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.
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.
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 Jameson, Jim 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.
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.
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.
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.
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.”
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.
Pursuant to Pennsylvania’s Construction Workplace Misclassification Act “an individual who performs services in the construction industry for remuneration is an independent contractor only if: (1) The individual has a written contract to perform such services[;] (2) The individual is free from control or direction over performance of such services both under the contract of service and in fact[; and] (3) As to such services, the individual customarily engaged in an independently established trade, occupation, profession or business.” 43 P.S. 933.3(a). If a worker does not meet those requirements, he will be deemed an employee of the contractor. While this definition of independent contractor seems relatively straight forward, Pennsylvania’s Commonwealth Court was recently tasked with determining whether the written contract requirement for an independent contractor may be satisfied by executing a written independent contractor agreement after the time of injury if all other requirements for independent contractor status appear present.
In Staron v. Workers’ Compensation Appeal Board (Farrier), the claimant responded to an advertisement by Lee’s Metal Roof Coatings and Painting (“Lee’s”) looking for a painter. The claimant informed Lee’s that he had 20 years of experience in painting and roof work, that he worked as a self-employed painter who usually did work on his own, and that he owned his own truck, tools, and some equipment. Lee’s agreed to pay the claimant $100 per day but also told the claimant that he would “need to sign a document in order to work” for Lee’s. Thereafter, without signing any document, the claimant started working at a Lee’s jobsite using his own brushes, caulk gun, painter pans and knee pads and with very little direction from Lee’s. On his fourth day of work, the claimant slipped and fell off the roof of the project, injuring himself. Upon his release from the hospital, Lee’s presented the claimant with a written independent contractor agreement, which the claimant freely signed. Despite signing the agreement, the claimant filed for workers’ compensation benefits as an employee of Lee’s. The Workers’ Compensation Judge granted the claimant benefits, and the Workers’ Compensation Board affirmed the decision.
On appeal, the Commonwealth Court determined that the claimant did not qualify as an independent contractor because there was no written independent contractor agreement at the time that claimant was injured. The Commonwealth Court found that the independent contractor agreement the claimant signed upon release from the hospital had no import because, “a written contract for services did not exist at the time of Claimant’s injury.”
Thus, the takeaway point from Staron is that an independent contractor agreement must be signed prior to the time of injury for it to have any effect in establishing an independent contractor relationship for workers’ compensation purposes. Accordingly, because one never knows when a workplace injury will occur, best practice is to have an independent contractor sign an independent contract agreement before she/he begins working at a job site.
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.
The Pennsylvania Superior Court recently held that a negligent misrepresentation claim may be based on an architect’s faulty design, even absent allegations of an express misrepresentation by the architect. Gongloff Contracting, L.L.C. v. L. Robert Kimball & Associates, Architects & Engineers, Inc., 2015 PA Super 149, — A.3d —-, 2015 WL 4112446 (July 8, 2015). Although Pennsylvania law generally bars claims brought in negligence that result solely in economic loss, a narrow exception is found in Section 552 of the Restatement (Second) of Torts entitled, “Information Negligently Supplied for the Guidance of Others.” In Bilt-Rite Contractors, Inc. v. The Architectural Studio, the Pennsylvania Supreme Court adopted Section 552 and held that it applied in cases where information is negligently supplied by one in the business of supplying information, such as an architect or design professional, and where it is foreseeable that the information will be used and relied upon by third persons, even if the third parties have no direct contractual relationship with the supplier of information. 866 A.2d 270 (Pa. 2005).
In Gongloff, a subcontractor (Gongloff Contracting, L.L.C.) sued the architect (L. Robert Kimball & Associates, Architects and Engineers, Inc.) that designed the project for negligent misrepresentation, alleging that Kimball negligently misrepresented, either explicitly or implicitly, that the design of the structure would allow it to bear all required loads. Kimball moved for judgment on the pleadings, and the trial court granted the motion, ruling that a negligent misrepresentation claim requires an express misrepresentation, which Gongloff had not alleged in its complaint.
The Superior Court reversed, holding Bilt–Rite subjects architects to liability for Section 522 negligent misrepresentation claims when it is alleged that those professionals negligently included faulty information in their design documents.
The court stated: “The design itself can be construed as a representation by the architect that the plans and specifications, if followed, will result in a successful project. If, however, construction in accordance with the design is either impossible or increases the contractor’s costs beyond those anticipated because of defects or false information included in the design, the specter of liability is raised against the design professional.” Gongloff, 2015 WL 4112446, at *6.
In reaching its conclusion, the Superior Court distinguished the “actual misrepresentation” requirement under Bilt-Rite from the trial court’s decision to require an “express misrepresentation.” Acknowledging that courts have required plaintiffs to assert “an actual misrepresentation as opposed to assumptions on the part of the recipient,” id. (citing State College Area School District v. Royal Bank of Canada, 825 F.Supp.2d 573, 584 (M.D. Pa. 2011)), the Superior Court rejected the notion that a plaintiff must also identify some particular communication that was expressly false. The plaintiff’s use of the tangible design documents containing the allegedly faulty design was sufficient to allege an “actual misrepresentation” under Bilt-Rite. Id.
The court also pointed out Bilt–Rite does not require that a plaintiff precisely identify the misrepresentation in the design documents. Id. at *7. Although the court in Bilt-Rite mentioned that the design professional therein “expressly represented” that its aluminum curtain wall “could be installed and constructed through the use of normal and reasonable means and methods, using standard construction design tables,” the court did not include an “express representation” as an element of a Section 552 negligent misrepresentation claim. Id. (citing Bilt-Rite, 866 A.2d at 272). Instead, Bilt–Rite only requires “that information, a rather general term, be negligently supplied by the design professional.” Id.
Although a defendant may still defend against a Bilt-Rite claim by showing the plaintiff’s misrepresentation allegations are not substantiated, Gongloff makes it more difficult for a design professional to get the case dismissed on this basis at the pleadings stage.
Before an offeror may be awarded a federal contract by any agency, the procuring agency must perform a “responsibility” determination pursuant to Part 9 of the FAR. Under the Fair Pay and Safe Workplaces Executive Order, a company’s record of compliance with 14 different federal labor statutes (and state-law “equivalents”) will now be considered by agencies and their prime contractors before awarding a federal contract or subcontract worth over $500,000. The Executive Order followed a GAO report finding that almost two-thirds of the 50 largest wage-and-hour violations and almost 40 percent of the 50 largest workplace health-and-safety penalties issued between FY 2005 and FY 2009 were made against companies that went on to receive new Government contracts.
On May 28, 2015, the Federal Acquisition Regulation (FAR) Council issued a Proposed Rule to amend the FAR to implement Executive Order 13673 (“Fair Pay and Safe Workplaces” ) and adopt the Department of Labor’s proposed guidance on the Executive Order.
The Proposed Rule would create FAR Subpart 22.20 (entitled “Fair Pay and Safe Workplaces”) to impose new disclosure requirements for federal contractors and subcontractors. Its proposed provisions also include several new mandatory contract clauses for certain contracts and new provisions for a procuring agency to incorporate into solicitations for offers covered by the Executive Order. The Rule establishes new paycheck transparency requirements for government contractors and imposes limitations on the Government for exercising options on contracts with entities that make disclosures during the prior term of the contract. The Proposed Rule also outlines the method by which a contracting officer is to evaluate and investigate the disclosures made by contractors or offerors.
Specifically, the new disclosure requirements will require an offeror (whether a contractor or subcontractor) to state whether it has any administrative merits determinations, arbitral awards or decisions, or civil judgments rendered against it, within the three years preceding the date of the offer or bid, for violations of any of the following labor laws:
(1) The Fair Labor Standards Act (“FLSA”), 29 U.S.C. chapter 8;
(2) The Occupational Safety and Health Act of 1970;
(3) The Migrant and Seasonal Agricultural Worker Protection Act;
(4) The National Labor Relations Act;
(5) 40 U.S.C. chapter 31, subchapter IV, formerly known as the Davis-Bacon Act (“DBA”);
(6) 41 U.S.C. chapter 67, formerly known as the Service Contract Act (“SCA”);
(7) Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity);
(8) Section 503 of the Rehabilitation Act of 1973;
(9) The Vietnam Era Veterans’ Readjustment Assistance Act of 1972 and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974;
(10) The Family and Medical Leave Act (“FMLA”);
(11) Title VII of the Civil Rights Act of 1964;
(12) The Americans with Disabilities Act of 1990;
(13) The Age Discrimination in Employment Act of 1967;
(14) Executive Order 13658 of February 12, 2014 (Establishing a Minimum Wage for Contractors); and
(15) Equivalent State laws as defined in guidance issued by the Department of Labor.
The DOL Guidance defines “administrative merits determinations” as decisions or issuances of notices including, but not limited to:
(1) a WH-56 “Summary of Unpaid Wages” Form or a “letter indicating that an investigation disclosed a violation of sections six or seven of the FLSA or a violation of the FMLA, SCA, DBA or Executive Order 13658” issued by the DOL’s Wage and Hour Division;
(2) an OSHA citation or notice of imminent danger or notice of failure to abate or any State equivalent;
(3) a “show cause” notice issued by the Department’s Office of Federal Contract Compliance Programs;
(4) a letter of determination that reasonable cause exists to believe that an unlawful employment practice has occurred or is occurring; or a civil action filed on behalf of the Equal Employment Opportunity Commission;
(5) a complaint issued by any Regional Director of the National Labor Relations Board; or
(6) a complaint filed on or behalf of any enforcement agency with a federal or State court.
An “administrative merits determination” must be disclosed regardless of whether it was final or subject to further review. Furthermore, contractors and subcontractors will also be required to semi-annually disclose any violations (including receipt of any of the above merits determinations) during the life of the contract.
Finally, the Proposed Rule implements Section 5 of the Executive Order, addressing paycheck transparency. The Rule will require contractors – performing contracts to which the FLSA, DBA, or SCA apply – to provide workers with specific disclosures about their hours and wages in their paychecks. In addition, for any independent contractors on the project, the government contractor must provide them with a document specifically notifying the individual of his or her status as an independent contractor.
Although the requirements of the Proposed Rule will not go into effect until after adoption of a final rule, contractors and subcontractors interested in federal projects would do well to perform an internal investigation now to prepare for any disclosures it will have to make in pursuit of those projects.
The Pennsylvania Supreme Court recently granted allowance of appeal of the Scungio Borst & Associates v. 410 Shurs Lane Developers, LLC case that we blogged about in February of this year. As described more fully in our prior blog post, in Scungio Borst, the Superior Court of Pennsylvania (i.e. the intermediate level court) held that Robert DeBolt, the President and 50% shareholder of 410 Shurs Lane Developers, LLC did not qualify as an “owner” as defined in Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA”), and therefore, could not be held personally liable for sums that the 410 Shurs Lane Developers, LLC failed to pay to a general contractor.
On July 28, 2015, however, Pennsylvania’s highest Court agreed to hear an appeal of that decision. The Court summarized the issue before it as follows:
Did the lower court commit an error of law or abuse its discretion in granting summary judgment to [Robert] DeBolt under [the Contractor and Subcontractor Payment Act (“CASPA”), 73 P.S. §§ 501 et seq.], where: (a) CASPA makes the owner [(410 Shurs Lane Developers, LLC)] and the “agent of the owner acting with the owner’s authority” (DeBolt) liable to contractors such as [Petitioner], (b) DeBolt is a fifty percent owner of [410 Shurs Lane Developers], (c) [Petitioner] consistently dealt with DeBolt and received his authorizations for change orders, (d) [Petitioner] never received payment for the change orders, and (e) [Petitioner’s] construction of CASPA is consistent with the courts’ construction of the Wage Payment and Collection Law[, 43 P.S. §§ 260.1et seq.]?
Scungio Borst & Associates v. 410 Shurs Lane Developers, LLC, No. 30 EAL 2015, 2015 WL 4545986, at *1 (Pa. July 28, 2015) (alterations in original).
While it is still far too early to tell how the Pennsylvania Supreme Court will answer the above question, the mere fact that the Court agreed to hear the appeal – a discretionary act that the Court exercises for only a select few cases every year – raises concerns that individuals possessing a significant ownership interest the corporation or limited liability company may become personally liable for the CASPA damages for unpaid change orders that they authorize on behalf of the corporation or limited liability company in which they hold a significant ownership interest.
Babst Calland will continue to monitor the Scungio Borst case and will post updates on its Construction Law Blog as they become available.
On July 1, 2015 the American Arbitration Association (“AAA”) issued revisions to its Construction Arbitration Rules and Mediation Procedures intended to address preferences of users for a more streamlined, cost-effective, and tightly managed arbitration process. The AAA’s press release announcing the rule amendments, which became effectively immediately, states that the changes “reflect what the [AAA] learned from focus groups conducted across the country” structured to “ensure that all industry sectors had the opportunity to provide input.”
Perhaps the most significant change to the rules is the new “mediation step”, which provides subject to any party opting out, all cases with claims that exceed $100,000 must proceed to mediation at some point during the arbitration. The new mediation step rule requires mediation in accordance with the AAA’s Construction Mediation Procedures and provides that unless specifically agreed to by all parties, the mediator may not be appointed as an arbitrator in the case. According to the AAA, the mediation step is a “novel approach” to dispute resolution “intended to further assist the parties with the quick and economical resolution of their disputes.”
The amendments also include a new rule regarding a “Preliminary Management Hearing” that generally should take place very soon after the arbitrator is appointed. The purpose of the hearing is to allow the parties and the arbitrator to “discuss and establish a procedure for the conduct of the arbitration that is appropriate to achieve a fair, efficient, and economical resolution of the dispute.” The parties and the arbitrator have the option of conducting the preliminary management hearing in person or telephonically.
Other changes brought about by the amendments give the arbitrator a greater degree of control over the discovery process, the power to impose sanctions upon parties that fail to comply with the mandates of the arbitrator and the ability to allow parties to file dispositive motions. Finally, the amendments contain a new mechanism that will allow the AAA to appoint an emergency arbitrator within one day to rule upon requests for emergency relief (but only for claims arising from contracts entered into on or after July 1, 2015) and contain time limits and filing requirements intended to streamline the consolidation and joinder processes.
More information about the AAA’s changes to its Construction Arbitration and Mediation Processes is available on the AAA’s website.
In Perrotto Builders, Ltd. v. Reading Sch. Dist. & Lobar, Inc., 108 A.3d 175, (Pa. Commw. 2015), the Pennsylvania Commonwealth Court found that a public owner’s revision of a project’s scope of work after public bids were received and opened was not improper when it was established that the change was done for budgetary reasons, applied to all bidders equally, and was specifically allowed by the terms of the bid documents.
Specifically, the Reading School District (the “Owner”) issued an invitation to bid for a school construction project that included the repair and renovation of several different school buildings. After the bids were opened, Perrotto Builders was the apparent low bidder but the bids exceeded the Owner’s budget. The Owner reduced the scope of the project by removing several school buildings and recalculated the base bids. On this basis Lobar, Inc. was now the apparent low bidder and the contract was awarded to Lobar, Inc. Perrotto Builders requested a preliminary injunction which was denied and Perrotto Builders appealed. Perrott Builders argued that the Owner could not remove schools from the project because the bid documents did not allow for it. However, the bid documents allowed for “alternates” which were specifically defined to include the removal of one or more school, which is exactly what the owner did.