The following headline caught my attention this past weekend as I was reading the April issue of the ABA Journal:  "The Trouble with Terabytes: As Bulging Client Data Heads for the Cloud, Law Firms Ready for the Storm."   It piqued my interest not only because I am a lawyer who follows technology, but also because I represent construction contractors who are grappling with paperless project questions: Should we head to the cloud to back-up our document management system? Should we go entirely paperless on our projects? What are the risks?

Although the Terabyte article is focused on the struggles for law firms that are considering cloud solutions, there a number of practical tips for the construction industry.  Whether you are a general contractor, a specialty supplier or an owner/developer, consider the following as you take your construction data to the cloud:

  1. Backing up your data should not be viewed as a best practice, it should be a requirement.  According to Matthew Knouff, general counsel of Complete Discovery Source, who was quoted in the Terabyte article, this is absolutely imperative.  As a player in the construction industry–whether you choose to go paperless–you should have a plan for backing up your current electronic data.  You should also consider how long to archive your project documents after completion.
  2. The risks associated with loss of privacy, breach of security or public disclosure exist no matter where computing is conducted. If you think taking your data to the cloud presents new security risks, consider the risks that already exist if you networks and servers are attached to the internet.  When you move to the cloud as a back-up precaution, you are transferring that risk of loss to the service provide.
  3. The benefits of collaboration can more easily be reaped through cloud computing. What’s that suppose to mean? If you are involved in pre-construction design, project performance, or litigation, there is great benefit from controlled access project documents.  Web-based repositories can allow your project people, your consultants and your attorneys to review, issue code, and share documents as you prepare for litigation.  The same technologies allow the owner, designer, contractor and suppliers to communicate and share documents before disputes arise.

There are some risks, including the possibility that the cloud provider may experience technical issues, as well as financial strains.  Research and due diligence, thus, becomes important as you select a cloud computing solution.

Image: theaucitron

Last night, I attended a dinner and auction of the Tennessee Road Builders Association Mid-Year Meeting in Nashville, Tennessee.  It is always great to catch up with some many friends … many of whom I met only six months ago while presenting as a speaker at the Annual Meeting in Kauia, Hawaii.   The food was okay, the dessert was better (…yes, I was smart enough to bring my wife some cake…), but the fellowship was the best.  I chatted with friends like Glenn Chambers of LOJAC.  I broke bread with the Wilson family of Wilson & Associates.  It was a great evening.

Another highlight was the silent and live auctions to benefit the TRBA Political Action Committee.  The evening brought in close to $50,000, which will help the TRBA do its legislative work on behalf of members.  I donated a few items to the mix, including: (1) Lunch with a Lawyer, which included an executive lunch at The Palm and a few hours of advice; (2) a Construction Law Seminar, which included lunch for up to 20 employees on a construction issue of choice; and (3) a company profile and interview on this blog.  Stay tuned for an update on the winners!

On July 15, 2011, the USDOT’s Office of Inspector General (DOT-OIG) issued a final report on the Federal Highway Administration’s (FHWA) oversight of federal-aid and Recovery Act projects administered by Local Public Agencies (LPA).  You can download a copy of the report here [pdf].

The DOT-OIG initiated the audit because the FHWA previously acknowledged that LPAs were an internal control weakness, particularly in light of the fact that LPAs received up to $8 billion in Recovery Act highway funds.  The purpose of the audit was to assess: (1) the extent of LPA compliance with Federal requirements; and (2) the effectiveness of FHWA’s actions in ensuring that states have adequate LPA oversight programs. 

The DOT-OIG found at least one instance of noncompliance with Federal requirements in 88% of the LPA projects reviewed in four states.  Amazingly, identified were $5 million in unsupported costs.  According to the report, the most prevalent shortcomings were related to construction management requirements. 

Finally, the report made four recommendations for improving FHWA oversight.  FHWA officials concurred with all of them:

  1. Implement a policy establishing uniform procedures and criteria for Division Offices to use when assessing the ability of states to ensure LPAs meet Federal requirements. The policy should also require FHWA Headquarters to validate the accuracy of Division Office assessments.
  2. Develop a Headquarters process to assess the effectiveness of Division and state LPA corrective action plans to ensure deficiencies are promptly resolved. The process should specify the planned actions, milestones, level of government responsible for implementation, and ensure actions are completed as planned and on schedule.
  3. Develop a Division Office-based plan that will increase state oversight in the seven project activities in which we identified a high level of noncompliance with Federal requirements (change orders and claims, project bidding, utility agreements and reimbursements, consultant selections and billings, construction pay quantities and progress payments, project reporting and tracking, and quality assurance procedures).
  4. Assess the project transactions related to the $5 million in unsupported project costs we identified in California and Texas and review similar transactions within these projects for unsupported costs. The assessment would include developing an action plan to collect all unsupported costs or identify FHWA’s rationale for acceptance of these costs.

FHWA has 30 days to respond with its plan for addressing these items.

I just received an alert from my friend, Kent Starwalt, Executive Vice President for the Tennessee Road Builders Association, announcing an important hearing on Thursday morning. House Transportation & Infrastructure Committee Chairman John Mica (R-Fla.) has invited ARTBA members to join a webcast and conference call tomorrow where he will provide an overview of his multi-year surface transportation reauthorization proposal.

WHEN: The webcast and call will both begin at 11:00 a.m. (Eastern).

HOW: Please click here (http://transportation.house.gov/) to watch the live webcast. Click on the red “Live Webcasts” button on right-hand side of the page.

Call (877) 229-8493 and enter code 18416 to join by phone (questions will be taken over the phone).

Owners, contractors, and subcontractors in Kentucky should carefully review their legal claims given a recent Kentucky Supreme Court decision.  On June 16, 2011, the Court joined the majority of other states and adopted what is commonly know as the economic loss doctrine.  Now, claims against  suppliers for product defects are legally limited to the parties’ contract and warranties. 

In Giddings & Lewis, Inc. v. Industrial Risk Insurers [pdf], the Court held that “a manufacturer in a commercial relationship has no duty under a negligence or strict products liability theory to prevent a product from injuring itself.”  Ending years of speculation regarding the applicability of this doctrine in Kentucky, the Court wrote: "We believe the parties’ allocation of risk by contract should control without disturbance by the courts via product liability theories.” 

In Giddings & Lewis, the manufacturer sold a sophisticated machining center to an industrial company.  After seven years of continuous operation, and after the contract’s express warranty expired, the machining center malfunctioned, throwing huge chunks of steel across the factory floor.  The costs of repair and other business damages were almost $3 million.  After reimbursing the machine’s owner for its losses, a consortium of insurance companies asserted a subrogation claim against the machining center’s manufacturer.   With the warranty expired, the insurance companies sued in negligence, strict liability, negligent misrepresentation, and fraudulent misrepresentation. 

Applying the economic loss doctrine, the Kentucky Supreme Court held that the purchaser could not recover from the manufacturer under any tort theory.  The consortium was limited to contractual remedies, all of which expired years earlier.  The Court side-stepped the claim for fraudulent misrepresentation, leaving it for another day, by holding that the insurance companies’ were actually claiming “fraud by omission,” which they could not prove as a matter of law. 

Caveat emptor is alive and well in Kentucky.  Construction project participants should review contracts carefully and negotiate warranties.  Recovery will be limited to contract terms and statutory remedies.

Hat tip to Cassidy Rosenthal and John Tate for the original write-up.

Image: Scott Beale

A few of my favorite parts of a holiday picnic are: kids running through sprinklers, very cold watermelon, crispy hot dogs, and the Charlie Daniels Band blaring over the speakers.  (… yep, the devil went down to Georgia … he was looking for a soul to steal …)  I do not intend to equate the devil with immigration reform, but keep reading so that you can make your own decision.

Last week, Georgia law makers enacted the Illegal Immigration Reform and Enforcement Act of 2011, which will change the requirements for doing work on construction public projects in Georgia.  The existing law (OCGA 13-10-91) already requires a contractor bidding or contracting with a public owner to provide an affidavit attesting that:

  1. it has registered with and is authorized to use E-Verify;
  2. the contractor’s user ID number and date of authorization; and
  3. it is using and will continue to use E-Verify throughout the contract period for all newly hired employees or subcontractors. 

First and second tier subcontractors are also required to register and participate in E-Verify to verify info of all newly hired employees.  Notice of the identity of any new subcontractors on the project is required to be sent to the owner within five business days.

The new law extends the affidavit requirement to all tiers of subcontractors and sub-subcontractors, including suppliers who contract with a sub or sub-sub.  A fourth  requirement is added to the affidavit form: (4) the contractor will contract for the work only with subcontractors who present an affidavit with the same info as the contractor’s affidavit.  This additional requirement applies to the affidavits from subs and sub-subs.  Instead of sending notice of the identity of new subs, you send affidavits from the new subs.  The language indicating it applies to "newly hired employees and subcontractors" has been deleted, so now it applies to everyone.  Obviously, the idea is to require the public owner to collect affidavits from everyone working on the project that they are verifying employee info through E-Verify. 
 
So what, fellow Charlie Daniels Band lovers?  Public owners face funding cuts if found to be in violation of the new requirements, so they will be taking it seriously.  Contractors face penalties only if they "knowingly and willfully" make false statements in an affidavit, but are not held liable for unknowingly or unintentionally accepting a bid or contracting with a sub who violates the requirement.
 
The effective date for these changes is July 1, 2011.  The way the statute is written, it apparently applies only to new bids and contracts after the effective date.  It says a public employer shall not enter into a contract for work unless the contractor participates in E-Verify, and shall not consider a bid unless it includes the new affidavit from the contractor.  Also, a form of affidavit is supposed to be posted on the website of the Dept of Audits and Accounts by August 1, 2011, a month after the effective date of the statute (none posted yet).  This indicates the new affidavit requirements only apply to bids and contracts after the effective date of July 1, 2011.  Therefore, for public contracts already signed and underway, it appears that you keep doing what you were already doing.  But it is worth confirming with the owner rep on ongoing projects. 
 
There is another portion of the new law that requires all businesses with more than 10 employees to register with and use E-Verify as a condition of getting or renewing a business license or maintaining licensure status under state licensing laws.  It is phased in over a couple of years, first becoming effective Jan 1, 2012 for employers with 500 or more employees.

Image: may wong

This New York Times article by David Barboza suggests that China "aims to become the world’s civil engineer" through its involvement in the construction of the San Francisco-Oakland Bay Bridge.

"Modularization" is a construction delivery system that is gaining increased national attention in both the industrial and commercial construction economy.  Dealing with modularization in this country will require new forms of contracts between parties that have not previously worked together in direct contractual relationships.

The assembly work in California, and the pouring of the concrete road surface, will be done by Americans. But construction of the bridge decks and the materials that went into them are a Made in China affair. California officials say the state saved hundreds of millions of dollars by turning to China.

Barboza’s article deals with modularization of heavy industrial projects in China for delivery elsewhere, which leads to his suggestion that China is aiming to become the Civil Engineer for the world.  If you read between the lines, you can gather that many American bridge fabricators believe the above project could have been built faster, for less money, and with better quality in the United States.  This will be a debate worth following, as Chinese companies have won numerous other steel contracts in New York City. 

Hat tip to David Ratterman for pointing out this article to me.
 

Image: dsleeter_2000 

There’s a debate in Congress.  There’s a debate in Congress between Chicago’s two senators.  There’s a debate in Congress between Chicago’s two senators about privatization.

Last week, Bob Sechler of the Wall Street Journal described newly introduced legislation from Senator Dick Durbin (D-Ill) called “The Protecting Taxpayers in Transportation Asset Transfers Act.”  The bill seeks to require that U.S. government money spent on state and local transportation projects be repaid before the assets are leased or sold to private operators.  In Sechler’s words, this could “potentially crimp[ ] the ongoing national push toward privatization.”   The bill could create a federal lien to project the public’s investment:

Under the bill, a federal lien would be attached to all transportation projects that have received more than $25 million in federal funding, or that are valued at more than $500 million and have received federal funding. The lien wouldn’t be released until the money is repaid, based upon a depreciation formula, and “the parties agree to take action to increase transparency and public input in the privatization transaction.”

Already, Jon Hilkevitch of the Chicago Tribune is reporting about a new plan to be unveiled this morning by Senator Mark Kirk (R-Ill) that challenges the method of investment proposed by Senator Durbin.  Under the proposed “Lincoln Legacy Infrastructure Development Act,” Senator Kirk and his co-sponsors want to make it easier for governments to lease public transportation assets or enter into partnerships with private companies to build them.

If you are involved in the transportation construction industry, this is a fight worth watching.  The two pieces of legislation go the heart of the debate: that is, What is the proper balance of the private-sector’s role in constructing roads, airports, railroads and other transportation facilities?   On one end of the spectrum is the importance of protecting the public’s share of investment before major transportation projects are leased or sold.  The counter-concern is to eliminate barriers for innovative funding for highways, bridges and other infrastructure at a time when there is little to no public funds available.

I previously wrote about whether PPPs could help revive highway and bridge construction.  I have also written about some problems with partnering on construction projects, whether you are talking about PPPs or some other partnership arrangement between owners/developers and contractors.  This will continue to be a debate in the political halls, but doing nothing is not an option.

Image: Thomas Hawk

Last month, Tennessee Department of Transportation (TDOT) suspended all current bridge construction projects by Britton Bridge, LLC and related companies until they performed an independent review of their safety procedures.  This action came as a result of a second on-the-job fatality of a worker at the Henley Bridge project in Knoxville, TN, since January 2011.

But the inquiry has not stopped there.  Earlier this week, the Department of Homeland Security’s Immigration and Customs Enforcement took lead of the investigation into the two fatal worker accidents to determine whether the Britton knowingly hired illegal immigrants. According to the report, an illegal immigrant had a role in the first accident in January and the second victim last month may have also been working illegally.

As a contractor, what do you need to know about the immigrant status of your employees or subcontractor’s employees?  Here is what the law requires for public projects in Tennessee: 

  • The state shall not contract for goods or services from any person who knowingly utilizes the services of illegal immigrants in the performance of the contract.
  • That means, no contractor can knowingly utilize the services of illegal immigrants in the performance of a contract with the state.
  • Effective January 1, 2007, the contractor must attest in writing that it will not knowingly utilize services of illegal immigrants.
  • If a contractor does so, then he may be barred from public contracting for a period of one year.

So, how does the contractor comply with the state law?  First, it should include an appropriate attestation clause in its prime contract with the state, which may look something like this:

Contractor attests, certifies, warrants, and assures that it shall not knowingly utilize the services of an illegal immigrant in the performance of the Work and shall not knowingly utilize the services of any Subcontractor who will utilize the services of an illegal immigrant in the performance of the Work.

The next step for the contractor is to include a similar requirement in its subcontracts, which may look something like this:

Contractor has agreed to comply with the immigrant labor provisions of all applicable laws, including Tennessee Code Annotated, Section 12-4-124. Accordingly, Subcontractor agrees that it will not knowingly utilize the services of illegal immigrants in the performance of the Work. Additionally, upon execution of this Subcontract, Subcontractor shall provide a written attestation in the form of the attached “Addendum” stating that it will not knowingly utilize the services of illegal immigrants in the performance of the Work.

This information may be helpful for projects in Tennessee and you should check with your attorney to review the applicable state and other Federal labor requirements for public projects.

Image: Norman Lowery

According to a new analysis of federal employment data released last week by the Associated General Contractors of America, construction employment declined in 179 out of 337 metropolitan areas between April 2010 and April 2011.  AGC officials noted that despite recent increases in private-sector construction activity, the layoffs are occurring as public investments in infrastructure decline.

Reductions in the size of a workforce have always been a fact of the construction industry.  The use of a trendy name (downsizing, rightsizing, RIF) does nothing to alleviate the painfulness and complexity of this process.  The human side of workforce reduction often comes to mind first.  With careful planning, and a dignified approach to the process, most construction companies are able to minimize the emotional toll on those employees who are terminated.

However, the legal aspects of a workforce reduction can be more problematic because it can expose your company to unnecessary liability by terminated employees and investigations (and sometimes sanctions) by government agencies.  Here are some steps that should be taken before you make the final decision on how or if to reduce the size of your workforce:

  • Normal 0 false false false MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:”Table Normal”; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:””; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:”Times New Roman”; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} Analyze and document the reasons for a workforce reduction. Discuss measures designed to avoid the workforce reduction and document why those measures failed or were considered undesirable. Measures you might consider include voluntary reductions in the workforce, hiring freezes and salary freezes.
  • Review any and all employee handbooks. Assure that nothing in the anticipated reduction in force violates any handbook provision.
  • Check employment agreements. Determine which employees, if any, have employment agreements, non-compete/non-solicit agreements, confidentiality agreements, stock option agreements or any other type of written agreement pertaining to their employment.
  • Talk to all insurance carriers and/or brokers.  Discuss the implications of the proposed workforce reduction. Be sure to discuss the proposed effective date. This applies to all insurance policies including medical, dental, life, disability, directors and officers coverage, etc.
  • Consider the impact on 401(k) and other retirement plans. This is for both the terminated employees and for the persons who will remain at the company. This may require consultation with your attorney and/or accountant.
  • Evaluate other accounts.  If you have flexible spending accounts, health savings accounts or cafeteria plans, discuss the implications of the proposed reduction in force with your accountant and/or attorney.
  • Consider other benefits.  Determine company policy and/or applicable state law regarding payment of accrued vacation or PTO time to terminated employees.
  • Evaluate severance.  Are you going to offer severance payments to any of the employees to be terminated?
  • Plan for payment of wages.  Consult legal counsel regarding specific state law on payment of final wages to a terminated employee.

The good news is that the legal aspects of a reduction in force are not difficult to identify and address.  The challenges are to make sure you go through this process and to do it properly.

Image: Keturah Stickann