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Eastern District of Pennsylvania Grants General Contractor’s Summary Judgment Claims Based on Releases

On March 23, 2016, the United States District Court for the Eastern District of Pennsylvania granted a general contractor’s summary judgment motion as to a subcontractor’s claim against it as well as its own claim against the subcontractor. In doing so, the Court addressed the importance of construction lien waivers and releases and the practical importance of raising performance and interference issues in a timely fashion. In Bricklayers & Allied Craftworker Local 1 of PA/DE, et. al. v. ARB Construction, Inc. et. al,  the School District of Philadelphia (“Owner”) hired Ernest Bock & Sons, Inc. (“EBS”) as the general contractor for a construction project at the General Phillip Kearney School (the “Project”). Subsequently, EBS hired Arb Construction, Inc. (“AC”) to supply all labor and materials to complete the masonry portion of the Project at a cost of $777,500.00. The subcontract terms at issue involved termination and payment. EBS had the right to terminate AC and/or subsidize AC’s work following 48 hours of written notice if EBS determined AC (1) delayed the project; (2) provided faulty workmanship; (3) failed to provide acceptable supervision, or (4) failed to pay its subcontractors or suppliers. The payment terms of the subcontract required AC to certify payrolls and release claims and liens with payment applications, among other things.  Important to this action, AC was required to supply a release of liens from “subcontractors/ suppliers and any labor/union organizations before payment is made.” Along with each payment application, AC submitted the release of liens and certified payrolls, signed and notarized by AC’s owners. These releases certified that AC had paid “all taxes, welfare and pension fund payments, and fringe benefits.” AC hired members of the Bricklayers & Allied Craft Workers, Local 1 (“Bricklayers”) to fulfill its labor obligations under the contract. Despite certifying it complied with the union fund obligations on the payment applications, AC was delinquent on its payments to the Bricklayers. Additionally, AC failed to provide a sufficient number of masons to complete the work in accordance with the Project schedule. EBS received multiple complaints from the Owner about AC’s work and the delay it was causing. AC claimed the delay was the fault of EBS, who AC alleged had failed to properly prepare the Project for the masonry phase. AC also claimed it was forced to expend its own resources to correct errors made by other subcontractors. EBS notified AC it had 48 hours to increase its manpower, which it did by hiring another subcontractor. Subsequently, the Bricklayers stopped supplying masons to the Project because AC was still delinquent in its payment obligations to the benefit funds. EBS declared AC in breach of the contract and terminated the agreement. AC claims the termination was wrongful, as it was delayed because of EBS’ failure to properly manage the Project. The Bricklayers filed suit against AC for its failure to pay contributions in violation of the collective bargaining agreement (“CBA”). AC in turn filed a third-party complaint against EBS, claiming it breached the subcontract by failing to pay money it owed to AC. EBS in turn counterclaimed against AC for breach of the subcontract. After discovery, EBS moved for summary judgment on AC’s breach of contract claim against it as well as its own breach of contract claim against EBS. First, EBS argued it was entitled to summary judgment on AC’s breach of contract claim because AC released all of its claims against EBS. In the alternative, AC failed to provide releases from its own subcontractors to EBS, which was a condition precedent to payment. The Court agreed, holding that EBS was entitled to summary judgment on AC’s breach of contract claim because AC released all claims it could have asserted through the signed releases. The releases were clear and unequivocal, and released all claims prior to the signing without preservation or exception. AC argued that the releases were unenforceable because EBS failed to provide it with a construction work schedule or a proper work area layout and failed to supervise other subcontractors who interfered with its work. Finally, AC argued that the releases were unenforceable because EBS failed to make full payment on the payment applications. The Court rejected AC’s defenses. If AC had an issue with accounting issues or interference with performance, it had “clear options.” AC could have accepted payment and noted its objection on the application, or refused payment and refused to sign the accompanying release. Because AC did neither, it released its claims. Further, the fact that the notarization of the Releases did not adhere to Pennsylvania law did not render the Releases unenforceable. Second, EBS moved for summary judgment on its counterclaim, asserting that AC breached the contract by 1) failing to supply adequate manpower and materials; 2) falsely certifying payment; 3) failing to timely complete its work; and 4) submitting non-compliant payment applications. Because the undisputed evidence demonstrated AC’s failure to comply with these terms, EBS was granted summary judgment on its own claims. The Court held that there was a genuine issue of fact however, with respect to calculating the damage amounts. The takeaway point in Bricklayers is the importance of construction lien waivers and releases. The Court will interpret these as a “contract within a contract,” and they are regularly enforced in accordance with their terms. You should not assume that a waiver is limited to Mechanic’s Lien rights; depending on the language in the waiver, signing a waiver may constitute a release of all rights you may have for payment or performance issues during that particular phase of the work. As the Court noted, if you have an issue with performance and/or payment, you have options. This Court concluded that AC could have accepted payment and noted its objection on the application or refuse the payment and refuse to sign the release. When you sign the waiver and/or release, you will typically be held to those terms.

Tagged:  Breach of contract, Construction, Construction Contracts, Construction lien waiver, Release, Summary judgment, Waivers

OSHA Fine Increases to Take Effect on August 1 but Increased Fines Could Apply to Inspections Occurring Now

As previously reported in Babst Calland’s November 2015 Employment Bulletin, a little-noticed provision in the recent federal budget permits the Occupational Safety and Health Administration (“OSHA”) to raise its monetary penalties by nearly 80%.  The increase in fines – the first since 1990 – will take effect on August 1, 2016.  However, because OSHA has six months to issue a citation after an inspection, the increased penalties could be applied to inspections occurring now. More information about the OSHA fine increases as well as other employment related issues that impact the construction industry may be found in Babst Calland’s regularly issued newsletters as well as on this blog.

Tagged:  Industry news, OSHA Regulations

Babst Calland Attorneys Attend Prompt Pay Task Force Coalition Meeting to Discuss Amendments to Pennsylvania’s Contractor and Subcontractor Payment Act

On April 5, 2016 Babst Calland Attorneys Robert Palumbi and Marc Felezzola attended a Prompt Pay Task Force Coalition meeting in Harrisburg organized by the American Subcontractors Association’s Central Pennsylvania Chapter to discuss House Bill 726 of 2015 (“HB 726”). The meeting attendees discussed the proposed legislation, its practical impact on Pennsylvania’s construction industry. In addition to discussing the as-drafted legislation, meeting participants worked together to prepare proposed changes to the language of HB 726 aimed at clarifying the existing language and placing a cap on the percentage of retention that can be withheld in private construction. HB 726 is currently before the House Commerce Committee. We anticipate that the Committee will vote upon the Prompt Pay Coalition’s recommended changes to HB 726 at its regularly scheduled meeting in May. Babst Calland will continue to track HB 726 and provide updates on this blog.

Tagged:  CASPA, Construction Economics, Contract Clauses, Industry news

Proposed Legislation to Address Utility Delays on Pennsylvania Construction Projects

Our firm recently presented to members of the National Utility Contractors Association of Pennsylvania (“NUCA of PA”). The presentation summarized recent testimony offered by NUCA of PA to the Pennsylvania Senate Transportation Committee aimed 1) to educate the Legislature on the delays routinely experienced by contractors as a result of the relocation of a utility company’s facilities located within public rights-of-ways on state road, bridge, and utility construction projects and 2) to offer potential solutions to help minimize delays and reduce the costs of such delays.  The focus of the testimony was to address 1) delays that result from a utility company’s mismarking or failure to disclose utility lines in response to a Pennsylvania One Call request and 2) delays by utility companies in relocating facilities that must be moved to allow construction to proceed.  Given the tremendous cost impacts to contractors that experience delays to their construction projects resulting from the delays described above, NUCA of PA is seeking legislative action which would provide avenues of recourse for recovery of their costs by contractors.  Several potential solutions were addressed.  One solution calls for revisions to Pennsylvania’s Underground Utility Line Protection Act, known as the Pennsylvania One Call Law, 73 P.S. §§ 176, et seq.  A second solution seeks the creation of a statutory negligent misrepresentation claim against utility companies which would essentially expand the Supreme Court of Pennsylvania’s Bilt-Rite ruling.  A third solution would provide financial incentives to utility companies that perform their locating and relocating work in a timely manner.  Finally, a discussion centered upon making provisions such as those found in PennDOT’s Form 408 Specifications, relating to both differing site conditions and utility delays, mandatory for all construction projects in Pennsylvania. NUCA of PA is seeking suggestions and prior experiences from contractors to share with legislators and lobbying consultants in its effort to enact legislation which would benefit contractors throughout the Commonwealth.  Please feel free to share those suggestions and stories with Richard Saxe or you can contact NUCA of PA’s Executive Director, Brenda Reigle, directly at ed@nucapa.org or (717) 234-8055.

Tagged:  Bilt-Rite, Construction Legislation, Industry news, NUCA of PA, Pennsylvania One Call, Utility Delays

Governor Wolf’s Executive Orders Protect Employees of Government Contractors from Sexual Orientation, Gender Identity Discrimination

The employees of government contractors now have much greater protection from discrimination on the basis of sexual orientation and gender identity. In response to the General Assembly’s delay in passing the Pennsylvania Fairness Act (a bill intended to broaden protections available to all Pennsylvania workers that has seen no progress since it was referred to the State House on September 8, 2015), Governor Tom Wolf took action on April 7, 2016, signing two executive orders that protect not only state employees, but also employees of contractors doing business within Pennsylvania. The first executive order, Order 2016-04, prohibits discrimination against “any employee or applicant for employment on the basis of race, color, religious creed, ancestry, union membership, age, gender, sexual orientation, gender expression or identity, national origin, AIDS or HIV status, or disability.” Order 2016-04 is premised on the belief “that the employment practices of the Commonwealth of Pennsylvania must be nondiscriminatory in intent and effect to promote public confidence in the fairness and integrity of government.” In addition to prohibiting discrimination, Order 2016-04 bans sexual harassment based on the above-referenced bases and empowers the Secretary of the Administration to “supervise the development, implementation, and enforcement of the Commonwealth’s equal employment opportunity programs through the Bureau of Workforce Planning, Development, and Equal Opportunity.” Order 2016-04 rescinds and replaces Executive Order 2003-10. The second executive order, Order 2016-05, guarantees that “discrimination by reason of race, gender, creed, color, sexual orientation, or gender identity or expression does not exist with respect to the award, selection, or performance of any contracts or grants issued by Commonwealth agencies.” Order 2016-05 is premised on Pennsylvania’s continued commitment “to promoting the prosperity and economic growth of all businesses and citizens of the Commonwealth of Pennsylvania, regardless of race, gender, creed, color, sexual orientation, or gender identity or expression,” and designates “the Department of General Services as the central agency to develop and manage Commonwealth agency programs to ensure that discrimination . . . does not exist with respect to the award, selection, or performance of any contracts or grants issued by Commonwealth agencies.” Order 2016-05 rescinds and replaces Executive Order 2006-02. Governor’s Wolf’s actions are intended to demonstrate Pennsylvania’s direct opposition to the recent North Carolina Bill requiring transgender individuals to use public restrooms corresponding to the biological sex on their birth certificate, as well as a Mississippi Bill allowing businesses to deny service to homosexual customers based on religious grounds. According to Governor Wolf, the passage of the North Carolina Bill, coupled with the stagnation of the Pennsylvania Fairness Act, is “a call to pass non-discrimination legislation in Pennsylvania now.” The passage of both executive orders garnered widespread support from a variety of anti-discrimination organizations, including the ACLU, the Anti-Defamation League, Equality Pennsylvania, the Human Rights Campaign, the National Gay & Lesbian Chamber of Commerce, as well as Philadelphia Mayor Jim Kenney and Philadelphia’s City Council.

Tagged:  Breach of contract, Construction Contracts, Contract Clauses

Babst Calland’s Construction Law Year in Review seminar

Final reminder -- it is not too late to RSVP to Babst Calland’s annual Construction Law Year in Review seminar, which will be held tomorrow, Thursday, March 10, 2016 at the Doubletree Hotel in Greentree, beginning with a continental breakfast at 7:30 a.m., followed by the seminar from 8:00 a.m. to 10:00 a.m. Speakers will include Kurt Fernsler, Matt JamesonJim Miller, Rich Saxe David White, John McCreary and Kevin Douglass. This seminar qualifies for two (2) PA CLE credits.  We hold this annual seminar as a service to our clients and prospective clients.  This complimentary seminar will provide an overview of 2015′s significant construction law developments (both statutory and case-law). This year’s topics include:  contractor claims against design professionals, legal issues impacting closely-held construction companies, mechanics' liens, revisions to the AAA Rules for Construction Arbitration, Public Construction Project issues, and Pennsylvania Payment Acts. For more information or to RSVP, please e-mail Matt Jameson.

Tagged:  Seminars

PA Superior Court Affirms Decision Limiting Mechanics’ Liens on Multiple Parcels

On January 29, 2016, in a non-precedential opinion, the Pennsylvania Superior Court affirmed a decision by the Lycoming County Court of Common Pleas that limited a contractor’s ability to obtain a Mechanics’ Lien for work performed on multiple parcels of land.  In Linde Corp. v. Black Bear Prop., LP, 2015 Pa. Dist. & Cnty. Dec. LEXIS 389 (Pa. County Ct. 2015), the trial court decided the following issues: (1) who was the true owner of four parcels of land located in Lycoming County for the purposes of filing a Mechanics’ Lien; and (2) whether all four parcels were eligible for inclusion in the Lien. Black Bear Property and a number of its subsidiaries and/or related entities (collectively “BB”) hired Linde Corporation (“Linde”) to construct a pumping station on three parcels of land in Lycoming County. The pumping station was designed to draw water from the Lycoming Creek for sale to companies involved in hydraulic facturing operations. Electrical wiring providing the completed pumping station with power was routed through an existing structure on a fourth parcel, Parcel 151, which was contiguous to the three parcels on which the pumping station was actually built. Linde sought to impose a Mechanics’ Lien on all four parcels after it completed its work on the pumping station but was only partially paid. Stewart Dibble was the previous owner of the three parcels on which the pumping station was built, and had apparently agreed to transfer ownership of those parcels to BB for a 25% ownership interest in the BB entities. BB argued at trial that Linde’s Mechanics’ Lien was invalid because Linde’s contract was with BB, a tenant, not the owner, Dibble. See 49 P.S. § 1303 (stating that “[n]o lien shall be allowed against the estate of an owner in fee by reason of any consent given by such owner to a tenant to improve the leased premises unless it shall appear in writing signed by such owner that the erection, construction, alteration or repair was in fact for the immediate use and benefit of the owner”). Dibble never provided such written consent and BB argued that Dibble had an “oral lease” with BB. BB claimed that the final transfer of ownership from Dibble to BB had not occurred (although BB admitted that Dibble did own a 25% interest in the BB entities) because the conveyance was contingent upon the performance of certain occurrences that never transpired. Although a deed memorializing the transfer was executed, it was never recorded or delivered. The Trial Court ultimately determined that Linde’s Mechanics’ Lien was valid because BB was the constructive owner of the three parcels, but declined to extend the lien to Parcel 151. On appeal, the Superior Court affirmed the Trial Court’s ruling. Regarding BB’s constructive ownership of the three parcels, the Superior Court confirmed that the Trial Court’s factual findings adequately demonstrated that BB was an owner, not a lessee. Specifically, the Trial Court repeatedly determined that BB’s witnesses lacked credibility and regularly offered contradictory and confusing testimony regarding the terms of Dibble’s supposed “oral lease” to BB. Additionally, the Trial Court noted that, in a companion case filed in Luzerne County, BB specifically asserted that Dibble held no ownership interest in the three parcels. Finding no error of law in the Trial Court’s findings or rationale, the Superior Court affirmed that BB was the constructive owner of the three parcels and that Linde’s Mechanics’ Lien was proper. Regarding the inclusion of Parcel 151 in the Lien, the Trial Court held that Linde was only entitled to include the value of the work relating to the electrical wiring in the amount of the Lien. Under 49 P.S. § 1201, “improvements” eligible for inclusion in Mechanics’ Liens include work relating to “furnishing, excavating for, laying, relaying, stringing and restringing ... wires, whether on the property improved or upon other property, in order to supply services to the improvement.” Yet because the Lien Law draws a distinction between work performed on the property itself and work benefitting “other property,” the wiring was not an improvement to Parcel 151 because the work was performed in order to supply services to the improvement – the pumping station – located on a different parcel. Furthermore, the wiring work did not rise to the level of an “improvement, substantial additional, or adaptation of an existing improvement” sufficient to justify the inclusion of the entirety of Parcel 151 in the Lien. The wiring providing electricity to the pumping station was run through a junction box that previously existed in the structure on Parcel 151. Therefore, the wiring did not affect a material change to Parcel 151 or the previously existing structure and the work was incidental to the property. After determining that precedent cited by BB did not apply to the instant situation because Parcel 151, while joining the other three parcels, was not directly affected by the improvements at issues and received no demonstrable benefit therefrom, the Superior Court affirmed the Trial Court’s holding. Points to keep in mind: (1) a party may be deemed the constructive owner of property subject to improvements even in the absence of a recorded or delivered deed; and (2) a parcel of land may only be subjected to a lien if the relevant work and improvements associated convey a demonstrable benefit to that parcel.

Tagged:  Mechanics' lien

Pay Transparency Rule for Federal Contractors to go into Effect on January 11

On Monday, January 11, 2016, Executive Order 13665 on pay transparency went into effect. It prohibits covered federal contractors and subcontractors from discharging or otherwise discriminating against employees who inquire about, discuss, or disclose their compensation or the compensation of another employee or applicant. The Office of Federal Contract Compliance Programs (“OFCCP”) has made clear that contractors are not required to disclose compensation information to applicants or employees; rather, voluntary disclosure of such information can no longer be a basis for taking adverse action against any employees choosing to do so.  OFCCP’s implementing rule (the “Rule”) applies to any employer having federal contracts or subcontracts totaling more than $10,000 in any 12-month period, which are entered into or modified after January 11, 2016. The Rule also contains two exceptions. First, an employee may still be required not to disclose compensation information he or she obtains in the course of performing his or her “essential job functions.” For example, if an employer disciplines an HR employee for disclosing compensation information to others, such adverse action will not amount to discrimination under the Rule. Second, an employer may still discipline an employee for violating a “workplace rule” – even if, during the course of violating the workplace rule, the employee made inquiries or disclosures related to compensation. This may include, for example, a situation where an employee is late because he or she exceeded an allotted break time while discussing compensation. In that case, the employer may take adverse action, as long as the employer consistently and uniformly applied this workplace rule. Finally, the OFCCP’s Pay Transparency Policy Statement (see Executive Order 13665, Sec. 2)   must be included in employee manuals or handbooks and disseminated to employees on or after January 11, 2016. Contractors and subcontractors with federal contracts or interested in federal projects would do well to review any policies, practices and personnel documents implicated by the Rule and provide training for management and human resource employees in light of the Rule’s requirements.

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Proposals Submitted to PennDOT for CNG Fueling Station P3 Project

On January 4, 2016 the three shortlisted proposers competing to enter into a public-private partnership (a "P3") with the Pennsylvania Department of Transportation ("PennDOT") submitted their proposals.  The award of the P3 contract, which calls for constructing 27 compressed natural gas ("CNG" fueling stations) along the Commonwealth's public highways as well as making modifications to transit agencies' vehicle maintenance and storage facilities, is expected to come sometime in February or March of 2016. The goals and objectives of the Project include
  • Providing cost-effective CNG fuel availability to enable transit fleets to switch from diesel and gasoline to CNG;
  • Achieving operational cost savings for transit agencies;
  • Reducing greenhouse gas emissions;
  • Providing retail CNG fueling to the public (where feasible); and
  • Establishing consistency between transit agencies for the deployment of CNG fueling infrastructure.
To accomplish those goals and objectives PennDOT is seeking a private partner that will make the necessary utility upgrades, compress gas and make it available for fueling for transit agencies and third parties, and operate and maintain fueling stations.  The private entity will be compensated for its capital and operational costs but will be subject to PennDOT for liquidated damages in the event it fails to perform and will pay royalty payments to PennDOT based on third party sales of CNG. As of October 2015, twenty three regional transit agencies opted into the CNG program and were divided into three tiers (Tier 1 includes five transportation agencies, Tier 2 includes seven transportation agencies, and Tier 3 includes eleven transportation agencies).  CNG facilities for Tier 1 agencies have completion deadlines between fall 2016 and spring 2017, CNG facilities for Tier 2 agencies have completion deadlines between spring and summer 2017, and CNG facilities for Tier 3 agencies have completion deadlines between fall 2017 and spring 2021. More information about the CNG Fueling Station P3 Project, including a list of the shortlisted proposers and their partners, can be found by visiting PennDOT's CNG Fueling Station website.

Tagged:  Construction Contracts, Industry news, Public Construction Projects, Public-Private Partnerships (P3)

Complaints for Judgment on Mechanics’ Lien Claims Do Not Need to be Filed at a Different Docket Number than the Mechanics’ Lien Claim

In a case probably anticipated more by construction attorneys than their clients, the Pennsylvania Supreme Court in Terra Technical Servs., LLC v. River Station Land, L.P., 2015 WL 5703011 (Pa.  Sept. 29, 2015), reviewed the procedural issue of whether a complaint for judgment on mechanics’ lien claim must be filed at a different docket number than the mechanics’ lien claim that initiated the mechanics’ lien action. While the issue seems minor and a mere technicality on its face, it posed a significant problem across the Commonwealth because a customary practice is to file the complaint at the same docket as the lien claim to save the client from paying an additional filing fee and to confine the entire case record to a single docket.  The lower courts in this case, however, held that this practice was improper and warranted dismissing the mechanics’ lien complaint.  This decision came as a surprise to many construction law practitioners.  Although dismissal in many instances would just lead to the filing of the complaint at a different docket, it would prove fatal to the mechanics’ lien claim if the two-year period for filing a complaint for judgment on the mechanics’ lien claim, 49 P.S. 1701(b), had passed prior to the dismissal. The Pennsylvania Supreme Court avoided this potentially significant procedural dilemma when it reversed the lower court’s order, holding that neither the Pennsylvania Mechanics’ Lien Law nor Pennsylvania Rules of Civil Procedure 1651–1661 related to mechanics’ lien actions require filing a complaint for judgment on a mechanics’ lien claim at a separate docket number than the mechanics’ lien claim.  Specifically, the Court stated “we conclude there is no support for the proposition that because actions upon mechanics' liens are comprised of two separate phases it follows that [the Lien Claimant’s] claims and its subsequent actions to obtain judgment upon them must have been entered at separate dockets, maintained in separate files, and identified with separate court terms and numbers.”

Tagged:  Mechanics' lien, Pennsylvania Supreme Court