Last month, the Pennsylvania Commonwealth Court addressed whether the prompt payment provisions of the Commonwealth Procurement Code, 62 Pa. C.S. §§ 3931-3939, applied to an oral contract between a school district and a sheet metal subcontractor that was not procured through a competitive process. In F. Zacherl, Inc. v. West Allegheny School District, No. 1904 C.D. 2011, No. 530 C.D. 2012 (Pa. Commw. Ct. May 6, 2013) (unpublished opinion), the West Allegheny School District entered into an oral contractor with F. Zacherl, Inc., the sheet metal subcontractor on the project, after the School District terminated the prime contractor with whom F. Zacherl had contracted. The Commonwealth Court, citing 62 Pa.C.S § 3901, observed that the Prompt Payment Act applies only “to contracts entered into by a government agency through competitive sealed bidding or competitive sealed proposals.” The Court held that the Prompt Payment Act did not apply to the oral contract between the School District and F. Zacherl. Accordingly, the Court concluded that the trial court erred by ordering the School District to pay attorneys’ fees and penalties pursuant to that Prompt Payment Act.
Notwithstanding the inapplicability of the prompt payment provisions of the Procurement Code, the Commonwealth Court remarked in footnote 15 of the opinion that the trial court, on remand, may consider F. Zacherl’s claims for attorneys’ fees and penalties to the extent it is otherwise “entitled to that relief.” While not apparent from the Commonwealth Court’s opinion, F. Zacherl’s Complaint also requested attorneys’ fees and penalties under the Pennsylvania Contractor and Subcontractor Payment Act (“CASPA”). By this footnote, the Commonwealth Court appears to acknowledge that F. Zacherl may attempt to recover attorneys’ fees and penalties against the School District under CASPA. Thus, this is a notable (and unusual) instance where a contractor may recover relief under CASPA against a state government entity for a project involving public funds.
Recently, in Shafer Elec. & Const. v. Mantia, 2013 PA Super 111 (Pa. Super. Ct. May 10, 2013), the Pennsylvania Superior Court held that a contractor subject to the provisions of the Pennsylvania Home Improvement Consumer Protection Act (“HICPA”), 73 P.S. §§ 517.1 et seq., may recover on a theory of quantum meruit (meaning that the homeowner should be required to pay for the benefit the homeowner received from the contractor) when a written contract is invalidated by HICPA.
The court noted that HICPA confusingly permits quantum meruit under § 517.7(g) only when the contractor complies with the requirements of § 517.7(a), which mandates that the home improvement contract be in writing. However, when a written, enforceable contract exists, it is well-settled that recovery on quantum meruit is precluded. The Shafer Court reasoned that the plain language of § 517.7(g) produces an absurd result by making recovery under a quasi-contract theory impossible. The court explained that when a statute is ambiguous, such as here, it is permitted to construe the statute in a manner that effects the obvious intent of the General Assembly. Thus, the court concluded that when a written contract is unenforceable because it fails to comply with § 517.7(a) of HICPA, the contractor may seek recovery under theories of quantum meruit or unjust enrichment.
This decision is consistent with the Pennsylvania Superior Court’s holding last year in Durst v. Milroy General Contracting, Inc., 52 A.3d 357 (Pa. Super. Ct. 2012), which found that HICPA was silent on quasi-contract theories and permitted a quantum meruit claim to proceed in light of an unenforceable oral agreement.
Construction subcontracts often contain “forum selection” clauses requiring that the parties to the contract settle all of their disputes in arbitration or litigation in some state that seems entirely unrelated to the construction project but happens to be the state where the general contractor maintains its home office. These clauses provide economic and strategic benefits to the general contractor by eliminating or mitigating the travel expenses for key personnel and by requiring litigation in a court familiar to the contractor’s legal counsel.
This ability to contract for a “home field advantage” has been eroded by provisions included in some states’ recently enacted prompt payment laws (which require that all disputes by resolved by courts in the jurisdiction of the project location), and it was more recently rejected by the Court of Appeals for the Fifth Circuit in In re Atlantic Marine Construction Company, Inc. In that case, the Fifth Circuit held that a subcontractor could file suit against a general contractor in Texas (where the project was located), despite a clause in the subcontract agreement requiring that all disputes arising from the contract be resolved in a specific federal court in Virginia.
The Fifth Circuit’s decision directly contradicts the majority of federal circuit courts, including the Second, Seventh, Eighth, Ninth, and Eleventh Circuits, all of which have held that a forum selection clause in a contract negotiated at arms’ length should be enforced by the federal courts. On April 1, 2013, United States Supreme Court agreed to review the split between the Circuit Courts on the choice of forum issue by granting certiorari for the Atlantic Marine case. This nation’s highest Court will hold argument in case and decide it next term, which begins in October of this year. We will post the Supreme Court’s ruling on this important case as soon as it is issued.
The Pennsylvania Department of Transportation (PennDOT) recently issued Change No. 2 to its Project Office Manual, also known as POM. PennDOT’s POM is a compilation of PennDOT policies and procedures relating to the administration and inspection of construction contracts. While the purpose of the POM is to act as a reference guide for PennDOT staff, it is also a useful tool for contractors working on PennDOT projects. Change No. 2 alters over fourteen sections of the POM. You can find a copy of Change No. 2 to POM here. The changes became effective April 25, 2013.
In January, 2013 the D.C. Circuit Court of Appeals ruled that President Obama’s recess appointments of three members of the National Labor Relations Board were unconstitutional. Noel Canning Div. of Noel Corp. v. NLRB, 705 F.3d 490 (D.C. Cir. 2013). On May 7, 2013, the D.C. Circuit delivered another rebuke to the Board, holding that the Rule it promulgated requiring employers to post a Board-approved notice of employee rights under the National Labor Relations Act (the “Act”) not only exceeded its authority under the Act, but was in fact inconsistent with the law.
The Board’s posting Rule required that “[a]ll employers subject to [the Act] must post notices to employees, in conspicuous places, informing them of their NLRA rights, together with Board contact information and information concerning basic enforcement procedures ….” 29 C.F.R. §104.202(a). Employers were required to use the form of notice approved by the Board, and were forbidden by the Rule from editing or otherwise altering it. Under the Rule, the failure of an employer to post the notice would deemed to be an unfair labor practice, and would also toll the six month statute of limitations that the Act provides under Section 10(b), 29 U.S.C. §160(b). The National Association of Manufacturers, among other groups, challenged the Rule as being beyond the power of the Board to promulgate. In National Association of Manufacturers v. NLRB, No. 12-5068 (D.C. Cir., May 7, 2013), the D.C. Circuit Court of Appeals agreed.
The Court staked its decision on the language of Section 8(c) of the Act: “The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice … if such expression contains no threat of reprisal or force or promise of benefit.” 29 U.S.C. §158(c). Drawing on well-established jurisprudence under the First Amendment, the Court concluded that the Board’s rule requiring employers to post the notice was the equivalent of compelling employers to engage in speech, in contravention of Supreme Court precedents that “‘have established the principle that freedom of speech prohibits the government from telling people what they must say.’” Slip op. at 17 (quoting Rumsfeld v. Forum for Academic & Institutional Rights, Inc., 547 U.S. 47, 61 (2006)).
The D.C. Circuit additionally held that the Board’s rule exceeded its authority because it created an new unfair labor practice – failure to post the notice – in derogation of the practices that Congress had legislated and defined as unfair. Slip op. at 22-23. The Court also determined that the Rule impermissibly attempted to extend the limitations period that Congress had enacted in the Act, observing that “the Board has not invoked any authority suggesting that the 1947 Congress [which enacted the six month limitations period] intended to allow §10(b) to be modified in the manner of the Board’s tolling rule.” Slip op. at 28.
The D.C. Circuit’s decision is a complete repudiation of the Labor Board’s spontaneous attempts to amend the Act through rule-making in order to create a legal environment more congenial to unions and unionization. The decision reminds us that it is Congress, not the Labor Board, which is ultimately responsible for the formulation of national labor policy.
Pennsylvania Senate Bill 743 was recently introduced. The new legislation, if passed, would dramatically impact the construction of public school buildings by permitting the use of the design-build delivery method.
Currently, a public school district must comply with the Pennsylvania Separations Act, which generally requires the public school district to award separate prime contracts to the lowest responsible bidder for (at a mininimum) the following construction trades: general construction, HVAC, electrical, and plumbing contractors. That “multi-prime” low-bid project delivery method, proponents of the new legislation urge, is too rigid and too expensive. Proponents of the design-build project delivery method contend that the new legislation paves the way for a more flexible and efficient process. If the new legislation is passed, a public school district will be able to enter into one design/build contract for any public school construction project. The public school district will be able to engage a single-source entity for both architectural services and construction services.
In the recent decision of Cresci v. Martin, the Pennsylvania Superior Court issued an opinion qualifying the rule regarding prejudgement interest for breach of a construction contract. In October of 2004, Cresci Construction Services, Inc. (“Cresci”) and James H. Martin (“Martin”) entered into a construction contract (the “Contract”) wherein Cresci agreed to build a home for Martin in exchange for $184,730. The Contract did NOT contain a liquidated damages provision in the event that Cresci caused delays in completing construction, nor did it contain a “no damages for delay” clause, meaning that Martin could sue for his actual damages in the event that Cresci was late in constructing the hom.
Construction of the Martin’s home did not go smoothly, and Martin sued to recover his alleged damages. After a trial on the merits, the jury found that Cresci breached the Contract and entered a verdict awarding Martin $66,000.00. The jury’s verdict sheet did not subcategorize the amount of damages. After the verdict was entered, Martin filed post-trial motions seeking attorneys’ fees and prejudgment interest on the breach of contract damages. The trial court denied Martin’s motion, and Martin appealed to the Superior Court.
On appeal, the Superior Court affirmed. Regarding Martin’s claim for the prejudgment interest, the Superior Court explained that under Pennsylvania law, prejudgment interest is awarded automatically only when the damage resulting from the breach is liquidated at the time of breach. In all other circumstances, the decision whether to award prejudgment interest is left to the discretion of the trial court. The Superior Court concluded that because Martin’s damages were unliquidated, consequential damages (including items such as mortgage interest and the costs of maintaining two properties), an award of prejudgment interest on those damages was purely discretionary. The Superior Court found no abuse of discretion, and therefore affirmed the denial of prejudgment interest. The Cresci decision reinforces the significance of including liquidated damages provisions in construction contracts.
In an April 25, 2013 opinion, the Ohio Court of Appeals refused to allow prejudgment interest and attorneys’ fees and costs under the Ohio Prompt Payment Act (Revised Code §4113.61) to a subcontractor, despite a unanimous jury verdict in favor of the subcontractor, Moderalli Excavating, Inc.. Moderalli performed work under a subcontract with Trimat Construction, Inc., on a public project known as the Newcomerstown Landfill Cap Project. After the project was more than 50% complete, problems arose on the project and Trimat began to withhold payments from Moderalli. Several months later Trimat terminated Moderalli from the Project. Moderalli filed a complaint against Trimat that included, among other claims, a claim for breach of contract for non-payment of invoices and a claim under the Ohio Prompt Payment Act.
The jury returned unanimous verdicts in favor of Moderalli and against Trimat on all claims. However, after post-trial motions, the trial court overturned the unanimous jury verdict on certain counts, reduced the total award, and denied Moderalli’s motions for interest and attorneys’ fees. Moderalli appealed those rulings, claiming that the trial court erroneously denied its claim for 18% interest and attorneys’ fees and costs under Ohio’s Prompt Payment Act.
The appellate court disagreed. The court looked to §4113.61(A)(1) of the Prompt Payment Act, which permits a contractor to withhold amounts that may be necessary to resolve disputed liens or claims involving the work or labor performed or material furnished by the subcontractor. Courts interpret this language to mean that interest is not warranted under the Act where the contractor, in good faith, withholds amounts where there is a disputed claim. The court found that based on the evidence offered during the trial, the jury could have found in favor of Moderalli on its Prompt Payment Act claim, but not awarded any interest and attorneys’ fees damages if it also found that Trimat asserted a good faith basis for withholding the money. Because Moderalli did not submit any interrogatories to the jury and did not object to the jury verdict form (both of which would have aided the court in knowing the factors upon which the jury based its decision), there was nothing to indicate to the appellate court whether the jury concluded that the contractor had a good fatih basis for withholding payment. The appellate court therefore upheld the trial court’s denial of interest and attorneys’ fees to the subcontractor. In future Prompt Payment Act claims in Ohio, claimants would be well-served to specifically ask the jury whether the withholding of payment was made in good faith.
The Supreme Court of Pennsylvania issued a decision earlier this week reaffirming the distinction between the words “gas” and “minerals” as those words are used in private conveyances of land. In Butler v. Powers, the Court made clear a reservation of “minerals” does not include the right to natural gas, unless the word “gas” was expressly stated in the reservation. The practical effect of the Court’s decision is Marcellus Shale development will continue, i.e., the decision did not unravel the plethora of leases pursuant to which natural gas is being developed in the region. Babst Calland has more on the decision here.
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.
ConsensusDocs recently released its newest version of the 498 Design-Build Teaming Agreement. The 498 Design-Build Teaming Agreement provides a standard contract for parties desiring to form a design-build team for the purposes of submitting a proposal to construct a design-build project. According to ConsensusDocs, the New 498 Design-Build Teaming Agreement has the flexibility for design-build team members to include design professionals, constructors, and other contractors. The new 498 Teaming Agreement is available for purchase on ConsensusDocs’ website.
PennDOT has recently created a website to publish information concerning Public Private Partnerships (“P3”). A P3 project is a contractual agreement between a public entity and private entity that:
- Transfers the responsibility of a transportion facility’s engineering, construction, operation and/or maintenance to the private sector for a defined period of time;
- Allows the private sector to perform by contract a service previously provided by the public sector; and
- Ensures the private firm receives payments either from existing revenue sources or through the collection of new tolls or user fees.
Additional information regarding the P3 program can be found in the manual describing the details of the program.
In Elk River Pipeline LLC v. Equitable Gathering LLC, S.D. W.Va. (2013), the United States District Court for the Southern District of West Virginia determined that West Virginia law governed a dispute between two parties to a construction contract despite the fact that the contract expressly stated that all disputes arising from that contract would be governed by the law of Pennsylvania.
In Elk River, Equitable Gathering LLC (“EQT”) entered into a Master Service Agreement with Elk River Pipeline LLC (“Elk River”) for the construction of a section of pipeline in West Virginia. The Master Service Agreement stated that it would be “construed, interpreted and enforced in accordance with and shall be governed by the laws of the Commonwealth of Pennsylvania, excluding its conflict of law rules.” Despite this language, Elk River contended that West Virginia law should apply to the contract. The Court agreed, holding West Virginia law governs construction of the Master Service Agreement and requires a determination of whether a “substantial relationship” exists with the jurisdiction whose law was selected by the parties. Ultimately, the Court found that the contract did not have a substantial relationship with Pennsylvania, and therefore, the Court refused to enforce the contract’s choice of law provision.
Following the Elk River decision, contractors entering into construction contracts for projects in West Virginia should be careful to ensure that the choice of law provision in that construction contract selects the law of a state that has a substantial relationship with the contract.
In the recent Pennsylvania case, Scientific Games Int’l, Inc. v. Commonwealth, the plaintiff filed its Complaint with the Commonwealth Court and sought an injunction to prevent DGS from cancelling a contract that the plaintiff claimed it had entered into with DGS. In response, DGS argued that this case involved either (1) the cancellation of a procurement, in which case DGS was afforded sovereign immunity can could not be sued anywhere, or (2) a breach of contract claim for which the Board of Claims has exclusive jurisdiction. On appellate review, the Supreme Court agreed with DGS, and indicated that in the event of a cancellation of a solicitation under Section 521 of the Procurement Code, an aggrieved bidder or offeror has no available remedy based on the sovereign immunity granted to Commonwealth agencies. The practical effect of this ruling will be that there is now no judicial oversight to a Commonwealth agency’s decision to cancel a solicitation under the Procurement Code.
A recent survey reviewing available construction technology led to this conclusion in a recent article published in ENR: “Collaboration and web services are becoming the norm on more and more projects and transforming how the industry operates.” Some of the specific applications that received the most favorable reviews by those completing the survey included Bluebeam Revu for the iPad (used to view PDF plans and mark up project files in a collaborative manner) and Autodesk’s BIM 360 Field (formerly Vela Systems) (focused on combining construction management and BIM). Read more here.