Let’s get ready to rumble! According to an ENR-Southeast article by Scott Judy, the road builders in Florida are preparing for another fight against legislators who have raided the state’s transportation trust fund.  This is the second year in a row the Florida legislature has taken measures to raid the transportation funds for general uses. Last year, the raid was only prevented by the veto from then Governor Charlie Crist.  As reported by Scott Judy, Governor Rick Scott is considering a veto of this year’s raid. 

Groups such as the Florida Transportation Builders’ Association are gearing up for the second round fight.  Bob Burleson, president of FTBA, recently commented, "[We] could not be more disappointed with the tone and actions of Florida’s lawmakers. . . . Governor Rick Scott campaigned on a job-creation platform, and we are confident he will consider a veto of this anti-jobs legislation.”

Aside from the political issue, there is a legal component to the analysis: Can a state legislature so easily sidestep the restrictions it puts on the use of state trust funds? This issue has been contested in a recent series of court cases across the country.

Facing deficits between 2001 and 2004, the Colorado legislature passed a series of acts directing the state treasurer to transfer over $442 million from thirty-one earmarked funds to the state’s general fund. Three of these earmarked funds were designated as “trust” funds by statute. A group of Colorado taxpayers challenged the transfer of the earmarked funds in a case called Barber v. Ritter. Among other things, the taxpayers argued that the three “trust” funds were irrevocable trusts that the legislature could not unilaterally revoke.

The case made its way to the Colorado Supreme Court, which decided in 2008 that the legislature could transfer the funds, including the “trust” funds. The court reasoned that the legislature could not use the statutes creating the “trust” funds to modify its constitutional power over appropriations. The court concluded: “[E]ven if the cash funds are public trusts, they are not irrevocable trusts, and the legislature has the authority to amend them to allow for the transfer of monies to the General Fund.”

A similar challenge to legislative raids of earmarked funds was also recently decided by the Supreme Court of Ohio.  The plaintiffs in Ohio argued that their legislature’s raid violated the Contracts Clauses of the state and federal constitutions.  The trial court agreed, finding that the raid on the earmarked funds was unconstitutional.  Both the Court of Appeals and the Supreme Court of Ohio reversed, finding that the legislature had plenary power to enact the targeted legislation.  

Another case pending in the Illinois Supreme Court addressed a similar constitutional challenge: whether the legislature’s raid on earmarked trust funds violated the Takings Clauses of the applicable constitutions.  Like the Ohio case, the court in Illinois must decide whether the legislative earmarking creates an irrevocable trust.  The Illinois raid was upheld by both the trial court and the appellate court, but one of the three appellate judges dissented. The dissent plainly states that the legislature can create an express trust, and found “the legislature’s use of the term ‘trust fund’ to be compelling evidence that it intended to create a trust.”

It will be interesting to see if the Supreme Court of Illinois follows Colorado’s lead. If they do, it seems that state legislatures are as free to re-appropriate “trust” funds as any other funds. This is alarming for those concerned with transportation trust funds, which have been frequent targets of legislative raids in recent years.

Image: Bid Ed

Last year around this time, I blogged about a new report indicating that half of the construction industry was using building information modeling (BIM) on their projects.  Last week, the BIM community lit up in response to an article by Nadine Post, which was featured in both Engineering News-Record and Architectural Record.

A representative of XL Insurance provided to ENR the background to a recent dispute over the construction of a life-sciences building at a major university.  According to the article, this is the first known claim related to the use of BIM by an architect. 

On the project, the architect and its MEP engineer used BIM to fit the MEP systems into the ceiling plenum.  When the contractor was about 70% through assembly, it ran out of space in the plenum.  It came to light that the design team failed to inform the contractor that the extremely tight fit of components depended on a specific installation sequence.  In the end, everyone sued: the contractor sued the owner, the owner sued the architect, and the insurance carrier sued the MEP engineer.

The settlement was confidential and there is little information about the identity of the parties, the amount of settlement and the terms of the agreement.  But, based upon the ENR article, as well as best practices generally, here are some lessons learned when using BIM:

  • Communication within your own team.  Although not highlighted in the article, it goes without saying that most construction disputes are 90% fact driven and 10% law driven.  This may be a generalization, but lawsuits are about losses and responsibility for those losses.  The parties’ contract or the applicable law my allocate the risk to one particular entity, but often the dispute is fueled by the facts of the case.  Here, it becomes imperative that your own project team members (from estimating, to scheduling, to field conditions, to contract administration) regularly talk with each other to avoid miscommunication.
  • Communication among the project team. The primary lesson is highlighted by what Nadine Post calls "poor communication" on the project.  According to the insurance carrier, the "’design team never discussed the installation sequence with the contractor, and the contractor wasn’t sophisticated enough’ to understand the importance of assembling the components in a certain order."  As you would suspect with integrated projects, communication among all project team members can help avoid problems stemming from design to construction.
  • Communication per the contract documents.  If you follow construction industry trends related to contract documents, you know that both the AIA and ConsensusDOCS have a working set of documents focused on integrated project delivery.  Here is a comparison of the two groups’ documents related to IPD.  In the end, you should make sure your written agreements conform to your understanding and expectation of how the parties will communicate, what information will be communicated, and what happens in the event of lack of communication … or a dispute.

Image: kpcauchi

One of my favorite vendors at the CONEXPO / CONAGG show featured the job clock system by ExakTime.  They had a prime corner spot in one of the main exhibit halls and each representative greeted you with a smile from ear to ear.  When I returned from Las Vegas to the real world in Nashville, I was delighted to receive a follow-up email from ExakTime highlighting the following video.  Take a look: 

https://youtube.com/watch?v=tXurOetzRfI

Although I will probably never need a portable time and attendance system for my 6 kids, I absolutely love this technology! The portable time clock featured above is RUGGED. The software has GPS capability for tracking the location of crews and employees.  Also, the time entries and other information can be imported into your document management and accounting software. Check out some of the sample reports, including employee time cards, executive summaries, location summaries, and cost codes.

So, the real question is: Why is this important?  Any participant on a federal or federally assisted construction project will want to know about the reporting requirements for the federal prevailing wage laws.  AGC has a great book called the Davis-Bacon Compliance Manual, covering all the issues you need to know, but here are a few guidelines :

  • You will need to track on-site versus off-site work.  Under the Davis-Bacon Act, prevailing wages are to be paid laborers who are "employed directly upon the site of the work."  There will be a factual and legal analysis about what constitutes the work site or "adjacent" property, but you will need a solution to help track the activities of your workers.
  • You will need to track overtime hours.  The Davis-Bacon Act requires overtime payment for all hours worked in excess of 40 hours per workweek.  Again, the time clock and attendance record-keeping will be important for defending wage violations or other payment claims.
  • You will need to track certified payroll.  This is the documentation that a contractor is required to complete on a weekly basis for submission to the owner.  The certified payroll form provided by the Department of Labor requires certain information, which can be exported from your time clock solution. 

What other systems have you used to track employee hours and locations?

Last week, I came home to a fresh layer of asphalt throughout our development.  Smooth. Warm. Black.  It looked great!  Then my kids … 5 out of 6 of them … pulled out the chalk and began destroying this perfect surface. 

Since their daddy represents road builders, they even created their own lanes of traffic.  I am sure they did not get any environmental impact studies.  Nor did they properly carry out lane closures.  (…amateurs…)

My immediate reaction was to get mad … They were playing in the street! They were ruining perfectly good asphalt.  But then the quiet voice reassured me.  They are kids … and they are going to be alright.  

Do you get stressed by juggling professional demands and family life?  Here are some reasons why you should let your kids plays on new asphalt:

  • Let your kids be kids.  Too often, I confuse "good behavior" with "good character."  I think my job as a parent is to instill good character, which naturally should result in good behavior. Right?  But when my focus is on their actions, rather than their heart, I become rule-driven.  Wake up, Matt, they are kids.  Let them play!  That’s what new asphalt is for … bright colored chalk!
  • Let yourself be a kid.  My job as parent does not end with allowing my kids to play, though.  I need to play with them.  In this instance, I flopped down on the new, black street and began drawing.  The giggles of the little ones at my side, laughing at my "less than perfect" stick figure was all I needed.  This was fun.  
  • Live one life.  Most of my hurdles over the past ten years have stemmed from that fact that I tried to compartmentalize every aspect of my daily life (i.e., work, health, family, friendships, etc). Each had their own little box. Until I came to the realization that there is only room for one life, there was conflict.  I suspect that you will experience the same.  That means, if you are a passionate executive, then take that passion home to your family.  If you work great with your kids, then work great with your staff and employees.

Are you juggling work and family and community?  What tips can you share about finding the right balance?

I received an alert from my friends at KraftCPAs yesterday with the following subject line: "How long should your keep you tax records?"

The post by Morganne Keel contains some very basic, succinct and easy-to-implement ideas for document retention of tax records, including the following:

_________________________________________________________________

Individual taxpayers

Keep at least three years, but six year may be better.  The following records are commonly used to substantiate a taxpayer’s income and expense items:

  • Form(s) W-2
  • Form(s) 1099
  • Form(s) K-1
  • Bank and brokerage statements
  • Canceled checks or other proof of payment of deductible expenses

At a minimum, the above tax records should be kept for a three-year period following the date that you file your return (or its due date, if later). However, the IRS’s time limit for initiating an audit on a return where income was grossly understated, yet no fraud was discovered, is six years. Therefore, retain the above documents for at least six years to better protect yourself in the event of an audit.

Pass-through business entities

If you are an owner in a subchapter S corporation, LLC, LLP, or a limited partnership, you should retain a copy of the annual Form K-1 for as long as you own an interest in the entity plus seven additional years. Also, keep any paperwork related to the sale or other disposition of your interest for at least seven years after the disposition.

Corporate income tax returns

It is highly advisable that you retain copies of all corporate tax returns indefinitely.

_________________________________________________________________

For construction companies, I think Morganne is right on track for retention of tax records, particularly in this day and age of electronic storage.  It is not too difficult to maintain these types of documents indefinitely in the event of an audit.

In the construction industry, the next question becomes: How long do you keep project records?  Project documents, including the contract, change orders, correspondence, drawings, specifications, daily logs, field notes, monthly reports, schedules, etc., should be kept and stored for at least as long as the applicable statute of limitations or repose period for the state in which your project is located.  Here is a good explanation of a statutes of limitations and repose for construction defect claims and how it applies to disputes.  In short, if your particular jurisdiction has a 10-year statute of repose, then you should keep you records maintained for at least 11 years. 

Image: agrilifetoday

A portion of my construction practice involves employment issues.  You can imagine the types of employment-related questions that arise on the project site:

  • Hiring, firing and layoffs
  • Harassment and discrimination
  • Wage payment and commission claims
  • Employee policies, including computer use and social media
  • On-the-job injuries and fatalities
  • State and Federal OSHA requirements
  • Prevailing wage laws, including Davis-Bacon Act
  • … and the list goes on!

If you are a contractor who received Federal monies under the Stimulus Act, then you should be aware of your obligation to comply with affirmative action and equal opportunity laws.

According to this Business Record article, the Federal Stimulus Act "has contractors looking over their shoulders when it comes to hiring workers."  Reporting requirements mandate that contractors track employee information, including race, gender and veteran status. In addition, contractors must show that their tracking efforts are working in the hiring process. Ultimately, the contractor will have to demonstrate a diverse workforce.  The Office of Federal Contract Compliance Programs announced late last year that it would step up enforcement efforts.

What can you do to ensure success?  Here are a few tips:

  1. Identify whether your project requires compliance.  You would be surprised to learn how few contractors actually know whether their project is subject to review of OFCCP auditors.  If the project used $1 of Federal monies, then the job falls under US Department of Labor oversight.
  2. Maintain good documentation.  If you are tracking your hiring efforts electronically, then it will be easy to maintain this information in the event of an audit.  The more problematic scenario arises when you do not have a written protocol for hiring practices and you do not keep records maintained in an organized fashion.
  3. Cast a wide net in your hiring endeavors.  Job outreach efforts should include religious groups, nonprofits and other organizations.  Contractors need to seek out ways to spread the word about available jobs to as wide a population as possible.

The lesson is not about who you hire … it’s about how you hire.

Yesterday, highway and bridge contractors in Tennessee received an alert from from TDOT officials about the affect of heavy rain in the area: "I’m sure most are aware of the anticipated rise in the Mississippi River, but could you please share with all that are working in the Mississippi River area and the backwater areas of the Mississippi that they may want to consider moving to higher ground in the next weeks. Thanks." 

 

The warning came with more details from the Army Corps of Engineers about excavation activities near a floodwall and the rising waters:

. . . [W]e have analyzed the construction excavation immediately adjacent to the floodwall and have determined that when the Memphis Gage reaches a reading of 38, with predicted additional rise, the excavation adjacent to the floodwall must be filled in. The Mississippi River will reach 38 sometime next week with significant additional rise forecasted. . . .

Based on the predicted stages, significant uplift pressures are possible for some distance from the wall. These excavations may also need to be filled in order to ensure the integrity of the flood risk reduction system. . . .

The river stages currently being predicted are historic in nature and will test our flood risk reduction systems at a new level.

What should a contractor do with such historic conditions and unusually severe weather affecting construction activities?  In Daewoo Eng’g & Constr. Co. v. U.S., 557 F.3d 1332 (Fed. Cir. 2009), the contractor involved in building a 53-mile road around the island of Babeldaob submitted to the Corps a claim for delays and additional costs incurred because of high humidity, rainy weather and moist soils encountered on the project. The contractor sought $13 million in additional costs incurred and more than $50 million for future costs not yet incurred. The government filed a counter-claim alleging fraud and other violations.

Although the appellate decision focuses on the government’s claims, the lessons learned about delays stem from the trial court ‘s opinion.  The trial court criticized the contractor’s witnesses for lacking credibility.  The court concluded that the $50 million portion of the contractor’s claim addressing future costs was no more than “a claim to gain leverage against the United States [and] violates the principles on which Congress enacted the Contract Disputes Act.”  Apparently, the contractor was seeking a substantial modification of compaction requirements for embankment that would have greatly reduced problems for the contractor. In the court’s view, the $50 million in future costs was an inflated figure inserted into the claim as a ploy to expedite the Corps’ decision on whether to modify the compaction requirements.

The most notable lesson from Daewoo is that contractors should seek the guidance of experts to assist in calculating damages and to perform a schedule analysis for their claims.  You’ve read my tips on proving weather delays before, but they are worth repeating:

  •  The contractor is usually entitled to additional contract time, but not additional compensation for weather delays. Here, the contract terms and specifications are key to understanding what relief is available. 
  • Delays must be attributable to "unusually severe" weather or weather "not reasonably anticipated."  Of course, by its very nature, such a claim will be factually driven. The contractor should be prepared to establish this by reasonable documentation, such as weather data from the National Oceanic and Atmospheric Administration.
  • Weather analysis should be geographically limited.  What may be characterized as "unusually severe weather" on a Memphis transportation project may be different than a site in another part of the country.
  • The delays must actually impact the schedule.  While you may think that down-time due to weather should automatically entitle the contractor to a time extension, it will depend largely on the contract provision addressing weather delays. You will have to determine whether the inclement weather affected material delivery, access to the site, safety measures, etc.

Finally, get guidance from your experts as soon as possible.  What most likely doomed the Daewoo contractor was the difference in methodologies in assessing the claim.  Although the claim was originally prepared using in-house personnel, the outside experts hired for trial abandoned altogether the methodologies the contractor utilized in the claim. The trial court concluded that “the experts’ method resulted in an entirely different claim to the Government . . . [and] . . . the claim that was certified by the plaintiff’s project manager became an orphan during trial, supported by no one and barely acknowledged by plaintiff’s attorneys.”

Even on the smallest claims involving the calculation of damages, contractors should—at a minimum—seek the guidance of an expert on the most desirable methodology and should permit the expert to review the results prior to inclusion of them in the claim submitted to the public entity.

Image: USACE Public Affairs

Many construction cases that end up in court or arbitration do so because contractors are unable to prove each of the elements of its claim. Additionally, the value of many out-of-court settlements is also reduced because the contractor is unable to prove each of the elements of this claim. 

One of the more litigated issues on a construction project is about changes to the work.  Changes, alterations and extra work claims typically involve construction changes where the owner refuses to acknowledge that the work has changed.  The best explanation of changes that I have read came from a government contracts case in the Federal Circuit: 

A constructive change occurs where a contractor performs work beyond the contract requirements, without a formal order under the changes clause, either due to an informal order from, or through the fault of, the government. Before it can recover, the contractor must show that the government ordered it to perform the additional work. The contractor cannot merely show that the government disapproved a mode of performance. Rather, the contractor must show that the government actually compelled the additional work. The government order need not be formal or in writing. The additional work must be beyond the requirements of the pertinent specifications or drawings. At the same time, the additional work performed by the contractor cannot be beyond the general scope of the contract. Drastic modifications or fundamental alterations ordered by the government beyond the scope of the contract will constitute a breach of contract. The additional work must therefore be beyond the requirements of the contract, albeit still within the general scope of the contract. NavCom Defense Electronics, Inc. v. England, 53 Fed.Appx. 897 (Fed.Cir. 2002).

In order to prove a constructive change or extra work claim, here is what you should do:

  1. Review your contract.  There should be a "Changes", "Alterations", or "Extra Work"  clause. Generally, the clause permits the owner to order the change in the work that has been requested.
  2. Confirm change in writing.  If the changes clause requires the contractor to have a written change order prior to commencing work, then you should make sure written approval has been given.  You would be surprised at the number of disputes arising from supposedly "approved changes" that were never formally approved or reduced to a writing.
  3. Track your notice provisions.  Again, the contract contains the notice provisions regarding changes and the contractor will be required to prove that it complied with those notice requirements.
  4. Prepare for both entitlement and quantum.  The contractor will be required to show that the work was, in fact, additional work required by the owner.  A written change order will go a long way to establishing this claim, but the contractor also has to be prepared for the case when the change is disputed by the owner.  The contractor should keep track of the extra costs it is claiming for proof at mediation or trial or arbitration.

What other tips can you share when dealing with a changes claim?

Image: David Reece

In the weeks leading up to the ABA Forum on the Construction Industry’s annual meeting in Scottsdale, Arizona, a number of construction attorneys and I were feverishly reviewing submissions for this year’s Construction Law Update.  The document is a compilation of cases and legislation affecting the construction industry.  The updates are provided throughout the year by attorneys all over the country.

The following are examples of the types of information that you will find in the Construction Law Update: Cases and Legislation Affecting the Construction Industry (2010-2011):

  • ARKANSAS: In Crumpacker v. Gary Reed Constr. Inc., 2010 Ark. App. 179, __ S.W.3d __ (Ark. App. 2010), the Crumpackers filed suit against Gary Reed Construction alleging that it had breached the implied warranty of habitability. Although this case does not represent a drastic change in Arkansas construction law, it provides a clear understanding of the facts required of a plaintiff in order to pursue a breach of implied warranty of habitability claim.
  • CALIFORNIA: Assembly Bill modifying California Civil Code Sections 3084 and 3146. Assembly Bill 457 modifies California’s mechanic’s lien statutes with new notice requirements. The new law requires that a mechanic’s lien and Notice of Mechanic’s Lien now be served on the owner of the property, or on the construction lender or original contractor if those parties cannot be served. A proof of service affidavit must be completed and signed by the person serving the Notice of Mechanic’s Lien and would be included as part of the mechanic’s lien. The lien is unenforceable if it is not properly served according to the new statute. [NOTE: The legislation was scheduled to go into effect on January 1, 2011.]
  • GEORGIA:  The Georgia Constitution was amended in 2010 to implement the Georgia Restrictive Covenants Act, O.C.G.A. § 13-8-50, et. seq., which dramatically changed the law regarding restrictive employment covenants in Georgia. In addition to providing express guidance to employers as to which types of covenants are enforceable (previous guidance had come only through caselaw), the Act allows courts to “blue pencil”, or edit, otherwise unenforceable restrictive covenants to make them enforceable. The new statute is effective January 1, 2011.
  • TENNESSEE: In Ray Bell Construction Co., Inc. v. State, No. E2009-01803-COA-R3-CV, 2010 Tenn. App. LEXIS 737 (Tenn. Ct. App. Nov. 24, 2010), the Tennessee Court of Appeals affirmed the claims commissioner’s award of $2.5 million to the plaintiff. The case concerned an alleged breach of contract involving the incentive clause of a Tennessee Department of Transportation (“TDOT”) road construction contract. Before the Claims Commission, TDOTargued that the contract language was clear in prohibiting an extension, alteration, or amendment of the incentive clause. The Claims Commission disagreed and found that the plaintiff was entitled to a modification of the incentive provision based on admissible parol evidence. Agreeing with the Claims Commission, the Court of Appeals held that “a definite latent ambiguity exist[ed] for which parol evidence not only [was] admissible, but frankly,absolutely necessary in both understanding and deciding the issues in this case.”

There are updates from all over the country.  In addition, we have included references to recent federal regulations and administrative rulings that affect the construction industry. If you would like a copy of the Construction Law Update, please send me an email.

Not a week goes by that I don’t receive a telephone call or a question from someone asking general bid protest questions.  While a bid protest dispute will largely differ based on whether it is a local, state or federal project, here are some ways you can prepare: 

  • Be prepared to follow the rules.  Public entities such as a state department of transportation usually make their own rules and procedures pertaining to bid protests.  It is absolutely necessary to understand and comply with the applicable rules and procedures … whether the guidelines relate to notice, timing, basis, and supporting documentation. You will also find that some states tend to have more protests than others, which may give you an understanding on the "climate" for how a protest will be received by the agency.
  • Be prepared for a quick ride.  Depending on your state, there may or may not be a public notice period for an award of a contract.  However, if your company is a disappointed bidder, you will want to be prepared to act as quickly as possible following bid opening.  Some states, like California, post information about their contract awards and bid protests on their state website. 
  • Be prepared to post a bond.  Many states such as Florida require a protester to post a bid protest bond securing payment of the costs associated with the bid protest. This is usually a statutory requirement and the failure to post a bond can be grounds for rejecting the protest.

Most of all … Be prepared to fight.  If a protest is timely filed, in most situations the contract will not be awarded by the public agency until the issue is resolved. However, in some instances, you may be required to seek a temporary restraining order or preliminary injunction prohibiting the award of the contract pending a full hearing.