Today’s guest post is by Dan Douglass, a fellow construction partner  in the Construction Service Group at Stites & Harbison PLLC.  He is listed in the 2007, 2008, 2009 and 2010 Georgia Super Lawyers magazine and is listed in The Best Lawyers in America® (2009-2011) for Construction Law.

In these difficult economic times, lien rights are even more important to contractors as security for payment on construction projects.  Generally, a construction lien is a statutory claim against the owner’s property that secures payment for work performed to improve the property.  However, the devil is in the details, and every state’s lien laws are different.  In fact, some of the differences are surprising and even dangerous.  For example, did you know:

In North Carolina, subcontractors have a lien on funds held by the project owner, in addition to the general contractor’s lien against the real property.

In Tennessee, while there is no lien on funds, the owner is required to establish a separate escrow account to hold retainage for the benefit of contractors.

In Florida, filing an overstated claim of lien can not only forfeit your lien rights, but also render you liable for the owner’s attorney’s fees. 

In Georgia, a lien waiver becomes effective after 60 days, even if you have not been paid. 

In Kentucky, a contractor that improves real property under circumstances where a mechanic’s lien may be filed must use each owner payment to pay bills for labor and materials on that project or risk criminal penalty. 

To continue reading Dan’s post and learn about the specific lien statutes, please click here.

Last Sunday, the headline from the Tennessean read "Unions shrink but stay active."  Although the article focused on the use of union labor on Nashville’s convention center project currently underway, it provided a glimpse of the bigger picture of what is happening with labor groups in the construction industry.

In Tennessee, the percentage of work force represented by unions has decreased from 10% to 6.6% over the past ten years.  Union work on the Music City Center has shown signs of promise, as organized labor won a spot in three major subcontracts (electrical, steel and plumbing) estimated to be worth more than $100 million in work.

But what is the real lesson behind these figures and reports?  I think two driving factors on use of union labor are locality and project type.  Here is what I mean:

  • A state’s labor laws dramatically affect union participation.  While this may be a no-brainer, consider Tennessee’s right-to-work laws, which provide that workers do not have to be union members to hold a particular job.  The law states: "It is unlawful for any person, firm, corporation or association of any kind to deny or attempt to deny employment to any person by reason of such person’s membership in, affiliation with, resignation from, or refusal to join or affiliate with any labor union or employee organization of any kind." Tenn. Code. 50-1-201.  The right-to-work laws can be a huge incentive for business, since owners and developers won’t have to negotiate with union.
  • The type of project can also dramatically affect use of union labor.  For example, just last week the AGC of America helped persuade the U.S. Army Corp of Engineers to withdraw its project labor agreement ("PLA") requirements on a project at the Patrick Air Force Base in Florida.  According to the letter sent by the AGC, government mandates for PLAs for the construction of publicly funded projects is not in the best interests of the selection process.  A federal project may implement certain labor requirements, which ultimately may be determined by the contracting agency.  At the local level, there are instances where unions attempt to invest in the project through their pension funds in an effort to secure a portion of the construction work.

In the end, organized labor on a construction project will depend largely on the type of project (state or federal; public or private) and the applicable right-to-work laws, as well as the business clout and influence the particular union may have. 

 Image: National Right to Work Legal Foundation

A headline from the Wall Street Journal caught my attention this morning: “When People Come and Go: Project teams often have different workers at different times. And that can create problems.” Imagine the potential problems that exist in an industry where project team members change regularly such as in the construction industry.

Employee Turnover Affecting Your Construction Company?

What does history report on labor in the construction industry?  According to the U.S. Department of Labor | Bureau of Labor Statistics, the “contract construction field is very competitive” and the “rate of business turnover is high” in the managerial occupations.   While the career guide contains some outstanding historical data on the industry as a whole, recent trends contradict the some of the growth forecasts by the BLS.

Does turnover affect your project management teams?  According to the WSJ article, you should be asking yourself the following questions:

  1. Are you constantly shuffling people on and off your teams?
  2. Do new team members take a long time to get up to speed?
  3. Are long term team members dissatisfied with training new team members?
  4. Is your group performing as well as they should?

If you answered “Yes” to any of the above questions, then you have an opportunity to make some changes within your project management structure.  Here are some suggestions from the WSJ article:

  • Create cohesion by teaming responsibilities.  It is hard to build a sense of identification with a team if turnover is high.  However, workers identify with other employees and managers who perform the same type of work.
  • Strengthen commitment by building motivation.  “Team members who spend only a short time in the group often lack commitment to the task and the group,” writes Gervase Bushe, professor of leadership and organization development.  Providing clearer communication, targeting job satisfaction, increasing job responsibility are more than buzz phrases … they can often make the difference in employee commitment.
  • Foster a mindset of shared thinking. Over time, effective project management teams develop a common way of thinking about a project, including ways about approaching the work or communicating with employees.  With turnover, it is hard to develop and maintain a shared approach.  Consider creating a “Best Practices Protocol” for each particular team.

Question: What project management tips do you recommend to deal with turnover?

Last week, I attended the Nashville Chamber of Commerce CEO Speaker Series featuring Colin Reed, Chairman and CEO of Gaylord Entertainment.  Reed is a very good speaker and he spent the morning with an audience of 200 sharing some lessons he learned following the flood in Nashville in May 2010.  If you have not seen the pictures of the water that overtook the Gaylord Opryland hotel, then click here.

Reed did not show up last week to tout his leadership abilities.  But if you listened carefully, you learned a few lessons in leadership when faced with an emergency.  These include:

  • The time for creating an emergency plan is not during the emergency.  There are going to be obvious and not-so-obvious things to do before an emergency occurs.  One of the most obvious preparations that can be done is to prepare an emergency manual that outlines the potential "events" and "responses."   As a developer or contractor, you can prepare a manual that outlines how your company and employees should respond to a work site accident involving a fatality, or unusually severe weather, or other "unexpected" event.
  • Build the "right" culture of leaders, management and employees.  For Reed, this meant being purposeful in getting "the right people on the bus" or finding competent leadership.  It also meant creating an environment where the workforce loves their work and the customers they serve!  Just like the hotel industry is based upon customer service and satisfaction, so too is your construction company, property management group, or banking institution.
  • Communication has to be direct and honest during an emergency.  Reed and his staff learned that some of the information being reported about the status of the flood was flawed.  In one communication, he heard that the river was rising and that they had problems.  In another communication, he heard that water levels had ceased and he did not have to worry.  The lesson for Reed: "You cannot rely 100% on the information given to you."  But the lesson was also equally clear that the information that his company had to report needed to be direct and honest in all respects.  Some of the guests were not happy to have been evacuated late in the evening on Sunday night. When Gaylord reported that the hotel lobby was six feet underwater, Reed said, "You could have heard a pin drop.  It was at that moment these customers realized that this was, indeed, really serious."  
  • Out of chaos comes opportunity.  This was perhaps Reed’s best advice, commenting: "We are a better company because of what we went through."  The chaos of the flood and the more than $20 million in renovations have given Gaylord an opportunity to be a stronger and more successful company.  Although more than 1,700 employees were laid off, it gave Reed and his leadership an opportunity to do the right thing by offering severance pay and three months of health care.  Many of those employees look forward to the coming months as the company begins to rehire up to 80% of its former employees.

Reed concluded that if Gaylord didn’t have the right plans, adequate resources and amazing people during this crises, things would have been wholly different.  Gaylord intends to spend millions to celebrate its re-opening in style in November.

Image: mas90guru

It can be a daunting task to mine through the federal and state laws, regulations and court decisions to determine what rights and remedies you may have as a disappointed bidder on a public project.   In a case involving a state university construction project, the Ohio Supreme Court recently provided a good road map of what do in such situations.

Ohio Supreme Court Provides Road Map to Rejected Bidders

In Meccon, Inc. v. University of Akron (pdf), a contractor sought a temporary restraining order and other relief resulting from the university’s failure to award it the HVAC contract.  The facts of Meccon are intricate because the project involved multiple scopes of work that could be submitted by offerors as stand-alone bids or combined bids.  Ultimately, the contractor alleged that the university wrongfully awarded three of the stand-alone bids to the awardee—after the awardee had withdrawn its combined bid—which was in violation of the university’s own "Instructions to Bidders" documents and public bidding statutes.  The contractor sought injunctive relief, as well as damages for its bid-preparation costs. 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;} Normal 0 false false false MicrosoftInternetExplorer4  

On appeal, the Supreme Court of Ohio concluded that when a rejected bidder establishes that a public authority violated state competitive-bidding laws in awarding a public-improvement contract, that bidder may recover reasonable bid-preparation costs as damages if: (1) the bidder promptly sought, but was denied, an injunction to suspend work on the project pending resolution of the bid dispute; and (2) it is later determined that the bidder was wrongfully rejected and injunctive relief is no longer available.  [Note: You can view the oral arguments before the Ohio Supreme Court by clicking here.]

Wow.  That’s a mouthful!  What does that practically mean? The decision provides a useful road map for what the court called "mitigation of damages" in a public contract.  For instance, if a rejected bidder alleges that the public authority violated its competitive-bidding laws, the bidder should immediately seek injunctive relief from the court or agency to stop the award of the contract to the successful bidder.

If the request is granted, then the wrongfully rejected bidder will have avoided the damages that would otherwise flow from the wrongful conduct by the public authority.  If the request is denied, then that means the allegation of "wrongful conduct" by the public authority will not be determined until a later date after a full hearing on the merits.  Absent the temporary restraining order or preliminary injunction, the rejected bidder will never be able to perform because work will have commenced or will be completed.  Under the Meccon decision, the rejected bidder is entitled to recover reasonable bid-preparation costs where it seeks, but is denied, injunctive relief and it is later determined that the bid was wrongfully rejected.

Hat tip to fellow colleague Mark Leach for sending the case!

Image: Michael Meiser

Angela R. Stephens

 Today’s guest post is by Angela Stephens, a fellow construction attorney in the Construction Service Group and Green Law Group at Stites & Harbison PLLC. She is a LEED Accredited Professional and is the first attorney in the Commonwealth of Kentucky to achieve Green Advantage® certification.

 Sustainable Design and Construction raises unique legal issues for all parties who touch the project. It affects sureties, insurance companies, banks, owners, design professionals, contractors, subcontractors, material suppliers, vendors, and their respective employees.

Design professionals should work with the owner and contractor to develop sustainable goals that are attainable. Owners and banks want to be sure that they have adequate remedies in case costs exceed what was promised, tax incentives which were being sought by having a sustainable and energy efficient building are lost, or if the design or construction of a project does not result in LEED Certification.

Contractors and subcontractors need to make sure that they understand the unique requirements for “green” projects such as: (1) following the Erosion and Sedimentation Control Plan adopted for the project, (2) avoiding disturbance of more areas than necessary or allowed by LEED on previously undeveloped land, (3) properly installing the right materials (i.e. materials with low VOC limits, high SRI values, which are recycled, reused, regional, or renewable) and equipment, (4) protecting materials and equipment during construction from moisture or construction debris, (5) collecting and submitting the required documentation for those materials, and (6) following the waste management plan for recycling construction waste materials. If a contractor fails to comply with one of these requirements which was tied to a sustainable goal or point needed for certification, then it may be liable for any resulting damages suffered by the owner.

Owners, design professionals, and contractors want to make sure that they have adequate insurance coverage in place to cover any potential risks. However, insurance companies are still evaluating whether special coverage is needed on sustainable design and construction projects; only a few companies are currently offering specialized coverage for “green” projects. In addition to obtaining insurance coverage to help minimize the risks to your company, here are some ways to minimize the potential legal risks of sustainable design and construction.

  1. Don’t Promise More Than You Can Deliver.  In addition to environmental stewardship, there are many recognized benefits to sustainable design and construction such as energy and operational cost savings, healthier workspaces, increased worker productivity, increased tax incentives, and financing incentives. However, what happens when your marketing materials promise or guarantee these benefits and they are not realized or there is a dispute over whether these benefits are actually realized? The parties may end up in a dispute alleging breach of an express or implied warranty, fraud, false advertising, or other similar claims. The key is to monitor your marketing activities. Only promise what you can measurably deliver, and include clauses in your contracts which limit all warranties to those expressly provided in the contract.
  2. Don’t Guarantee the Level of Certification. Likewise, if you are a contractor, subcontractor or design professional, do not guarantee the level of certification on any project unless required by law. In many cases, the determination of whether a project achieves a certain level of certification is regulated by a third party over which you have no control. For example, under the Leadership in Energy and Environmental Design (LEED) Green Building LEED Rating System, owners who want to design and construct a LEED certified building must first register the construction project with the Green Building Certification Institute (“GBCI”), a third party responsible for project registration and LEED certification. During the design and construction phase of the project, the project team submits documentation to the GBCI, through LEED Online, verifying that certain points have been achieved. Ultimately, the GBCI determines whether various points are achieved in order to reach the various levels of LEED certification. Therefore, instead of guaranteeing a certain level of certification, warrant that the work will be in accordance with the contract, the plans and specifications, and accepted industry standards.
  3. Identify the Participants, Their Roles, and Their Responsibilities.  Many disciplines are involved in achieving a project’s sustainable goals (whether obtaining LEED Certification or following the guidelines of the Green Globes rating system). On most sustainable construction projects, no one party is in control of obtaining all of the points or goals. The parties must collaborate and work together in order to obtain the project’s goals. Most importantly, the parties must understand who is responsible for all of the aspects of meeting the project’s goals. For example, if the owner’s goal is LEED Silver Certification, the parties should create a version of the LEED 2009 score card which clearly identifies which parties will be responsible (i.e. architect versus the general contractor and subcontractors) for achieving the various points sought within LEED 2009, and make this document an addendum to each of the contracts on the project. Additionally, owners and contractors should select an experienced green building team and consider inserting clauses in their contracts affirming that the contractor and/or subcontractor have read, understands, and will comply with the LEED or green requirements for the project.

To continue reading Angela’s post and learn about the seven other tips, please click here.

Depending on where you live, owners of construction companies may have a new dilemma to address with their employees: medicinal marijuana.  The conflict puts the company’s safety and employment policies often dictated by federal law directly up against what may be an individual’s rights under state law. 

Medicinal Marijuana versus Construction Safety Policies

Stephanie Simon reports in this morning’s Wall Street Journal about this drug dilemma in the work place:

Fourteen states and the District of Columbia have laws or constitutional amendments that allow patients with certain medical conditions such as cancer, glaucoma or chronic pain, to use marijuana without fear of prosecution. The Obama administration has directed federal prosecutors not to bring criminal charges against marijuana users who follow their states’ laws.

But that can put employers in a difficult position, trying to accommodate state laws on medical marijuana use while at times having to enforce federal rules or company drug-use policies that are based on federal law.

That is precisely the problem for today’s construction company, many of whom have rigid drug free work policies that include prohibitions against: 

  • the use, sale, manufacture, distribution, dispensing,  and possession of illegal drugs and drug paraphernalia;
  • the abuse of prescription and/or over-the-counter (OTC) drugs; and
  • the use and/or abuse of alcohol, or reporting to work while under the influence of alcohol or any illegal drug. 

In many instances, a violation of these provisions allows the employer to discipline the employment, including and up to termination of employment.

But what about those states that allow use of medicinal marijuana?  As noted in the WSJ report, it will depend entirely upon state law and the courts’ interpretation of that law.  For example, the courts in Oregon, California and Montana and the Washington have all ruled that employers have a right to fire medical-marijuana patients for using the drug.  However, the courts in Maine and Rhode Island have held that an employer cannot penalize an employee simply because of his status as a medical marijuana patient.  In Michigan, the law says that registered patients shall not be "denied any right or privilege" or face disciplinary action at work because they use pot.  There is an exception where employers do have the right to terminate workers who use marijuana on site or come to work high.

What can you do to protect your company? (1) Check you state’s law on the use of medicinal marijuana; (2) review your employment and safety policies to make sure you have adequate protections for your employees and to maintain job site safety; and (3) make sure to train your management to observe employee behavior.  The real danger is having an employee come to work "high" or in an intoxicated state.

Image: Joseph Leonardo

For years, I have paid my homeowner’s association dues.  Recently, my neighbors selected me to serve on the board (… I was unopposed and I had to promise to name my next child after the development … ).  I have even been involved as counsel in a number of HOA disputes over the past few months.  In Tennessee, the only thing you need to know is that the courts will enforce those HOA covenants.

HOA Restricts Construction of Fence

Last week, the Court of Appeals issued its opinion in Hershey v. Cathey (pdf), a dispute involving the HOA’s Architectural Control Committee.  When the defendants began construction of a fence on both of their lots, the HOA filed a lawsuit to stop the construction.  The HOA claimed that the defendants had not obtained approval to erect a fence and that the fence was not in compliance with the applicable restrictive covenants. The defendants asserted that they obtained the required approval and that strict compliance with the restrictions had been waived.

The trial court held the following: (1) that plans and specifications were required to be submitted to the Architectural Control Committee for its approval; (2) that no plans or specifications were ever submitted; and (3) that the defendants had not obtained the requisite approval to construct the fence at issue.  Accordingly, the trial court entered an order requiring the defendants to remove the fence and to comply with the Architectural Control Committee restrictions.  The appellate court affirmed that ruling.  Here are two lessons from the case: 

First, the courts will enforce HOA covenants.  Whether you are a new homeowner or you are one of the leaders in a homeowner association, you must read your restrictive covenants.  The architectural guidelines may be strict or broad, depending on how they are written.  The court is going to look to the express language of the covenant to resolve any disputes. 

Second, you must prove your case at the trial court.  The decision by the appellate court in Hershey was based largely upon the factual findings of the trial court.  Indeed, the appellate court wrote: "The trial court made a specific finding of fact that Defendants did not obtain approval to build the fence."  The appellate court presumes factual findings are correct unless the preponderance of the evidence is otherwise. 

Image: glen edelson

You may have noticed that I recently transitioned to a new law firm this week.  I am happy to announce that I have joined Stites & Harbison PLLC as a partner in the Construction Service Group and the Green Law Practice Group.  The past few weeks have seemed like a tropical storm … and the only thing to do is ride the waves of change.

Riding Waves of Change

What do I mean by riding the waves of change?  As a construction attorney for the past ten years, I have realized that the industry is always in a state of flux.  During strong economic times, I have a lot more contract drafting and project administration work.  During hard economic times, I have a lot more construction litigation and mechanic’s liens.  I’ve learned to adjust to the circumstances to meet the needs of my clients.

Whether you are dealing with a new safety policy on the site,  a difficult personality on the design team, an estimate error that is going to affect the bottom line, or even a potential transition to a new job, here are a few things you can do to ride the waves of change:

  • Understand that change is going to happen.  Whether you are talking about your professional career or your personal life, there will be change.  You can count on it.  I can guarantee it.  Most of the time, those people who fail to recognize change have the hardest time adjusting to it.
  •  Understand that change and your responses will come in stages.  Consider a fatal workplace accident.  Undoubtedly, your construction company will go through numerous changes in response to this incident, including the initial shock of the accident, feelings of potential guilt, assessment of safety measures, analysis of liability, and the transition of duties and potential change in policies.  Change of any sort comes in stages.
  • Understand that communication leads to success.  Communications is always important, but it is especially important when you face change.   Practically speaking, you need as much information about the change as possible, so that you can make an intelligent decision. Talk to your boss, your boss’s boss, and your co-workers to get their understanding of the situation. Be honest in all your discussions and deal with the problems when they arise.
  • Understand that flexibility is good.  Change requires flexibility and the ability to adapt.  The better able you are to respond to change, the more likely you will succeed. Make an assessment of the situation, identify potential outcomes, plan and develop a response strategy, and then begin to ride the wave.  Maybe your current job isn’t what you expect?  Perhaps the new workplace policy strains the ingenuity of your employees? Try to be flexible with an understanding of the potential outcomes.  Part of the fear of change often involves dealing with the unknown.

In my situation, communication and flexibility on everyone’s part has enabled a good transition.  I am sad to leave such a well-respected practice in Nashville.  However, by joining one of the oldest law practices in the nation and among the largest law firms in the Southeast region, I am thrilled at the opportunity to help build one of the strongest construction groups in the Southeast.  I will miss all my former colleagues … but who knows … I may see them in court!

 Image: Michael Dawes

Last night, the evening news reported that Tennessee House Democrat Leader Mike Turner planned to file a complaint with the Department of Labor, alleging that "one of the contractors working on the Music City Center project is hiring illegal immigrants."  Turner stated that he received the information from an inside source.

 Music City Center

While there may be muchos problemas on the Music City Center, this is a good time to review the state’s laws on use of immigrant labor on public projects.  Here is what the law requires:

  • 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.

 

Update: Thanks for friendly reader Emily for pointing out that there is no such thing as muchas problemas and the correct phrase is muchos problemas.  Gracias Emily!

Image: Nashville Chamber of Commerce