Awards of Attorneys’ Fees and Statutory Penalties are “Discretionary” even when the Government acts in Bad Faith

Awards of Attorneys’ Fees and Statutory Penalties are “Discretionary” even when the Government acts in Bad Faith

In A. Scott Enterprises Inc. v. City of Allentown, the Pennsylvania Supreme Court held that an award of statutory interest and attorneys’ fees under Section 3935 of the Procurement Code is not automatic even where a jury finds the public owner to have withheld payment in bad faith. Rather, the decision to issue such an award is within a judge’s discretion.

This case arose out of a contract awarded by the City of Allentown to A. Scott Enterprises (ASE) to build a public road in 2009. After the discovery of arsenic contamination on site threatened ASE with additional substantial costs to continue with the project, and attempts to negotiation a continuation of the project failed, ASE sued the city to recover its losses. At trial, ASE presented evidence Allentown was aware of possible contamination when it entered a contract with ASE, and failed to disclose this to ASE or incorporate terms regarding this possibility into the parties’ contract. At trial a jury found the city breached its contract and withheld payments in bad faith, awarding ASE $927,299. When ASE motioned the court for an award of statutory interest and attorneys’ fees, the trial court denied ASE’s request outright, without analysis, stating such an award was unwarranted because ASE’s evidence on damages was “conflicting.”

ASE then prevailed on appeal to the Pennsylvania Commonwealth Court, which had held in 2014 that a bad faith finding automatically entitled a contractor to recover its attorney’s fees and the 1% penalty, because, otherwise, “the finding of bad faith is a meaningless exercise with no consequence for the government agency found to have acted in bad faith.” But the Supreme Court ultimately disagreed.

In reversing the Commonwealth Court’s decision, the Supreme Court held “Section 3935 of the Procurement Code allows—but does not require—the court to order an award of a statutory penalty and attorney fees when payments have been withheld in bad faith. The court’s determinations in this regard are subject to review for an abuse of discretion.” The Court also noted “the instances where a finding of bad faith is deemed not to require a Section 3935 award at all presumably will be rare.”

Ultimately, in this case, the trial court’s reliance on the presence of “conflicting” evidence concerning the contractor’s damages alone was insufficient to support its denial of a Section 3935 award outright. For this reason, the case was remanded to the trial court for reconsideration of ASE’s original motion.

Therefore, although an award of attorneys’ fees and/or the 1% penalty under Section 3935 is not “automatic,” a court still must have a reasonable basis for denying such an award against an agency that withheld payment in bad faith. In A. Scott Enterprises, the Supreme Court declined to articulate a test for lower courts to apply in determining whether to enter an award under Section 3935; thus, trial courts are without guidance to determine whether attorneys’ fees and/or penalties must be assessed.

President Obama’s Fiscal Year 2017 Proposed Budget Includes Over $10 Billion for Federal Building Fund

President Obama’s Fiscal Year 2017 Proposed Budget Includes Over $10 Billion for Federal Building Fund

The U.S. General Services Administration (GSA) is the federal government’s real estate manager and director of the government’s real estate investment strategies. The Agency’s FY 2017 funding requests, submitted along with the President’s proposed budget in February, include requests for over $1 billion worth of construction projects in and around the Washington, D.C. area. In addition, GSA is requesting the following funds for infrastructure in Pennsylvania and the region at large:

1. Boyers, Pennsylvania: $31,200,000 for design and related services for the construction of a new federally owned facility of approximately 462,000 gross square feet to provide a long-term housing solution for agencies currently leasing an underground mine location within the area.

2. Philadelphia, Pennsylvania: $52,300,000 for Phase II of a two phase repair and alteration project for the Federal Building (Green Building), located in downtown Philadelphia. The project involves the realignment and reconfiguration of tenant space, and multiple building system upgrades/replacements.

3. Cleveland, Ohio: $15,524,000 for a repair and alteration project to complete, repair, and expand the plaza system at the U.S. Courthouse located in downtown Cleveland. The structural steel that supports the plaza is exposed to the elements and has been since the original construction.

(Here is a complete list of GSA’s proposed infrastructure projects in its FY2017 request.) These anticipated projects, coupled with rumors GSA has started the process of implementing much-needed upgrades to fedbizopps.com (the single government point-of-entry for federal government procurement opportunities), suggests the prospect of federal government projects may become more attractive to companies in the region within the year to come.

Although the appropriations bills ultimately passed by Congress this fall may or may not mirror these infrastructure plans, GSA’s proposal provides insight into its development priorities. We will track Congress’ final appropriations bills and continue providing updates on this blog.

Proposals Submitted to PennDOT for CNG Fueling Station P3 Project

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.

Commonwealth Court Affirms Award of Delay Damages to Government Contractor despite Contract’s “No Damages for Delay” Clause

Commonwealth Court Affirms Award of Delay Damages to Government Contractor despite Contract’s “No Damages for Delay” Clause

The Commonwealth Court recently concluded that a contractor in a Pennsylvania public project can be entitled to delay damages, even if there is a “no damages for delay” clause in its contract, as long as the delay was caused by the government’s “active interference.” John Spearly Construction, Inc. v. Penns Valley School District, No. 2050 C.D. 2014, 2015 WL 4497726 (Pa. Commw. Ct. July 24, 2015).  The Commonwealth Court further concluded that the contractor’s failure to comply with the contract’s formal notice procedure was not fatal to its delay claim.  In Spearly, a school district entered into a contract with several contractors for the design and construction of a biomass boiler system. John Spearly Construction, Inc. was the contractor retained to construct the building that would house the boiler plant.  Spearly’s contract stated that an extension of the contract time shall be the sole remedy against the District or Architect for delays, “unless a delay is caused by the acts of [the District] constituting active interference, as defined under applicable law and subject to the limitations stated herein …”  It also defined “active interference” to exclude the following type of conduct: “[The District’s] exercise or failure to exercise any rights or remedies under the Contract Documents (including without limitation, order changes in the work, or directing suspension, rescheduling or correction of the work), regardless of the extent or frequency thereof, shall not be constructed as active interference with [Contractor’s] performance of the work.”

Under Pennsylvania law, a “no damages for delay” provision like this one is considered an exculpatory clause; subject to stringent standards in order to be enforceable. See Keystone Aeronautics Corp. v. R.J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974).  Thus, the party asserting it must prove, among other things, that the contract: (1) does not contravene public policy; and (2) relates solely to the private affairs of the contracting parties. See Valhal Corp. v. Sullivan Assocs., Inc., 44 F.3d 195 (3d Cir. 1995).  In Spearly, the Court refused to find that the District’s contract was only related to the “private affairs” of the contracting parties.  See also State Pub. Sch. Bldg. Auth. v. Goodea Constr. Co., 24 Pa. D. & C. 3d 648 (Pa. Com. Pl. 1981) (proper construction of public school buildings is a matter of interest to the public or state).  Therefore, the Court construed the contract against the District (i.e., the party seeking immunity) and held that delay damages were available to the contractor since the District delayed the issuance of several change orders.  The Commonwealth Court also held the District was properly attributed responsibility for the actions of “third-parties” where the District had control over the hiring and management of those third parties.  Specifically, a third-party contractor, whose work disturbed Spearly’s access to the work site, and the Architect’s lack of oversight was ultimately attributable to the District.  Finally, the Court concluded that Spearly was not barred from bringing its delay claims by its failure to adhere to the notice procedures for such claims required by the contract. The Commonwealth Court followed the United States Court of Federal Claims’ rationale that a narrow application of notice provisions is not appropriate where the government was aware of the delay.  See Hoel-Steffen Construction Co. v. United States, 456 F.2d 760 (Ct. Cl. 1972).  In light of this decision, contractors should look closely at the cause of any delay on the public construction project before concluding that a delay claim is barred by a “no damages for delay” clause.

West Virginia Amends Public Project Change Order Process then Adopts Emergency Rule Restoring Previous Process

West Virginia Amends Public Project Change Order Process then Adopts Emergency Rule Restoring Previous Process

On July 1, 2015, amendments to West Virginia’s laws governing public construction took effect.  Among the changes ushered in by those amendments was a new requirement that all change orders for public construction be approved by the Purchasing Division of the West Virginia State Government before the contractor could begin the change order work.  Unfortunately, because of the bureaucracy and related delays necessary to obtain approval of a change order by the Purchasing Division, the amended legislation effectively required lengthy stoppages of work on active construction sites and had the potential to result in costly and unfeasible delays at the expense of taxpayers.  Accordingly, less than a month the amendments took effect, on July 31, 2015, West Virginia Secretary of State Natalie Tennant signed Decision 8-15 approving an emergency rule clarifying that change orders related to government construction contracts do not require prior approval from the Purchasing Division.

Accordingly, after the issuance of the emergency rule, the procedure for change orders on public projects has returned to the status quo – public agencies are colored with the authority to approve change orders on behalf of the State but are required to file construction change orders with the Purchasing Division “in a timely fashion.”

A copy of the emergency rule, which includes a revised version of Title 148, Series 1 (i.e. the “Legislative Rule” governing public procurement in West Virginia) may be found here.

Pennsylvania Department of Transportation Announces New P3 Project to Construct 37 CNG Fueling Stations

Pennsylvania Department of Transportation Announces New P3 Project to Construct 37 CNG Fueling Stations

On September 29, 2014, the Pennsylvania Department of Transportation (“PennDOT”) issued a press release announcing that the Pennsylvania Public-Private Partnership (“P3″) Board approved a project seeking a private partner to design, build, finance, operate and maintain compressed natural gas (“CNG”) filling stations at as many as 37 transit facilities throughout the state.  According to PennDOT, the CNG filling stations must be designed to provide CNG for public transportation vehicles as well as for private parties with CNG vehicles.  Once the fueling stations are build and operating, PennDOT will retain an unspecified portion of the fuel sales revenue for use in future capital projects.  The rest of the fuel sales revenue will presumably go directly to the private partner.

The press release indicates that PennDOT will soon issue a Request for Qualifications to solicit interested parties and that PennDOT expects to invite qualified teams to submit proposals as early as next year, with a project team selection coming as early as summer 2015.  Additional information regarding the P3 CNG Fueling Station Project is available at Pennsylvania’s P3 website.

Babst Calland Attorneys Publish Article on Public-Private Partnerships

Babst Calland Attorneys Publish Article on Public-Private Partnerships

The February/March 2014 edition of Foundation Drilling Magazine features an article written by Babst Calland attorneys Richard D. Kalson and Marc J. Felezzola entitled “P3:  The Future of the Construction Industry?”  The article discusses the growing popularity of public-private partnerships as an alternative means for public construction and the most common public-private delivery methods.

Foundation Drilling Magazine is published by the International Association of Foundation Drilling.  For more information regarding Foundation Drilling Magazine, including how to obtain a copy of the February/March 2014 edition of Foundation Drilling Magazine containing the article referenced above, please visit the International Association of Foundation Drilling’s website or contact one of the article’s authors via the links provided above.

PennDOT Shortlists Four Teams for its Rapid Bridge Replacement P3 Project

PennDOT Shortlists Four Teams for its Rapid Bridge Replacement P3 Project

The Pennsylvania Department of Transportation (“PennDOT”) has announced that based upon responses to PennDOT’s request for qualifications for its Rapid Bridge Replacement Project, a public-private partnership involving the construction of more than 500 bridges, it will invite four teams to submit proposals for the project.  Those four teams are:

  1.  Plenary Walsh Keystone Partners: Plenary Group, The Walsh Group, Granite Construction Company, HDR Engineering, HNTB Corporation and Infrastructure Corporation of America
  2. Keystone Bridge Partners: InfraRed Capital Partners, Kiewit, Parsons, The Allan A. Myers family of companies, DBi and American Infrastructure;
  3. Commonwealth Bridge Partners: John Laing Investments, Fluor, American Bridge Company, Traylor Bros. Inc., Joseph B. Fay Co., STV Incorporated and Infrastructure and Industrial Constructors;
  4. Pennsylvania Crossings: Meridiam, Lane Construction, AECOM, Trumbull, Wagman Companies and Cofiroute.

PennDOT expects to release the final project details and requirements to the four teams this summer and select a preferred proposal this fall.  Construction is anticipated to begin in the summer of 2015.

According to PennDOT, the selected team will manage the design, construction and maintenance for at least 500 bridges throughout the Commonwealth for yet-to-be determined number of years under one contract.  The team will be responsible for financing the effort and PennDOT will make payments based on the team’s adherence to the terms of the contract.

To learn more about the Rapid Bridge Replacement Project, you can visit PennDOT’s public-private partnership website.

 

 

Allegheny County Could have as Many as 60 Bridges Constructed as Public-Private Partnership Projects

Allegheny County Could have as Many as 60 Bridges Constructed as Public-Private Partnership Projects

The Pittsburgh Post-Gazette recently published an article about how Pennsylvania’s Department of Transportation (“PennDOT”) plans to replace at least 500 decaying bridges across Pennsylvania via public-private partnerships (“P3”).  According to the article, nearly 60 of those bridges are located within Allegheny County, with another 23 in neighboring Westmoreland County and another 13 in Butler County.  The Post-Gazette reports that PennDOT hopes to get construction underway on 50 to 100 bridges in 2015 and that the party or parties with whom PennDOT contracts for the construction of the bridges will also maintain the new bridges for a period that may be as long as 40 years.

The entire Post-Gazette article is available here.

Virginia Supreme Court Rules in Favor of $2.1 Billion P3 Project

Virginia Supreme Court Rules in Favor of $2.1 Billion P3 Project

On October 31, 2013, the Virginia Supreme Court unanimously overruled a lower court’s decision to strike down the Virginia Public Private Transportation Act (“P3”)

In December 2011 the Virginia Department of Transportation (“VDOT”) and Elizabeth River Crossings OpCo, LLC (“ERC”) entered into an agreement pursuant to Virginia’s P3 legislation for the design and construction of a new Midtown Tunnel and the Martin Luther King Freeway Extension.  Additionally, the agreement provided for the continual maintenance of the existing Midtown and Downtown Tunnels for 58 years.  The total cost for completing the project was estimated to exceed $2.04 billion dollars.  To assist in financing the project, the agreement provided for the imposition of tolls.  Danny Meeks, along with other users of the Downtown Tunnels, filed a six-count complaint against ERC and VDOT in the Circuit Court for the City of Portsmouth, claiming, in part, that tolls on the Tunnels and MLK Freeway are unconstitutional taxes in violation the Due Process Clause of the Constitution.  The Circuit Court ruled in favor of Meeks.

Elizabeth River Crossings OpCo, LLC v. Meeks, The Virginia Supreme Court overruled the lower court decision in a fifty-five page opinion, and held that “the tolls on the Midtown Tunnel, Downtown Tunnel and MLK extension, which are (1) paid in exchange for a particularized benefit, (2) not compelled by government, and (3) collected solely to fund the Project are user fees, not taxes.”  You can read the full text of the opinion here.

The American Road & Transportation Builders Association (“ARTBA”), who filed a “friend of the court” brief arguing for the overturn of the lower court’s decision, issued a statement following the Court’s ruling.  ARTBA stated, “[t]he ruling represents an unqualified victory for the U.S. transportation construction and Virginia’s P3 community in that it allows work on a major infrastructure improvement project to proceed and preserves the states existing tolling methods. Also, ARTBA hopes the Court’s decision sends a signal that unwarranted challenges to P3 legislation in other states will be overturned in a similarly swift and absolute manner.”  You can read the full text of ARBTA’s statement here.

This case will certainly be viewed as a major victory for those in the construction industry who believe the future of highway construction rests with P3 projects.

Data Indicates that the Construction Industry Unemployment Hit a Six-Year Low in September

Data Indicates that the Construction Industry Unemployment Hit a Six-Year Low in September

According to a press release issued by Associated General Contractors of America, an analysis of the most recent government data indicates that employment in the construction industry rose by 20,000 jobs in September, and the industry’s unemployment rate dipped to 8.5%, a new six-year low.  In fact, the 8.5% unemployment rate marks a considerable improvement from the 11.9% unemployment rate for the industry just twelve months prior.  Additionally, construction spending increased for the fifth consecutive month in August.

Although all of this data paints a very positive picture of the construction industry overall, public construction remains a sector in decline.  The Associated General Contractors of America warned the data it analyzed predates the federal government shutdown, which may result in weaker industry spending numbers and hiring gains next month, and certainly will produce lower public construction figures.  Additionally, the pre-shutdown numbers still indicate that while overall construction spending increased, public spending remains down nearly 2% from the previous year.

The full press release from the Associated General Contractors of America is available here.

Federal Government Shutdown Having Limited Affect on Federal Highway Administration Construction, but Affecting Federal Contract Solicitation and Awards

Federal Government Shutdown Having Limited Affect on Federal Highway Administration Construction, but Affecting Federal Contract Solicitation and Awards

As the shutdown of the federal government enters its second week, its impact on federally funded construction projects has been somewhat muted because of the way that certain federal agencies receive their funding.  For example, because the Federal Highway Administration is funded by the Highway Trust Fund, which still has funding through the end of the 2014 fiscal year, the shutdown has virtually no impact on any Federal Highway Administration construction projects.  The Airport Improvement Program is also funded by a trust, and thus, the federal government shutdown will have much less of an impact on Airport Improvement Program construction projects.  Other agencies, including the Federal Transit Administration and the Federal Aviation Administration are not funded by a trust fund, and therefore, the government shutdown will have a much more significant impact on those agencies’ construction projects.

Overall, however, because funding has already been appropriated for most ongoing and already awarded direct federal construction projects, the federal government shutdown will have virtually no impact on ongoing and already awarded contracts.  Rather, the furloughs of non-essential government employees has suspended pending solicitations and awards, including task orders for existing multiple award contracts, until the shutdown comes to an end.

More information on the impact of the shutdown on federal construction contracts is available at the Association of General Contractors’ website.  The source of the information in this post is available here.

Association of General Contractors’ Website Has Resource Center for Contractors Affected by Government Shutdown

Association of General Contractors’ Website Has Resource Center for Contractors Affected by Government Shutdown

The Association of General Contractors has created a Resource Center to provide information to government contractors about the current federal government shutdown.  The Resource Center, which is available here, contains links to contingency plans drafted many different federal agencies detailing how the agency will likely proceed and operate in the event of a government shutdown.  While each agency’s contingency plan is intended to be informative rather than authoritative, the documents should provide some guidance for government contractors about the process for dealing with federal government agency construction project owners during the federal government shutdown.

 

New Law Removes Cap on Set-Asides for Contracts with Women-Owned Small Business

New Law Removes Cap on Set-Asides for Contracts with Women-Owned Small Business

In October 2010, the Small Business Administration implemented the Women-Owned Small Business Program, which authorized contracting officers for federal agencies to set aside certain federal contracts for eligible and qualified Women-Owned Small Businesses and Economically Disadvantaged Women-Owned Businesses. Under the program, however, those set-asides were capped at $6.5 million for manufacturing contracts and $4 million for all other contracts.

However, the 2013 National Defense Authorization Act, which President Obama signed into law earlier this year, removed the statutory limits for set-asides for Women-Owned Small Businesses and Economically Disadvantaged Women-Owned Businesses. Recently, the Small Business Administration issued an Interim Final Rule officially removing dollar value limits on set-asides for Women-Owned Small Businesses and Economically Disadvantaged Women-Owned Businesses. A copy of the new Interim Final Rule, which details the new parameters under which set-asides may be made, can be found by following this link.

 

Federal Regulations Prohibit Texting While Driving on Federal Construction Projects

Federal Regulations Prohibit Texting While Driving on Federal Construction Projects

Although a lot has been made of the Ohio legislature’s recent decision to ban texting while driving in the Buckeye State, this ban, and Pennsylvania’s similar ban, should be nothing new to contractors and subcontractors working on federal construction projects.  In fact, since 2010 all contractors and subcontractors working on federal construction projects have been required to adopt and enforce a policy banning employees from texting whenever the employee is (1) driving a vehicle owned by the company; (2) driving a vehicle owned by the government; or (3) driving a privately owned vehicle when performing any work on behalf of the government.  See FAR 23.11 and FAR 52.223-18.

It is important to note that the term driving includes being behind the wheel of a running vehicle while stopped at a traffic light or stop sign, but not being behind the wheel of a vehicle that is pulled over on the side of the road way.  Additionally, term “texting” is broadly defined to include “texting, e-mailing, instant messaging, obtaining navigational information, or engaging in any other form of electronic data retrieval or electronic data communication” with a handheld or electronic device.   However, use of GPS navigation is expressly permitted provided that “the navigational device is secured in a commercially designed holder affixed to the vehicle” and “the destination and route [were] programmed into the device either before driving or while stopped in a location off the roadway where it is safe to park.”  Thus, checking a message at a red light, or using a cell-phone to navigate without placing that phone in a “commercially designed holder affixed to the vehicle” while operating a contractor owned vehicle constitute violations of the FARs.

The FAR also encourages federal contractors and subcontractors to conduct initiatives to establish rules and programs prohibiting texting while driving, and to educate employees about the safety risks associated with texting while driving.