Lamson, Dugan and Murray, LLP, Attorneys at Law

New OSHA Regulations on Confined Spaces in Construction

Posted in OSHA

Craig Martin, Construction Attorney Lamson Dugan & Murray, LLP

On May 1, OSHA announced its final rules for construction workers in confined spaces.  The Final Rules, which will take effect August 3, 2015, will require more comprehensive training , with the goal of providing construction workers the same or similar protections as employees in manufacturing and general industry.

The final rule will cover confined spaces such as:

  • Crawl spaces
  • Manholes
  • Tanks
  • Sewers

The final rule will require the following:

  • Confined spaces must be large enough for an employee to enter and have a means of exiting.
  • The air in confined spaces must be tested  before workers enter them to ensure that the air is safe.
  • Construction workers must share safety information with others when they are going to work in enclosed/confined spaces.
  • Hazards associated with confined spaces must be continuously monitored and abated to the extent possible.

The new rule also contains detailed coordination requirements for all parties working on a job site.  Specifically, property owners and managers (“host employers”) have the obligation to provide information about permit-required confined spaces at its location to the general contractors (“controlling contractors”).  General Contractors, in turn, are required to share that information with subcontractors (“entry employers”).

Construction companies will have to begin the training process soon in order to get ahead of this new rule.  The training should focus on permit-required areas and the dangers of attempting rescues in permit-required areas.  OSHA has made available Confined Spaces in Construction Compliance Assistance Materials, on topics such as:

Take Away: Construction companies will have to train their employees on the new Confined Spaces Regulations and the sooner you start the better.

Suspend the Work, but Don’t Get Fired

Posted in Construction Contracts, Uncategorized

gettingpaidGetting paid for your work is often times one of the hardest parts of a project.  If you find yourself working without getting paid, it’s easy to think, “I’ll just stop working until I get paid.”  While the law may support you in that decision, the contract may not and you may be found in breach of the contract if you walk off the job.

Nebraska Law

Nebraska courts have held that a contractor or subcontractor may stop working on a project if the owner or upstream contractor is in material breach. This, of course, raises the question of “What is a material breach?”  The facts of the particular circumstance will control.  But, the risk is significant.  If the unpaid contractor is wrong, in that the breach is not material, he will face the claim by the upstream party for all costs necessary to finish the contractor’s work.  If the upstream party is in material breach, he will face a claim for profit on the remaining portion of the project.

Nebraska’s Prompt Pay Act

Nebraska’s Prompt Pay Act requires a contractor to pay downstream contractors within 30 days of receipt of payment from the Owner.  Section 45-1203 Neb. Rev. Stat.  The Prompt Pay Act does not specifically authorize termination for failure to pay.  Instead, section 45-1205 allows for interest to be charged if a contractor is not paid.

Typical Contract Language

The AIA A201, General Conditions, allows the contractor to terminate the project if payment is not made.  Section 14.1.1.3 provides:

The Contractor may terminate the Contract if the Work is stopped for a period of 30 consecutive days through no act or fault of the Contractor or a Subcontractor, Sub-subcontractor or their agents or employees or any other persons or entities performing portions of the Work under direct or indirect contract with the Contractor, for any of the following reasons:

. . .

 

.3       Because the Architect has not issued a Certificate for Payment and has not notified the Contractor of the reason for withholding certification as provided in Section 9.4.1, or because the Owner has not made payment on a Certificate for Payment within the time stated in the Contract Documents;

 

But, the contractor must provide written notice to the owner and architect if it intends to terminate.  The notice provision, section 14.1.3 provides:

If one of the reasons described in Section 14.1.1 or 14.1.2 exists, the Contractor may, upon seven days’ written notice to the Owner and Architect, terminate the Contract and recover from the Owner payment for Work executed, including reasonable overhead and profit, costs incurred by reason of such termination, and damages.

In a nutshell, a contractor will have to submit a pay application to the architect, continue working at least 30 days after the pay application should have been paid, and then work another seven (7) days after providing written notice of its intent to terminate.

Take Away: Terminating a contract for failure to pay is risky. The contract may provide a contractor with the opportunity to terminate the contract, but you must follow every step of the contract to avoid a claim of breach by the upstream contractor.

Indemnity Clauses—What do they mean, and what should you be looking for?

Posted in Construction Contracts

It seems that every construction contract now-a-days, contains an indemnity clause.  Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLPContractors should be reviewing these indemnity clauses very carefully to understand the potential scope of an indemnity obligation and your opportunity to negotiate changes.

What is an indemnity Clause?

An indemnity clause transfers risk from one party to another.  When a contractor signs an indemnity agreement, it is agreeing to pay for damages for which another party could be liable.

What is a Typical Indemnity Clause?

The AIA A-201 contains a common indemnity clause:

3.18.1 To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity that would otherwise exist as to a party or person described in this Section 3.18.

 What are the Key Provisions to an Indemnity Clause?

  • Scope: “indemnify and hold harmless from and against claims, damages, losses and expenses, including attorneys’ fees”—this language may make the contractor responsible to pay for all damages arising out of the incident.
  • Basis: “provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself)”—this language limits the situations covered to which indemnity applies, in essence eliminating claims to replace the contractor’s work itself. This limitation is intended to follow applicable insurance coverage.
  • Limit: “but only to the extent caused by the negligent acts or omissions of the Contractor, . . . regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified” This language limits the indemnity obligation to the negligent acts of the contractor, but also makes clear that negligence by a party indemnified will not eliminate the contractor’s indemnity obligation. In essence, if the contractor and the party indemnified are both negligent, the contractor will still have to indemnify the other party.

Negotiating Changes to Indemnity Clauses

Knowing full well that some upstream contractors may not negotiate indemnity obligations, here are some negotiating tips.

  • Make the Indemnity Obligation Mutual.
    • Contractor will indemnify [upstream contractor] for all claims, but only to the extent caused by its negligence. [Upstream Contractor] will indemnify Contractor for all claims, but only to the extent caused by its negligence.
  • Limit Indemnity to Insurance Limits.
    • Contractor’s liability under this provision shall not exceed the limits of insurance coverage required to be carried by the Contractor.
    • Limit Indemnity to Actual Insurance Coverage.
      • Contractor’s liability under this provision shall not exceed the amount of insurance coverage actually paid by insurer.
    • Limit Bodily Injury Claims to Workers’ Compensation
      • Contractor’s liability for bodily injury claims shall be limited to the amount payable by or for the Contractor under applicable workers’ compensation act.

Take Away: Understanding indemnity clauses is crucial to limiting your liability under these clauses. Having a better understanding of these clauses may allow you to better negotiate a limit to your potential liability.

Construction Litigation—Battles on Many Fronts

Posted in Construction Litigation

Millennium_3D_Chess_init_configWhen you are involved in construction litigation, you have battles on several fronts, including those against subcontractors, owners, insurers and the court.  Shoring up your defenses on each of these fronts is imperative, or you may lose the battle or, worse yet, the war.

A recent opinion out of the Eleventh Circuit Court of Appeals (overseeing federal courts in Alabama, Florida and Georgia) Carithers v. Mid-Continent Casualty Company, illustrates the various battle fronts involved in a construction case.  In this case, the Carithers (Home Owner) sued their homebuilder, Cronk Duch Miller & Associates (Contractor) in state court after discovering multiple defects with their home.

Battle Front #1—Claim Against Contractor

The Contractor and Home Owner entered into a consent judgment for approximately $90,000.00 and the Contractor assigned its claim against its insurer to the Home Owner.  It is unlikely that the Contractor paid the $90,000.00 judgment.  The Home Owner likely agreed not to collect on the $90,000.00 in exchange for the chance to pursue the Contractor’s claim against its insurer.

Scorecard:  Home Owner wins hollow victory against Contractor, but gets a chance to pursue the Contractor’s Insurer.

Battle Front #2—Where Are You Litigating?

The Home Owner files suit against the Contractor’s insurer, Mid-Continent Casualty Company (Insurance Company), in state court.  The Insurance Company removes the case to federal court.  This is not a big deal, but you are no longer in front of your local district judge, but the federal judge.  If you were litigating near your home office, say in North Platte, you would not be litigating in Lincoln or Omaha.

Scorecard:  No winner here, just litigating in a different court.

Battle Front # 3—Claim Against Insurance Company, Part I

The Home Owner filed suit in 2010, over 4 years after the home was completed.  The Home Owner claimed that there was dry rot in the framing, electrical problems, and improperly installed brick and tile.  The Home Owner claimed that he did not discover the defective construction until 2010.

The Insurance Company insured the Contractor from 2005 through 2008.  The Insurance Company claimed that it had no duty to defend the Contactor because the property damage “occurred” after the policy period ended.  In essence, the Insurance Company claimed that the defective construction did not occur until it was discovered, and because it was discovered after the insurance ended, there was no duty to defend the Contractor.

The Court disagreed and required the Insurance Company to defend.

Scorecard:  Home Owner wins, and insurer must defend claim against Contractor.  Importantly, this does not put money in the Home Owner’s pocket.

Battle Front #4—Claim Against Insurance Company, Part II

The Insurance Company also argued that it did not have to pay the Home Owner because the claim “occurred” after the Contractor’s insurance coverage ended.  The Court again disagreed, finding that the Insurance Company must pay the claim against the Contractor arising out of defective construction.

Scorecard:  Win for Home Owner, but still no dollars in Home Owner’s pocket.

Battle Front #5—Damages

The Home Owner wants to be paid for the damage to his home.  The Insurance Company argues that the “Your Work” exclusion limits its obligation to pay for damage to the house.  In essence, the insurance company argues that the defective work performed by the subcontractors, which did not damage anything else in the house, is not covered.  There is only coverage, and an obligation to pay, when the subcontractor’s work caused damage to parts of the house beyond the subcontractor’s work.  For example, the brick on the house was improperly installed and a sealant was improperly applied, requiring the brick to be replaced.  The court found in favor of the Insurance Company because the brick subcontractor’s work did not damage any other part of the house.

Scorecard:  The Home Owner won some portions of its claim, but not all.

Take Away: There are challenges to a construction claim at every turn.  You not only have to marshal the resources to fight the battle, but you need sound counsel in pursuing each of the claims.  Having experienced construction counsel on your side is crucial to victory.

Ambush Elections are Here—Are You Ready?

Posted in Unioin Campaign

On April 14, 2015, the National Labor Relations Board’s new election rule went into effect. The new rule, which shortens the time frame for union elections, will make it easier for unions to organize.  Employers must get prepared now, not when they hear about an election.  As the NLRB Members who dissented from the final rule noted:

The Final Rule has become the Mount Everest of regulations: Massive in scale and unforgiving in its effect. Very few people will have the endurance to read the Final Rule in its entirety.

Here are some highlights of the new rule:

  • Within 2 business days after service of the Notice of the Pre-Election Hearing, the employer must post a Notice of Petition for Election. The employer must also distribute the notice via e-mail if the employer customarily communicates with employees via e-mail.
  • A Pre-Election hearing will be scheduled within 8 days from the Notice.
  • The employer must file a Statement of Position (new form) within 7 days of the Notice of Petition identifying any issues it wishes to litigate at the hearing.  Any issues not raised are waived.
  • The employer must provide a list of employees, including detailed contact information. And, if the employer believes that the classification unit is inappropriate, a separate list of all individuals the employer claims should be added or excluded in the proposed unit must be provided.
  • The voter list must be filed with the NLRB and the union.
  • After the hearing, objections must be filed within seven days after the tally of ballots and must specify the reason for each objection along with a written offer of proof identifying the witness(es) who would testify in support of each objection and what they would say if they provided testimony.

For those of you not familiar with litigation, this is like going to trial within 10 days of being served with a lawsuit.  You have to be prepared well ahead of any organizing activity to effectively defend against the organizing efforts.

For those of you that want to read more, here are a few links to information about the new rule that the NLRB issued:

Take Away: Union organizing is a real threat to every merit shop.  Now is the time to get prepared for an election campaign–well before the campaign begins.

OSHA Penalties—What Happened with International Nutrition

Posted in Uncategorized

For those of you in and around Omaha, you recall the tragic collapse of International Nutrition’s plant in early 2014, killing two workers and injuring several others.  OSHA swept onto the scene and issued citations.  Surprisingly, the penalties totaled only $120,000.  While a large sum, one would think two deaths and a score of injuries would generate a larger fine.  International Nutrition appealed the penalties and they have now been reduced to $78,000, about a 1/3 reduction.  Below, I’ll set forth what happened.

The Original Penalties

International Nutrition was originally fined $120,650.00 for citations ranging from willful, serious, to other-than-serious.  Here is the original citation.  The table below summarizes the citation and penalties:

Description of Citation Gravity Penalty
Employer did not furnish hazard free work environment Serious $6,160.00
Passageways and storerooms not kept clean Serious $6,160.00
Employer failed to provide written respiratory protection program Serious $2,640.00
Employer failed to provide medical evaluation to determine employee’s ability to wear respirator Serious $0.00
Employer failed to annually fit test respirators Serious $0.00
Employer failed to provide confined space training Serious $4,400.00
Employer failed to adopt an energy control plan Serious $6,160.00
Employer failed to provide training in Spanish; for new hires and on the use of energy control procedures Serious $6,160.00
Employer did not ensure employees successfully completed training and failed to evaluate operator’s performance Serious $6,160.00
Employer failed to install proper electrical systems and wiring Serious $6,160.00
Employer failed to install dust proof junction box Serious $0.00
Employer failed to provide HAZCOM training Serious $2,640.00
Employer exposed employees to hazardous worksite by overloading structure Willful $61,600.00
Employer failed to regulate air nozzles so as not to exceed 30 p.s.i. Repeat $12,320.00
Respirators were not provided with adequate respirator training Other-than serious $0.00
Employer failed to keep permits for one year Other-than serious $0.00
Total $120,650.00

 

Not surprisingly, the largest penalty, $61,600.00, stemmed from the willful violation that International Nutrition’s exposed workers to a hazardous work site.

Challenge to Penalties

International Nutrition chose to contest the penalties by filing a “Notice of Contest” with the Secretary of Labor.  The Notice of Contest then begins the administrative proceedings, much akin to a lawsuit, in which the Department of Labor’s OSHA attorney files a lawsuit against International Nutrition alleging that International failed to abide by the OSHA regulations and asking that the penalties listed in the citation be imposed against International Nutrition.

Settlement Discussion

During the pendency of an OSHA proceeding, parties generally continue to discuss settlement.  And, that’s what happened here.  Under the settlement with OSHA, International Nutrition’s penalties were reduced to $78,000.  The biggest change was the willful penalty reduced to repeat and the associated penalty was reduced from $61,500 to $50,000.  The number of the serious citations was also reduced from 12 to 5.  International Nutrition must also participate in the Severe Violator Enforcement Program, which means it will be subject to follow-up inspections and increased company awareness of OSHA programs, such as an obligation to hire an OSHA consultant to work with the company’s OSHA compliance.

Take Away: International Nutrition must have had a pretty good OSHA program to limit the penalties that OSHA could impose after this tragic accident.  This situation certainly underscores the importance of maintaining an effective OSHA program to minimize penalties.

Employee Handbooks—Your First Line of Defense

Posted in Employee Handbook

This spring has been busy with questions about employee handbooks.  Perhaps it is because the NLRB just issued a directive on the legality of various clauses usually contained in handbooks. Or perhaps it’s because employers, including construction companies, are realizing the importance that handbooks play in defending against claims of harassment.

Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLP

 

Employee Handbooks Are Important

Employee handbooks are an employer’s first line of defense in claims of harassment.  A key provision to any employee handbook is an anti-harassment provision that includes:

  • A definition of harassment;
  • The process to complain about harassment;
  • A commitment to investigate all claims of harassment; and
  • An assurance that no one will be retaliated against for reporting harassment.

This is the first line of defense in a harassment claim because employers may avoid liability IF they have a policy against harassment, investigate the situation, and take appropriate action in response to the allegations of harassment. If the employer does not have an anti-harassment policy, this defense is not available and the situation will be more difficult to resolve.

Employee Handbooks Can Be Simple

I have heard employers say time and time again, we’re a close knit crew and we don’t want a 50 page employee handbook.  First, you are a close knit crew until some complains about harassment.  Second, you don’t have to have a 50 page handbook.  Handbooks are often times less than 15 pages, and many times less than 10 pages.  This is not a lot of paper, given the protection that a handbook can provide.

Training is Crucial

Just like with your safety policies, you have to provide training on your handbook.  At least once a year, you should go over the handbook , spending a little extra time on the anti-harassment policy and reporting procedure.

Take Away: You need an employee handbook.  Make it a goal for this spring or even 2015 to adopt an employee handbook.

Demanding A Reduction in Retainage

Posted in Nebraska Prompt Pay Act

One of the attendees of the Goldleaf Surety presentation asked a great question about reducing retention under the Nebraska Construction Prompt Pay Act, Nebraska Revised Statutes, 45-1201-45-1211.  He wanted to know whether there was any way to reduce and recover retainage during the project.  The short answer is retainage should be reduced half way through the project, but there is no right to recover retainge for work performed during the first half of the project.

Retainage in Nebraska

Under section 45-1204 of the Prompt Pay Act, a contractor may withhold up to 10% retainage.  A contract that allows for greater retainage is not enforceable.

Reduced Retainage

Once the project is 50% complete, retainage should be reduced to 5%.  But, the reduced retainage only applies to additional progress payments.  There is nothing in the Prompt Pay Act that requires the upstream contractor to pay retainage withheld since the beginning of the project.

Reasons Not to Reduce Retainage

A reduction in retainage is not automatic.  In order to get the reduced retainage, the downstream contractor must demonstrate to the upstream contractor:

  • that the work completed to date has been done in accordance with the contract;
  • that the downstream contractor has provided assurances of continued performance; and
  • the downstream contractor has the financial ability to complete the work.

Take Away: Retainage should be reduced to 5% after the project is 50% complete.  But, the upstream contractor may hold on to the entire retainage withheld during the first 50% of the job until the job is complete.

Improper Classification Under Davis Bacon Can Be Costly

Posted in Davis Bacon Act

The Department of Labor announced late last year that it had recovered nearly $2 million Craig Martin, Construction Attorney Lamson Dugan & Murray LLPin back wages and fringe benefits from a subcontractor that provided constructions services at the federally funded Crescent Dunes Solar Energy Project in the Nevada desert. This was not a failure to pay Davis Bacon wages, but a failure to properly classify laborers on the project. The DOL determined that the laborers should have been paid as skilled trade steelworkers, not general laborers.  As the subcontractor found out, this proved very costly.

The subcontractor submitted its bid, classifying its laborers as general laborers and designating their wage at $30.00. The laborers were to assemble billboard sized mirrors on the project. There is some indication that the Department of Energy agreed with the classification, even though the Department of Labor has the final say on classifications. The Department of Labor’s investigation revealed that the laborers routinely performed duties in skilled trades, such as ironworking, electrical work, painting or bridge crane operation. Based on these activities, the Department of Labor concluded that the laborers should have been paid $60.00 per hour plus fringe benefits.

Some might ask why the subcontractor couldn’t rely on the Department of Energy’s approval of the wages. Aside from the Department of Labor having the final say on these matters, perhaps the subcontractor or general contractor should have sought guidance from the Department of Labor on this issue. The Department of Labor’s Frequently Asked Questions section addresses this very issue. The general contractor could have submitted a Request for Wage Determination, Form 308, before the bids were opened. After bids were opened, the contractor should have requested a wage determination. In situations where the contract wage determination does not contain a class of workers needed to complete the construction:

a contractor shall submit to the contracting officer a request for the addition of the needed classification(s) of laborers or mechanics not listed in the wage determination, together with proposed wage rates and fringe benefits conformable to the wage determination.

Take Away: The subcontractor was forced to pay nearly twice the wages it budgeted on this project. Proactive measures with the Department of Labor could have clarified the wages laborers should be paid on this project and may have allowed the subcontractor to increase its bid to cover the additional cost.

 

Submitting Claims on Government Projects Can Be Tricky

Posted in Government Contracting

The Federal Circuit Court of Appeals opinion in K-Con Building Systems, Inc. v. United iStock_000002341708MediumStates illustrates the difficulties a contractor may face when pursuing a claim before a Contracting Officer. After nearly 10 years of litigation, the court found that the contractor’s claim to the Contracting Officer did not contain enough detail to allow the claim to proceed. That’s a lot of time and resources wasted on a claim that was dead from the start.

K-Con was awarded a $582,000 job to design and build a Coast Guard support building in Michigan. K-Con was unable to complete the project by the finish date and the Coast Guard assessed liquidated damages of $109,554. K-Con contested the assessment of liquidated damages by submitting a one paragraph letter asserting that it was not the sole cause of the alleged delays; that the government was at fault for the delay; and the liquidated damages were an impermissible penalty. The Contracting Officer ultimately denied K-Con’s claim and K-Con appealed to the Court of Claims.

K-Con must have understood that even if it won its appeal in the Court of Claims, it would not be able to recover additional compensation to which K-Con thought it was due. So, K-Con filed another claim before the Contracting Officer to recoup money owed for extra work. The Contracting Office denied K-Con’s claim and K-Con then added these claims to its Court of Claims action.

The parties continued to litigate all issues for three more years. Then, in 2013, the government raised a jurisdictional argument—that K-Con had not raised all issues pending before the court in its first claim to the Contracting Officer and thus the Court of Claims did not have jurisdiction to hear K-Con’s claim for additional compensation. The Court of Claims agreed and dismissed K-Con’s claim for additional compensation. The Court of Claims then ruled against K-Con on the remaining claim that liquidated damages should not be imposed.

K-Con appealed the Court of Claims decision, but lost again. So, after nearly 10 years of litigation, K-Con lost all of its claims and had to pay liquidated damages to the Coast Guard.

Take Away: Government contracting claims can prove difficult and if you don’t do it right, you may lose your right to make the claim.  Make sure you review and understand the requirements of the FAR regulations before submitting your claim.