equipment nearly impossible. Many contractors in western North Carolina found their projects halted, and their schedules thrown off by this force majeure event.

    In situations like these, contractors and subcontractor need a plan to mitigate the impact of such natural disasters on their projects. Here are five practical tips to help you secure time extensions and/or compensation for delays:

    1. Include a Robust Force Majeure Clause in Your Contract

    When disaster strikes, your contract is your first line of defense. A well-drafted force majeure clause can make the difference between bearing the costs yourself and getting an extension or compensation. The clause should clearly list specific events such as hurricanes, floods, and road closures as qualifying force majeure events.

    Make sure the clause also specifies what type of relief you are entitled to—whether it’s an extension of time, compensation for additional costs, or both. Without this clarity, owners may argue that delays due to weather or other external events don’t qualify for relief. As we saw with Hurricane Helene, road closures and site flooding can bring construction to a complete halt. A strong force majeure clause can help shift the risk of these delays from the contractor to the owner, ensuring you don’t suffer financially for something out of your control​.

    2. Provide Immediate Notice to the Owner

    When a force majeure event occurs, time is of the essence. Many contracts have a requirement for the contractor or subcontractor to give prompt notice to the owner as soon as it becomes clear that the event will impact the project timeline. This is often a strict requirement, and failure to provide timely notice can void your claim for additional time or costs.

    For example, if Hurricane Helene causes road closures that delay the delivery of materials, you need to inform the owner right away. This notice should be in writing and include as much detail as possible about how the event will affect your project. Timely notification not only keeps the project owner informed, but also helps to preserve your rights under the contract to seek an extension or compensation later on​.

    3. Keep Detailed Documentation

    After a force majeure event, the burden is often on the contractor to prove that the event caused the delays and that the contractor took reasonable steps to mitigate the impact. Documentation is key to making this case.

    Start by keeping detailed records of how the event affected your project. Take photos of the site conditions before and after the storm, save emails from subcontractors and suppliers about delayed shipments, and keep copies of any official announcements about road closures or weather conditions. This documentation will provide the evidence you need to support your claim for additional time or costs​.

    In addition to documenting external factors, make sure you also track your own efforts to minimize delays. For example, if you rerouted materials or brought in additional labor to catch up, keep a record of these actions. This will show the owner that you took reasonable steps to mitigate the delay, further strengthening your claim.

    4. Coordinate with Local Authorities and Agencies

    In major disasters like Hurricane Helene, local and state authorities often have critical information that can help you manage the impact on your project. For example, www.driveNC.gov provides lived updated information on road closures affected by the storms.

    Staying informed can help you plan around obstacles and demonstrate to the project owner that you are taking the necessary steps to minimize delays. In addition, these updates may provide you with valuable documentation to support your claim. For example, if road closures prevent the delivery of materials, documentation from the state and local agencies can help validate your request for additional time​.

    5. Consider Insurance Options

    While a well-drafted force majeure clause can help protect you from financial loss, depending on the size of the project and whether the owner/developer is foreign, there may be insurance coverage in some limited instances. According to IRMI, force majeure insurance is a type of insurance that can cover certain losses that occur when a project is delayed or halted due to an unforeseen event (i.e., fire, earthquake, war, revolution, flood, and epidemics).

    Force majeure insurance typically covers the costs of restarting a project after a natural disaster, as well as any losses resulting from the delay. In some cases, it may even provide coverage for increased material costs caused by supply chain disruptions—something that was a major issue after Hurricane Helene. In this is part of your insurance program, you can further protect your business from the financial impacts of a disaster​.

    By following these five tips, you can be better prepared to handle force majeure events and protect your construction projects from the financial consequences of delays. Whether it’s including a strong force majeure clause in your contracts or ensuring you have the right insurance, these steps will help you navigate the challenges that come with natural disasters like Hurricane Helene.

    As a construction lawyer, contractor licensing is a very key aspect of my practice. This can include new contractor applications, increase or changes in monetary limits or license classifications, change in ownership or qualifying agent , and, of course, licensing violations.

    The recent decision in Incident365 Florida, LLC v. Ocean Pointe V Condominium Association serves as an important reminder for general contractors and subcontractors regarding the significance of proper licensing and thorough contract review in disaster recovery and construction services.

    Case Overview

    In this case, Incident365 Florida, LLC entered into disaster recovery agreements with several condominium associations (“Associations”) following Hurricane Irma. The agreements involved various tasks such as water damage mitigation, dehumidification, and the removal of unsalvageable materials. However, Incident365 lacked the appropriate contractor’s license when performing the work, which became a focal point in the dispute when the Associations refused to pay the remaining balance of $1 million, citing the absence of the required licensure.

    The Associations argued that under Florida law, particularly section 489.128, Florida Statutes, Incident365 was acting as an unlicensed contractor, which made the contracts unenforceable. The Associations contended that Incident365 engaged in significant demolition and repair work, which required a contractor’s license. Without the appropriate licensure, the company could not legally enforce its claims for breach of contract or seek payment for the services performed.

    Incident365 countered by arguing that many of the tasks it performed, such as water extraction, dehumidification, and sanitation, did not fall under the statutory definition of “contractor” as outlined in section 489.105(3), Florida Statutes. According to Incident365, these tasks did not constitute “construction,” “repair,” or “improvement” to the structure of the buildings, and therefore did not require a contractor’s license. They maintained that if some services did require a license, only those portions of the agreements should be severed, allowing them to recover payment for the services that did not require a license.

    The court found that the statutory definition of a “contractor” under section 489.105(3) was pivotal. It defines a contractor as someone who, for compensation, undertakes activities such as “constructing, repairing, altering, or improving a building or structure.” The Associations asserted that Incident365 was performing activities that constituted repairs or improvements, including removing unsalvageable materials and performing structural dehumidification, which, under the statute, required licensure.

    However, the court acknowledged that some of the activities performed by Incident365, such as water extraction, dehumidification, and anti-microbial application, were not clearly tied to building repairs or improvements and may not fall within the scope of work requiring a contractor’s license. Therefore, the court reversed the summary judgment for most of the claims and remanded the case for further proceedings on whether specific activities like structural removal of affected materials required licensure under Florida law. This case highlights key licensing requirements and their critical role in contract enforceability.

    Key Takeaways for General Contractors and Subcontractors

    This case provides vital lessons for general contractors and subcontractors involved in construction work. Here are three actionable tips to avoid similar legal pitfalls:

    1. Ensure Proper Licensing for All Contracted Work

    One of the main reasons Incident365 was unable to recover the full amount owed was due to performing work without the required contractor’s license. Under Florida law, services such as repair, remodeling, or any work involving structural components typically require a building contractor’s license.

    Tip: Always review your contracts to ensure that the scope of work aligns with your licensure. Subcontractors should also confirm their compliance with licensing requirements before accepting jobs. Some states, like Tennessee, require that only some subcontractor trades have appropriate licensing. Working without the required license can result in unenforceable contracts, jeopardizing payment for completed work.

    2. Regularly Review and Revise Construction Contracts

    The agreements between Incident365 and the Associations lacked clarity on the severability of tasks that did not require a license. The court touched on whether tasks like water extraction and general dehumidification fell under activities needing licensure. While the trial court’s ruling was reversed for some tasks, the lack of clarity in the contract’s language regarding severability led to further litigation.

    Tip: Regularly review and revise your construction contracts to ensure they include clear provisions about the scope of work and any licensing requirements. Including severability clauses can protect your right to recover payment for work that does not require a license, even if other parts of the contract do. Well-crafted contract language is crucial in safeguarding against total contract invalidation.

    3. Maintain Detailed Records and Documentation

    One of the factors leading to disputes in this case was the ambiguity over whether certain tasks, such as mold remediation or structural removal, required a license. Without detailed records or clear industry standards provided, determining the licensing requirements became a point of contention.

    Tip: After reviewing your contract, ensure it includes provisions for keeping thorough records of the scope of work performed. This documentation can help support your case in court if a licensing or payment dispute arises. Detailed records are essential for clarifying whether certain tasks fall under regulatory requirements for licensure.

    Conclusion

    The Incident365 Florida, LLC v. Ocean Pointe V Condominium Association case serves as a crucial reminder for general contractors and subcontractors to ensure they comply with all licensing requirements, regularly review and revise their construction contracts, and maintain comprehensive documentation to avoid legal disputes that could affect their ability to collect payment. Implementing these practices can provide contractors with the tools they need to safeguard their business operations and financial interests.

    Yesterday, I posted about potential construction delays and supply chain challenges resulting from the strike at the East Coast ports, such as New York, New Jersey, Savannah, and Charleston.

    A reader asked me about the specific types of construction materials that may be subject to delays. Geographically, the East Coast ports handle a variety of imported construction materials and supplies, especially from Europe, South America, Africa, and sometimes Asia. With the expansion of the Panama Canal, they also receive goods from Asia, though traditionally West Coast ports have dominated Asian imports.

    Here are specific construction materials and supplies commonly imported through East Coast ports:

    1. Lumber and Engineered Wood Products

    • Plywood and oriented strand board (OSB) from Canada and South America.
    • Laminated veneer lumber and cross-laminated timber (CLT) from Europe.
    • Exotic hardwoods for high-end flooring or millwork from Africa and South America.

    2. Stone, Tile, and Flooring Materials

    • Granite, marble, and limestone from countries like Italy, Brazil, and Spain.
    • Ceramic and porcelain tiles from Italy and Spain.
    • Engineered stone and quartz for countertops from Europe and South America.

    3. Steel and Metal Products

    • Structural steel and rebar from Turkey, Ukraine, and Eastern Europe.
    • Aluminum extrusions and sheet metal from Europe and Asia.
    • Stainless steel products (such as fittings, pipes, and plates) from Europe.

    4. Plumbing Supplies

    • Copper tubing and piping from Europe and South America.
    • Valves, fittings, and fixtures from European and South American manufacturers.

    5. HVAC and Mechanical Components

    • Air conditioning units and ductwork components from Mexico, Europe, and occasionally Asian sources (especially from companies with distribution hubs on the East Coast).
    • Boilers and heating systems from Europe, particularly Italy and Germany.

    6. Glass and Windows

    • High-performance glass and window systems from Europe, including the United Kingdom, Germany, and Italy.
    • Curtain wall systems and specialized glass products for high-rise buildings from countries like Spain and Belgium.

    7. Electrical Equipment and Components

    • Electrical transformers and switchgear from Europe.
    • Lighting fixtures from Italy, Spain, and other European nations.
    • Cables, conductors, and wiring from Europe and occasionally Mexico.

    8. Specialty Building Materials

    • Insulation products, such as mineral wool and foam boards, from European manufacturers.
    • Adhesives, sealants, and coatings from Europe, particularly high-performance products for specialized applications.
    • Elevator systems and escalators, often imported from European manufacturers like KONE and Schindler.

    9. Fasteners and Hardware

    • Bolts, screws, nails, and fastening systems from Europe and South America.
    • Specialty hardware for doors, windows, and cabinetry from European suppliers.

    While West Coast ports dominate Asian imports, East Coast ports play a critical role in handling materials from Europe, South America, and other regions. The materials coming through these ports are often used in both residential and commercial construction, particularly for high-end projects that rely on imported specialty products and finishes. Additionally, the expanded Panama Canal has increased the flow of some Asian goods to the East Coast, though the volumes still generally remain lower compared to the West Coast.

    At midnight on October 1, 2024, longshoremen and harbor workers at major East Coast ports went on strike, causing significant disruptions to the flow of goods and materials of all sorts, including those essential for the construction industry. The strike has brought operations at ports like New York, New Jersey, Charleston, and Savannah—key entry points for a wide array of construction materials—to a standstill.

    The construction industry relies heavily on imported materials, many of which enter the U.S. through East Coast ports. For contractors, subcontractors, and suppliers, the impact is likely to be felt across the country. Delays in critical shipments can affect project schedules, material costs can dramatically , and the potential for long-term disruptions could be significant. But don’t take my word, just listen to the words of Harold Dagget, the President of the International Longshoremen’s Association, who says the strike will “cripple” the economy, including the construction industry:

    What Led to the Strike?

    The strike stems from a breakdown in negotiations between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX), which represents port operators and shipping companies. Central to the dispute are concerns over wages, healthcare benefits, working conditions, and the increasing automation of port operations, which union members believe threatens job security.

    After months of failed negotiations, union members at major East Coast ports walked off the job, bringing cargo handling to a halt at some of the most important trade hubs in the U.S. The strike has not only impacted East Coast ports but is also affecting distribution centers and inland terminals that rely on the steady flow of goods through these key ports.

    Impact of the Strike on the Construction Supply Chain

    With port operations suspended, contractors can likely face delays in the arrival of critical supplies. The materials most likely to be affected by the strike include:

    • Steel and Metal Products: Structural steel, rebar, and sheet metal, commonly imported from Europe, Asia, and South America, are critical for framing, reinforcing concrete, and other foundational elements of construction projects.
    • Lumber and Engineered Wood: While much of the lumber used in construction comes from domestic sources, significant quantities of engineered wood products like plywood, oriented strand board (OSB), and laminated timber are imported from Canada, Europe, and South America. These materials are crucial for framing, flooring, and sheathing in various types of construction.
    • Plumbing Supplies: Copper tubing, PVC piping, and fittings—frequently sourced from Europe and Asia—are essential for the installation of plumbing systems. Delays in receiving these materials can halt mechanical and plumbing work.
    • HVAC Equipment and Electrical Components: Many HVAC units, ductwork components, electrical wiring, switchgear, and transformers are imported, often from China and other parts of Asia. Without these critical components, contractors face delays in installing building systems.
    • Tile, Stone, and Flooring Materials: High-end finishes such as marble, granite, ceramic tile, and hardwood flooring are commonly imported from Europe and Asia. Delays in receiving these finishing materials can impact the final stages of construction projects.
    • Fasteners and Hardware: Nails, screws, bolts, and other hardware, often imported in bulk from international manufacturers, are essential for construction. Even small shortages of these items can cause significant slowdowns.
    • Specialty Construction Materials: Items such as insulation, glass, adhesives, and coatings are also affected, especially custom or specialized products that are difficult to source domestically.

    With a large volume of these goods stuck in containers that remain unloaded at East Coast ports, contractors could face delays, increased costs, and shortages, all of which threaten the profitability and completion of projects.

    Five Practical Tips for Contractors to Address Supply Chain Disruptions

    Although the strike is beyond contractors’ control, there are several steps that can be taken to manage the resulting supply chain disruptions and protect project timelines and budgets:

    1. Diversify Your Supply Chain

    Relying heavily on East Coast ports for construction materials exposes contractors to significant risk during labor strikes like this one. Consider sourcing materials from alternative ports such as those on the Gulf Coast (e.g., Houston) or even the West Coast. Additionally, explore relationships with domestic suppliers or manufacturers that can provide materials without relying on imports. While alternative sourcing may come with higher costs, it can help mitigate extended delays.

    2. Communicate Transparently with Stakeholders

    Frequent and clear communication with project owners, subcontractors, and suppliers is essential during supply chain disruptions. Keep all parties informed of potential delays, changes in project timelines, and any new costs that arise due to material shortages. By being proactive in your communication, you can manage expectations, foster trust, and potentially negotiate new deadlines or contract terms to account for unforeseen delays caused by the strike.

    3. Review and Adjust Your Contracts

    Now is the time to review your contracts to ensure you’re protected against penalties or delays resulting from the strike. Focus on force majeure clauses and provisions related to delays and material price escalation. A well-drafted force majeure clause may offer relief if the strike is considered an unforeseeable event beyond your control. Additionally, consider adding language to future contracts that allows for extensions or price adjustments in the event of supply chain disruptions.

    4. Build Up Inventory Where Possible

    A “just-in-time” inventory strategy can be risky during times of supply chain instability. Consider shifting to a “just-in-case” approach by stockpiling critical materials where possible. While it may increase short-term expenses, having essential materials on hand can prevent costly project delays later. Evaluate which materials are most critical to your upcoming projects and secure as much of them as you can, even if it means paying more upfront.

    5. Seek Legal and Financial Advice

    The complexities of a disrupted supply chain may necessitate professional guidance. Consult with legal counsel to review your options for mitigating delays, exploring potential claims, and handling contract disputes related to the strike. Additionally, financial advisors can help manage the strain on cash flow caused by material shortages or increased costs. You may need to secure short-term financing, adjust payment terms with suppliers, or renegotiate contract milestones to maintain financial stability during this disruption.

    Managing Supply Chain Disruptions Amid the East Coast Ports Strike

    The October 2024 East Coast ports strike is just beginning to cause challenges across the states. Delays in the delivery of key materials, shortages, and rising costs can create a perfect storm for contractors, subcontractors, and suppliers alike. However, by diversifying supply chains, communicating clearly with stakeholders, reviewing contracts, stockpiling critical materials, and seeking professional legal and financial advice, you can mitigate the impact of these disruptions on your projects.

    In a groundbreaking move aimed at fostering fair competition and empowering workers, the Federal Trade Commission (FTC) issued a final rule last week to ban noncompete agreements nationwide. This ruling may carry profound implications for the construction industry, prompting construction businesses to reassess their practices and ensure compliance while maintaining competitiveness. Let’s explore how construction companies, large and small, can navigate this regulatory shift effectively.

    Understanding the Impact

    Noncompete clauses have long been a staple in employment contracts within the construction sector, often used to protect proprietary information and retain skilled talent. However, the FTC’s ban on noncompetes demands a reevaluation of these practices. Employers must recognize the potential consequences of noncompliance, including legal repercussions and reputational damage, and take proactive steps to adapt to the new regulatory landscape.

    Communications with Employees

    The FTC rule requires employers to provide a form notice of non-enforcement to all present and former employees subject to an unexpired noncompete provisions. However, given the immediate legal challenges to the FTC’s rule and the fact that the 120-day compliance window has not yet begun, there is no reason to take immediate action or begin notifying employees. Instead, business owners should wait for at least 60 days before taking concrete action in response to the rule to see if any court temporarily enjoins the effectiveness of the rule.

    Assessing Existing Agreements

    Assuming the rule goes into effect, however, it will apply to almost all employers who use noncompete provisions. The first step for employers in the construction industry is to conduct a thorough review of existing noncompete agreements within your workforce. Identify employees who are currently bound by noncompetes and assess the scope and enforceability of these agreements in light of the FTC’s ruling. It’s crucial to understand which agreements may remain enforceable, particularly for senior executives, and which will be nullified under the new rule.

    Exploring Alternatives

    In the absence of noncompete agreements, construction companies must explore alternative strategies to protect their interests and proprietary information. Consider implementing robust trade secret policies and non-disclosure agreements (NDAs) to safeguard sensitive data and intellectual property, as well as non-solicitation provisions to protect customer relationships. These measures offer effective protection while preserving workforce mobility and fostering a culture of innovation.

    Preparing for the Future

    As the construction industry adapts to the regulatory changes, employers must remain vigilant and proactive in addressing evolving workforce dynamics. Even if the rule is delayed or nullified for some reason, there has been a move by many states in recent years to limit the use of noncompetes. Stay informed about developments in labor law and regulatory guidance from the FTC to ensure ongoing compliance. Continuously evaluate and refine employment practices to promote fairness, competitiveness, and employee retention in a post-noncompete era.

    Conclusion

    The FTC’s ban on noncompetes potentially represents a seismic shift in employment practices within the construction industry, which (if deemed lawful) necessitates a swift and strategic action from employers. By understanding the implications of the new rule, limiting communications with employees, and implementing alternative strategies for protection, the construction industry can navigate this transition with confidence. Embracing a culture of fair competition and innovation will not only ensure compliance with regulatory requirements, but also foster a more dynamic and resilient workforce for the future.

    In a recent Board decision dated December 13, 2023, the United States Army Corps of Engineers sought to amend its answer in the case of APPEALS OF – KELLOGG BROWN & ROOT SERVICES, INC., under Contract No. W912GB-13-C-0011. The proposed amendment introduces an affirmative defense, contending that Kellogg Brown & Root Services, Inc. (KBR) made material misrepresentations in its proposal, rendering the fully-performed contract void ab initio.

    Background: The contract in question, executed on July 9, 2013, was for the construction of an Aegis Ashore Missile Defense System site in Deveselu, Romania, with a firm, fixed-price amount of $134,211,592. The Corps moved to amend its answer to allege that KBR’s material misrepresentations induced the Corps to enter the contract, justifying the voiding of the contract. The alleged misrepresentations include issues related to subcontractor quotes, firm fixed prices, subcontracting plans, and more.

    Motion to Amend and Legal Defense: The Corps, despite delays in formally amending its answer, argued that KBR was aware of the potential affirmative defense before the conclusion of fact discovery. The proposed affirmative defense asserts that KBR made eight material misrepresentations in its proposal, upon which the Corps relied in awarding the contract and defending against a GAO protest.

    The alleged misrepresentations included:

    1. Inaccurate subcontractor quotes in KBR’s proposal.
    2. Misrepresentation of firm fixed prices and acceptance of subcontract terms.
    3. Misrepresentation of the scope and value of work subcontracted to a key subcontractor.
    4. Failure to self-perform 25% of the total work as required.
    5. Falsely claiming to have submitted a Technical Assistance Agreement to the Directorate of Defense Trade Controls.
    6. Inaccurate calculation of average Romanian labor costs.
    7. Misrepresentation regarding the availability of a Quality Control Manager.
    8. False statements about the small business subcontracting plan.

    The Board granted the Corps’ motion to amend its answer to include the material misrepresentation affirmative defense, indicating that this legal defense will be considered on its merits.

    Key Points:

    1. Background Knowledge: The decision highlights that the Corps knew about seven of the eight alleged material misrepresentations in 2013 and 2014 while performance was ongoing and became aware of the eighth by 2017.
    2. Jurisdiction and Futility: The decision refutes KBR’s arguments regarding jurisdiction, futility, and the Board’s authority to make findings of fact regarding material misrepresentations. The Board asserts its jurisdiction to hear the material misrepresentation defense without a contracting officer’s final decision.
    3. Undue Delay and Prejudice: While acknowledging the Corps’ significant delay in raising the defense since obtaining knowledge, the decision states that the delay did not rise to the level of extreme delay necessary to deny the motion to amend.
    4. Authority to Make Findings: The decision asserts the Board’s authority to make factual findings regarding material misrepresentation, differentiating it from certain fraud claims beyond the Board’s jurisdiction.
    5. Potential Waiver: The decision leaves open the question of whether the alleged misrepresentations render the contract void ab initio (no waiver) or voidable, which would allow KBR to assert that the Corps waived the defense by accepting performance.

    Lessons Learned: This Board decision sheds light on the complexity of legal issues in government contracts, particularly when affirmative defenses such as material misrepresentation are introduced. The Corps ‘ motion to amend its answer opened the door to a thorough examination of KBR’s actions during contract formation and performance, emphasizing the importance of transparency and accuracy in government contract proposals. As the case unfolds, it will be intriguing to see how the alleged misrepresentations impact the overall validity of the contract and whether the defense holds water in legal proceedings.

    The construction industry is one of the most complex and challenging sectors. Projects can be highly demanding and require a significant amount of planning and coordination to complete successfully. However, with advancements in technology, specifically the use of artificial intelligence (AI) and chat GBT, the construction industry can experience a transformation in how it operates.

    One of the significant challenges in construction projects is the management of data. Information is collected from various sources and needs to be organized and analyzed to make informed decisions. AI can play a significant role in data analysis by providing real-time insights into the project’s progress. This can help in predicting potential delays, identifying areas where cost savings can be made, and even improve safety measures.

    Chat GBT, a natural language processing tool, can assist in project management by acting as a virtual assistant to construction managers. The software can be programmed to answer questions about the project, provide updates on the progress, and even suggest solutions to potential problems. This can help in reducing the workload of the project manager and allow them to focus on other critical tasks.

    Moreover, AI can be utilized in risk management in construction. With the help of AI, companies can identify potential risks early on and take necessary steps to mitigate them. This can help in reducing the number of accidents and injuries that occur on construction sites. AI can also help in predicting and preventing equipment breakdowns, which can result in significant delays and additional costs.

    Another way AI can help in construction is through the use of virtual reality (VR) and augmented reality (AR) technology. With VR and AR, construction workers can visualize the project in a 3D environment, making it easier to identify potential issues and make informed decisions. This can help in reducing the time and resources required to make changes to the project later on.

    The use of AI can also help in reducing the cost of construction projects. With the help of AI, companies can identify areas where cost savings can be made, such as optimizing the use of materials and reducing waste. This can result in significant cost savings, which can be passed on to clients.

    Do we know the full ramification of AI on the modern construction project? No. However, construction industry partners can use AI, chat GBT and VR to improve project management, reduce risks, and lower costs. As technology continues to advance, it is essential for the construction industry to cautiously embrace AI and fully appreciate the upside and the risk.