Lessons in leadership are just as applicable to running a business as they are to raising a family. That’s why you should let your children play on fresh asphalt.  That’s why you should bury sarcasm, yelling and bad attitudes.  And that is why you should make it a priority this weekend to have fun with your kids on St. Patrick’s Day.

You may think this post is off topic, but it is directly on point.  You see, if the goal of parenting is to reach your children’s heart, then you will not reach it by force, loud words, or through submission. You will reach it through a giggle or a smile. Businesses are the same way. In his book 1001 Ways to Energize Employees (affiliate link), Bob Nelson says that the “power of positive reinforcement” is common sense, but “not common practice in most organizations.” You need to find ways to connect with your group in a fun way, and the rewards will follow.

And now, here are a few ideas that you can do this weekend to have fun with your kids:

My four-year-old Jackson came running into our bedroom, yelling, "A leprechaun went pee in every toilet in the house!"  He could not stop giggling.   My two-year-old Mia was smiling ear year with a handful of jelly beans that no doubt the same leprechaun left for the kids on the stairs.

 

My six-year-old Faith and eight-year-old Addy couldn’t stop laughing at the Lucky Charms that mysteriously appeared in their normal Frosted Mini Wheats cereal box.  (…Man, that little green guy must have been busy last night…)

The other kids were happy with green fruit kabobs and rainbox cupcakes!  Cupcakes for breakfast? Yes, it’s okay to let kids be kids every now and then!

And finally, looks like the leprechaun left a snack for later in the day … a bag of clouds, rainbows, and pots of gold (… marshmellows, jelly beans, and peanut butter cups…).

I hope you treat your employees and co-workers to a little fun today and your kids with a lot of fun this weekend.  Happy St. Patrick’s Day.

Labor and employment laws regularly intersect with the construction industry—whether you are dealing with employment issues such as the hiring and firing of employees, compliance with state and federal E-Verify requirements, or applicability of project labor agreements on a project. 

 

New Hires.  When you hire a new employee, you are well advised to properly document the process, as you may have certain reporting requirements depending on your construction project.  For example, did you know that you are required to complete and retain a Form I-9 for every employee you hire for employment in the United States?  The U.S. Citizenship & Immigration Services (USCIS) website lists the following exemptions: 

  • Individuals hired on or before Nov. 6, 1986, who are continuing in their employment and have a reasonable expectation of employment at all times. Some limitations to this exception apply.) Also excepted are individuals hired for employment in the Commonwealth of the Northern Mariana Islands (CNMI) on or before Nov. 27, 2009.
  • Individuals employed for casual domestic work in a private home on a sporadic, irregular or intermittent basis.
  • Independent contractors or individuals providing labor to you who are employed by a contractor providing contract services (for example, employee leasing or temporary agencies).
    Individuals not physically working in the United States.

Even though independent contractors are exempt, federal law prohibits individuals or businesses from contracting with an independent contractor knowing that the independent contractor is not authorized to work in the United States.

The Breaking News.  On Friday, March 8, 2013, the USCIS released a new Employment Eligibility Verification Form I-9 (pdf) and all employers should begin to use the new form immediately for new hires. The form is now two pages, has expanded instructions, and includes new fields for an email address and phone number in Section 1.  You can read about the background to the new form (pdf) here. The old form can be used until May 7, 2013 and the new form can be used now, but will be mandatory after May 7, 2013.

Applicability to construction industry.  If you are a contractor or subcontractor and use E-Verify, then you can still require identification of an applicant’s social security number.  The new instructions make clear that identifying a social security number for Section 1 purposes remains voluntary, unless the employer is enrolled in E-Verify.

Image: Will Merydith

No doubt you have heard, read or seen reports about the sequestration process.  As part of the Budget Control Act of 2011, Congress passed and President Obama signed into law an automatic, indiscriminate process of across-the-board budget cuts called sequestration. Earlier this week, the Washington Post had a great blog post called The Sequestration: Absolutely everything you could possibly need to know, in one FAQ.  There is a lot of doom and gloom.

Will the construction industry be affected by sequestration?  Last December, the Associated General Contractors of American (AGC)  released a report called Sequestration and Its Possible Impacts on Construction (pdf). According to the Report, the sequestration process directly reduces many federal construction investment accounts…which has a direct affect on the livelihood of both existing and planned projects.  In a recent update about What Contractors Should Know, AGC estimates that as much as $4 billion in federal construction funding could be cut during the next seven months.

What contractors are affected? Since we are dealing with federal funding, contractors who work on public projects at all levels could be affected.  First, contractors who work directly with federal agencies could experience the greatest impact.  For example, with agency cuts will come employee furloughs that could affect the work by contracting officers and other acquisition personnel.  Also, there will likely be requests by the agencies for contractors to hold over their bids for a period of time.  Finally, there will likely be terminations and suspensions of existing contracts where appropriate.

Next, contractors who work with state and local governments on projects that involve federal monies may also experience issues resulting from sequestration.  Again, the primary areas will be delays in funding, processing and review by federal employees involved in those local projects, and an overall decrease in funds available. 

What can contractors do to preserve claims?  If an agency or local government issues a notice of suspension or termination for convenience, then the first place you need to go is your contract.  Ultimately, you may need to challenge the basis for the suspension or termination, which will largely depend on the facts of the case.  If sequestration is alleged by the government to be the basis of the suspension or termination, then the question will turn on whether that event creates liability for the government.

Communication throughout this process is key.  When you receive any notice from the contracting officer or government representative, make sure you respond quickly.  In your response, make sure that you provide notice of claims and reserve all rights.  It is important that you are working closely with your scheduling team to document the status of work in place and time for completion.  You will need to use this information for identifying and proving any delays as a result of the suspension or termination.

Image: I’ennui d’ennui

Given the increase of today’s mobile technologies available on the construction site … from smart phones, to iPads and tablets, to electronic drawings and specifications … there are going to be new disputes involving those technologies.

 

In particular, I think we are going to find an increase in disputes when it comes to the use of emails as a means of communication among project members.  First, email communications tend to be sent "off the cuff" without creating a draft of the communication that can be reviewed by team members.  In addition, you may not have the accurate contract provisions in front of you when you are sending an email from the project site, so your communication may not include the appropriate contract references that you need to support your position or claim.  Finally, email communications simply tend to be more informal and can lead to "miscommunications" among the project team members.

Notwithstanding these potential problems, people continue to use email without having a full understanding of the risks involved.  For example, did you know that your email communications can be used to establish an enforceable contract, change order, or settlement?  In Tennessee, there is the Uniform Electronic Transactions Act (UETA) that applies to electronic records and electronic signatures relating to a transaction. The statute expressly states that:

  1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
  2. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
  3. If a law requires a record to be in writing, an electronic record satisfies the law.
  4. If a law requires a signature, an electronic signature satisfies the law.

The UETA was recently relied upon by an appellate court in Tennessee, Waddle v. Elrod, where the parties had reached a settlement agreement through the email communications of the attorneys. Although one party later attempted to renege on the settlement agreement, the court found that the emails by counsel constituted a valid contract.

Question: Do you have a computer use policy for your project managers? Are you training your construction teams on the use of emails?

Image: Sean MacEntee

No doubt you have read about or seen reports of a gas explosion at JJ’s Restaurant in Kansas City last night. The fire department does not suspect any foul play in the incident.  According to Missouri Gas Energy, "Early indications are that a contractor doing underground work struck a natural gas line, but the investigation continues."

While the explosion in Kansas does not appear to have involved an accident at a construction site, early reports do indicate that the cause may have been a contractor performing underground work that struck a gas line. In any event, there are some lessons to learn when investigating or handling an accident on a construction site.  These include:

  • Prepare before the accident. It is important to prepare before the accident by having a checklist or best practices protocol to follow if an accident should occur.  This should include identifying chain of command for notice purposes, identifying internal investigation team members, identifying who will be a company spokesperson, and identifying your risk management team (insurance and legal).
  • Act diligently when an accident occurs.  Don’t waste all that preparation time before the accident and then not follow your protocol.  Make sure medical issues are resolved immediately and lock down the site for evidence preservation.  Make a list of all witnesses. Photograph and video the conditions.
  • Organize post-accident activities.  There may be contractual obligations, regulatory requirements and public relation issues that will come after the accident occurs.  Make sure that you review your contract to comply with any notice requirements that may need to be given.  If OSHA becomes involved in the workplace accident, then prepare for the investigation with your safety team and risk management team.
  • Manage the accident documents.  While on the job site, an investigator may ask to see certain records such as the OSHA 300 logs, safety manuals, first aid / medical records, training records, safety meeting minutes, inspection records, and accident reports. In order to keep track of what has been requested and provided to the investigator, make a list of all requested documents and keep a transmittal log of how various documents were transmitted.
  • Understand privileges.  Please note that accident reports should be reviewed by your attorney prior to production to any investigator.  Accident reports should be limited to the facts and should not contain any speculative theories or guesses as to why an accident occurred. If your attorney has directed the preparation of the accident report, that report is privileged and should not be produced to the inspector.

Most construction companies, at some point in their life, will experience a job site accident. It is important for your company to have a plan in place for the day.  What lessons learned can you share?

"There is an undeniable need for logical, factually supportable and credible evidence to assist in calculating delay, time extensions, concurrency and compensability as well as liquidated damages and actual damages."  Don Gavin & Robert D’Onofrio (Oct 2012)

It almost goes without saying that if you have to pursue or defend a delay claim, you are going to need some evidence (whether by expert or otherwise) to establish or to challenge entitlement to the damages sought.  And we all know that there can be different routes to the same goal.  However, the different methods of schedule analysis can lead to varying results.  So, which method is correct?

In a great Construction Law International article by my friends Don and Rob, the authors suggest a series of best practices that should improve on the reliability of schedule analysis and increase its acceptability in the industry.  According to the article, there are eight guidelines that any schedule delay analysis comply with, including:

  1. Compare the planned work before and after each delay. Practically, this means that you should compare the plan to perform the remaining work before each delay and the plan to perform the remaining work after that delay, which will require a review of the schedule updates during the project.  This will also involve looking at the estimated impact, as well as the actual impact, of the delay.
  2. Identify the critical delays. Generally, the delay must affect the critical path of the work to be compensable.  If the delay absorbs the "float" in the schedule, then it is not compensable.  According to the authors, "If an activity does not have any float, by definition it is critical as it would impact the required contract completion date."
  3. Evaluate the delays in both a chronological order and a cumulative manner.  If you do not look at the delays in sequence, it can "mask" what actually occurred on the project. 
  4. Adjust the completion date to reflect excusable delay as it occurs.  This will assist in finding the actual float values and determining which activities are actually critical at any point during the project timeline.
  5. Include accurate as-built information.  Again, it is important analyze the actual progress of construction, which can best be achieved through accurate as-built data.
  6. Minimize projected future delays.  If you include projected future delays in the schedule, they should be minimized because projected delays can alter float calculations and possibly change which activities are critical. 
  7. Correct any logic flaws.  If you correct any logic flaws found in the schedule, make sure to document and explain the changes at the time they are made.  Understand that judges and arbitrators can be skeptical when substantial changes are made after construction is complete.
  8. Tie causation to each delay.  Ultimately, you will have to show whether the delay is non-excusable, excusable/compensable, or excusable/non-compensable. 

Using these guidelines, any contractor can begin to evaluate and prepare a potential delay claim as the conditions on project causing the delay occur.  If the claim turns to a dispute, you will have done a significant amount of preliminary work that an attorney and/or consultant will need to assist you in the claim. 

Question: What other best practices can you identify for putting together a delay claim?

Yes, there are limits to what parties can include in a construction contract.  For example, many states like Tennessee have choice of law and venue statutes that make it unlawful to include a provision in a contract requiring the substantive laws of another state or the venue of litigation/arbitration in another state for real estate improvement projects that are located in Tennessee.  Other states like Maryland prohibit lien waivers in executory construction contracts.

Recently, the Supreme Court of Nevada held that a general indemnification agreement was void and unenforceable based upon the purposes and intended effects of the Americans with Disabilities Act.  In Rolf Jensen & Associates v. Eighth Judicial District Court of Nevada, the design contract included an indemnification provision where the design professionals agreed to indemnify the project owner for "any damages arising from any act, omission, or willful misconduct." 

The Facts.  The owner of the Mandalay Bay Resort contracted with Rolf Jensen on the expansion project to provide certain consulting services involving ADA compliance.  Following completion of the project, the Department of Justice investigated certain violations related to lack of handicap accessibility at the property.  The owner estimated that it would take approximately $20 million to bring the resort into compliance.  The owner sued Rolf Jensen under the indemnification provisions to recover the costs of the repair work.

The Holding.  The procedural aspects of the court’s decision are tricky, but in the end the decision was clear: "We conclude that Mandalay’s state law claims for indemnification pose an obstacle to the objectives of the ADA and therefore are preempted."  Ultimately, the court concluded that allowing the indemnification claims would weaken an owner’s incentive to prevent violations of the ADA, which would conflict with the purpose and intended effects of the statute.. “Simply put, such claims would allow owners to contractually maneuver themselves into a position where, in essence, they can ignore their nondelegable responsibilities under the ADA.”

An Observation.  While the Rolf Jensen decision appears to undermine parties’ freedom to contract, there have always been limitations on those freedoms.  Perhaps the question in this case stems from the lack of a clear prohibition against waiver of the ADA in contracts.  Perhaps this was simply an example where public policy trumps freedom to contract.  I think one of the real lessons is to make sure to review your construction contracts to make sure the agreement complies with the applicable state and federal law.

Question: Have you read the decision?  What are your thoughts?

Yesterday, I received an email alert from the American Arbitration Association announcing ClauseBuilder, an on-line arbitration and mediation tool that assists individuals and organizations in drafting arbitration and mediation agreements. According to the alert, ClauseBuilder is the "first tool of its kind to be offered by an Alternative Dispute Resolution (ADR) service provider."

 

The new tool provides parties with the AAA’s standard arbitration agreement, in addition to an array of options parties may consider when crafting customized ADR clauses, including specifying:

  • the number of arbitrators;
  • arbitrator qualifications;
  • locale provisions;
  • governing law;
  • the duration of arbitration proceedings; and
  • whether to use arbitration, mediation, or both.

This morning, I took ClauseBuilder for a spin.  Below I describe the process of creating an arbitration clause for an existing dispute, as well as my thoughts about the usefulness of the platform:

  1. Industry Application.  There is no current option for construction contract, and AAA readily admits that ClauseBuilder only deals with commercial arbitration contracts at this time. I look forward to seeing how the application integrates construction and international contracts.
  2. Timing of Dispute.  After selecting the type of dispute, you are asked to select whether the arbitration clause is for a "Future" dispute or an "Existing" dispute.  I appreciate this option because there will be times that parties will agree to arbitration, although there is no dispute provision in their contract or in the absence of a contract.  The "Existing" dispute option allows you to quickly create an arbitration agreement to allow the parties to proceed with ADR.
  3. Standard versus Tailored.  After selecting the timing of the dispute, ClauseBuilder allows you to simply use the standard clause or choose optional clause provisions.  Currently, the standard clause reads: "We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules the following controversy: __________________________. We further agree that a judgment of any court having jurisdiction may be entered upon the award."  If you choose "optional clause provisions" then you will have the option of selecting: (a) the number of arbitrators; (b) arbitrator qualifications; (c) location of proceedings; (d) governing law; (e) extent of discovery; (f) extent of oral evidence and argument; (g) duration of proceedings; (h) types of damages or remedies; (i) attorneys fees and costs; and (j) whether a reasoned opinion is to be given with the award. There are other options such as confidentiality provisions, non-payment of arbitration fees, and appeal rights that the parties may agree upon.
  4. Review the Clause.  At the end of the process, you have an opportunity to review the clause online, download it as a text file, or print it.  If you want to save the clause for future use through the ClauseBuilder website, you will need to use your login information.  When I chose to "download" the clause, it immediately opened in MicrosoftWord and I was able to make any additional edits and finalize the provision.

In the end, I think this is a good resource for outlining some of the alternative dispute resolution options for either an existing or future dispute.  It is not enough for me to simply take the "test version" that I just drafted and update for future use on my own computer because there are so many options available, depending on the parties, the dispute, the amount in controversy, etc. (…you get the picture…).  I definitely would return to ClauseBuilder to review some of these many options. I will be interested to see what additional information will become available with the construction and international versions.

What does it meant to "prosper" in the construction industry?  Depending on the size of your business, it may mean simply weathering the past few years with minimal layoffs.  It may mean that you have kept adequate cash flow to complete the projects in the pipeline.  For Houston-based Satterfield & Pontikes, it meant adapting to the industry downturn and embracing new technologies and business development methods to sustain the workloads.

In an excellent company profile article in ENR last week called Prospering on the Edge (subs. req’d), freelance writer and blogger Jim Parson details many of the reasons why S&P has prospered over the years.  These include:

  • Have a core principle.  Founded in 1989, S&P has followed the same core principles as part of its work ethic: "Always do the right thing for the right reason; deliver, no matter what; and adhere to the company’s system of doing business."  Is your work based upon a set of core values?  Do you meet each day’s challenges with the same excitement and commitment to excellence?  You should.
  • Embrace technology.  For S&P, this meant getting involved in BIM as an early-adopter.  According George Pontikes in the ENR article, "BIM was perfect for our firm, as it complemented the way we schedule projects and always stay on top of prices as plan documents change."  The firm has embraced a commitment to cutting-edge technology, which should be in the "skill set of any contractor who expects to be a part of the 21st century construction economy."
  • Learn how to adapt.  The ENR article is full of examples of the types of changes S&P has undergone to adapt to market conditions.  For example, at the very start of the downturn in the construction industry, Pontikes instructed his senior staff to pursue and procure as many new public-sector jobs as they could  When the economy continued to tighten, S&P had a number of projects in the pipeline to sustain their business.  More recently, the company is adapting by acquiring subcontractors, which allows S&P to self-perform more work in a cost effective manner.

You should read the article to fully appreciate the company’s profile and the steps that S&P has taken to survive (and prosper) in a tight economy.

Today’s guest post is from my good friend and law partner, Mark Leach, who focuses on health care law, construction disputes and public procurement matters.  Mark served as a panel member on DBE Compliance at the October 25, 2012, ARTBA Construction Law and Regulatory Forum. You can contact Mark at (502) 681-0583 or mleach@stites.com

Comment period.  Companies involved in federal-aid highway, airport, and other transit construction contracts will have more than visions of sugar plums on December 24, 2012, when comments are due on proposed Disadvantaged Business Enterprise (DBE) regulations. Due to their sweeping nature, interested contractors and industry representatives may find a lump of coal in their stocking.

The DBE program regulations require goals to be set for awarding a certain percentage of federally-aided contracts to DBEs. While laudable in intent, DBE goals can be challenging, risky and carry the possibility of severe criminal and civil penalties for the prime contractor for violations of the regulations.

On September 6, 2012, the United States Department of Transportation issued its notice of proposed rulemaking. The proposed changes affect the objectives of DBE programs, transit vehicle manufacturers, and the forms used in programs—and that’s not all. The proposed rules make several changes in contractor bidding requirements and to the consequences for making changes after bids have been submitted.

Responsiveness versus Responsibility. In support of the proposed rules, DOT explains that it “has noticed an unfortunate trend” in which contract awardees have a period after bid opening to provide DBE information. The proposed rules would eliminate the distinction for DBE compliance between “responsiveness” and “responsibility,” allowing only responsiveness. Bidders would instead have to submit all of their DBE information with the bids themselves (allowing for possible exceptions for negotiated procurements), and failure to do so could result in the bid being disqualified as non-responsive.

Additional Safeguards.  The proposed rules also “create additional safeguards for DBEs.” Payment for DBE-designated work will not be made unless the work or supplies are provided by the listed DBE. The one exception is where the prime contractor received prior written consent “for good cause” to use a replacement DBE. Failure to use the listed DBE without prior consent can constitute a “material breach” of the contract. Remedies for the breach include termination of the contract and imposition of liquidated damages.

Good Faith Efforts.  The proposed rules also impact prime contractors who cannot achieve the DBE goal. Currently, contractors are allowed to demonstrate “GFEs,” or “good faith efforts” in order to still be considered as complying with the DBE goal. The proposed rules would require either: [1] all bidders to submit their GFE documentation with their original bids; or, [2] the apparent successful bidder would have one day after notification to submit its documentation.

DOT justifies the new rule on GFEs because bidders “have to amass a great deal of information to compete for a contract (e.g., with respect to price, materials, schedules, etc.). DBE-related information is no different and no less an integral part of the bidding process. … Consequently, we believe that recipients can justifiably seek good faith efforts information at the same time they receive everything else concerning the competition for a contract.” DOT, though, does invite comments on whether one day is an appropriate time frame, or whether a longer period is needed; DOT suggests three days as an alternative.

DOT asserts that the proposed rules are “not a significant regulatory action” because they do “not create significant cost burdens [and] do[] not affect the economy adversely.” Rather, “the changes proposed … are primarily technical modifications … that will have little to no economic impact on program participants. Therefore, the proposed changes will not create significant economic effects on anyone.” (emphasis added).

DOT’s assertion that the proposed changes will not economically impact anyone might be informed by the process that generated the proposed changes. The Department received “significant input from state and local officials and agencies involved with the DBE program.” It is, therefore, unknown how much input was received from contractors and others involved in the transportation industry.

Comments on the proposed rules originally were due on November 5, 2012 (the day before Election Day). On the day the American Road and Transportation Builders Association’s (ARTBA) Construction Law and Regulatory Forum featured a panel on DBE compliance, the Department issued a correction extending the deadline for comments to December 24, 2012. This new deadline may pose the last real chance for contractors and others involved in the transportation industry to comment on the effects of the proposed rules.

Comments may be submitted through several channels detailed on the first page of the proposed rules. If interested in commenting, contractors may seek legal counsel or submit comments directly. To submit comments on-line, visit www.regulations.gov and search for OST-2012-0147, or simply click on this link.