Lamson, Dugan and Murray, LLP, Attorneys at Law

Following My Own Advice

Posted in E-Verify


I often advise clients on the use of E-Verify and the importance of getting policies and Craig Martin, Construction Attorney, Lamson Dugan and Murray, LLPprocedures in place to ensure compliance.  This is particularly true for clients that do federal and state work.  Now it’s my turn to follow my own advice.

I was recently appointed to represent the Nebraska Board of Engineers and Architects.  As such, I am a contractor for the State of Nebraska.  That means I have to use E-Verify.

Here is a refresher of “our” E-Verify obligations as a contractor for the State.

Nebraska adopted an E-Verify law in 2009.  Nebraska statute section 4-114 requires all contractors that are awarded a contract by a state agency or political subdivision to register with ta federal immigration verification system. Although not explicit in the statute, the Department of Labor has indicated that the obligation to E-Verify applies only to new employees that will be working on the project.

If you have yet to enroll in E-Verify, the Department of Labor has information an E-Verify website that should answer all of your questions.  Here is a summary of an employer’s obligations under E-Verify:

Overall, enrolling in E-Verify is not difficult. But, it does bring about a fundamental change to the way you on-board new employees.  If you plan on, or are already doing, work for the State of Nebraska, it’s time to get enrolled in E-Verify.

The Importance of Providing Notice to a Surety

Posted in Bond Claims, Uncategorized

A recent case out of Missouri emphasizes the importance of providing notice to a surety when a bonded subcontractor is in default.  When the question of whether a surety will be obligated under the bond is in the balance, notice is crucial.

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

In CMS v. Safeco Insurance Company, Safeco provided a performance bond to a subcontractor for the benefit of CMS.  The bond specifically provided:

PRINCIPAL DEFAULT. Whenever the Principal [Subcontractor] shall be, and is declared by the Obligee [CMS] to be in default under the Subcontract, with the Obligee having performed its obligations in the Subcontract, the Surety [Safeco] may promptly remedy the default, or shall promptly:



4.3 PAY OBLIGEE. . . .


Several months into the project, CMS informed Safeco, through a Contract Bond Status Query, that the subcontractor’s work had not progressed satisfactorily, that the contract was 9 months past due and that liquidated damages would be assessed.  Importantly, as least according to the court, CMS did not declare that the subcontractor was in default.  A few months later, the subcontractor walked off the job and the president of the subcontractor filed for bankruptcy.   CMS completed the work and submitted a Notice of Claim on Subcontract Bond to Safeco, demanding $65,449.93, the amount CMS incurred as a result of the subcontractor’s default.  Safeco refused to pay the demand, asserting that it was not provided with timely notice of the default.

CMS sued Safeco, asserting that it was not obligated to provide notice of default, and even if a notice of default was required, the Contract Bond Status Query was sufficient notice.

The court disagreed.  Reviewing the language in the Principal Default section, the court fund that CMS was obligated to provide specific notice of the subcontractor’s default.  In essence, CMS had to specifically inform the surety that the subcontractor was in default.  Because CMS never informed Safeco that the subcontractor was in default, Safeco’s duties under the bond were never triggered.

Take Away:  When your subcontractors provide a bond on a project, you should be reviewing the bond to determine whether it contains any notice obligations.  Otherwise, you run the risk of losing your claim under the bond.

What To Do When the Government is Slow to Decide a Claim?

Posted in Government Contracting

iStock_000017987518XSmallYou may know this situation all too well.  You’ve submitted your certified claim to the contracting officer and there it sits.  You ask for a decision and they say soon, but it’s not soon.  And pretty soon, several months have gone by.  Since the Court of Federal Claims’ decision in Rudolph and Sletten, Inc. v. U.S., the government may have to decide in 60 days or your claim will be deemed denied which would allow you to file your claim in the Court of Federal Claims.



Rudolph and Sletten (R&S) were awarded a contract to construct the La Jolla Laboratory.  On August 20, 2013, R&S submitted a certified claim seeking $26,809,003 as compensation for costs due to alleged government-caused delays and disruption, additional consultant costs and extra work.

In October, 2013 the contracting officer informed R&S that a decision would be made in 9 months.  R&S wrote the contracting officer stating that the 9 month extension was excessive and unreasonable and demanded a detailed explanation for the delay or a work plan.  The contracting officer explained the reason for the delay and said the claim would be decided by July 15, 2014.

R&S filed suit in January, 2014.  Even though the lawsuit had been filed, the contracting officer sought to extend the deadline for its decision to March, 2015.  The government then filed a motion seeking to dismiss the claim, arguing that R&S failed to obtain a final decision from the contracting officer before filing its complaint.  The government alternatively asked the court to stay the case and remand it to the contracting officer for a final decision.

The Court’s Decision

The court made two interesting rulings in this case.  First, the court decided that the contracting officer was deemed to have denied the claim when it failed to decide the claim within its initial estimate.  Second, the court remanded the claim back to the contracting officer, but provided a deadline by which to decide the claim.

On the first issue, the court cited to the Contract Dispute Act and the language that required the contracting officer to issue a decision within 60 days or notify the contractor when the decision would be issued.  The court found that the contracting officer was within its rights to extend the deadline by which to decide the claim to July 15, 2015. But, the contracting officer had no authority to extend the deadline to March, 2015.  Because the contracting officer did not decide the claim by July 15, 2015, it was deemed a denial.

On the second issue, the court remanded the case back to the contracting officer for a decision, but with strict instructions that the decision must be made within 30 days of the court’s order.  The court also sent a parting shot over the contracting officer’s bow:

While the Court believes a decision from the contracting officer will be beneficial to this case, the contracting officer’s findings of facts are not binding upon the parties and are not entitled to any deference.

Take Away: A contracting officer may extend the time by which a decision may be made beyond the 60 days allowed by the Contract Dispute Act, but the deadline may not be extended again.  If the decision is not made during the first extension, it will be deemed denied, allowing a contractor to file suit.

Workplace Safety–the Unpreventable Employee Misconduct Defense

Posted in OSHA

I just attended an Associated Builders and Contractors meeting during which Lueder Craig Martin, Construction Attorney, Lamson Dugan & MurrayConstruction discussed a fatality on one of its worksite.  OSHA fully investigated the incident and did not issue a single citation.  This is a testament to the safety plan and training Lueder had in place well before this incident.  One defense to an OSHA citation is unpreventable employee misconduct.  However, proving this defense requires substantial planning, well before an incident or investigation.

Unpreventable Employee Misconduct Defense

OSHA requires that an employer do everything reasonably within its power to ensure that its personnel do not violate safety standards. But if an employer lives up to that billing and an employee nonetheless fails to use proper equipment or otherwise ignores firmly established safety measures, it seems unfair to hold the employer liable. To address this dilemma, both the Occupational Safety & Health Review Commission and courts have recognized the availability of the unforeseeable employee misconduct defense.

The OSHA Field Operations Manual provides that to establish this defense in most jurisdictions, contractors must show all the following elements:

  • A work rule adequate to prevent the violation;
  • Effective communication of the rule to employees;
  • Methods for discovering violations of work rules; and
  • Effective enforcement of rules when violations are discovered.

Work Rule

At a minimum, a contractor will need a companywide safety plan.  If there is certain conduct that requires heightened safety, specific safety rules should also be implemented.


Contractors must also train its employees on its safety plan.  It is equally important to document that training, such as through a sign-in sheet for all attendees.  And, keep a copy of the presentation handouts.

Safety Compliance Inspections

Contractors must also make efforts to discovery safety violations.  This may be through a safety manager conducting safety compliance inspections. Again, these inspections must be documented, such as on a daily report.


Contractors must be able to prove that they enforced the safety rules, such as through a progressive discipline policy.  And, like a broken record, contractors must have documentation showing that they disciplined employees or subcontractors for violating safety rules.

Take Away: The unpreventable employee misconduct defense is an effective tool to defend against OSHA citations, but contractors must lay the groundwork well ahead of time to show that they have a safety plan, that they provide training on that plan, monitored safety practices on the job site and disciplined those that failed to abide by it.

Suing the Lowest Bidder on Public Construction Projects

Posted in Public Contracts

Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLPThe California Court of Appeals has allowed the second lowest bidders on public construction projects to sue the lowest bidder where it appears that the lowest bidder was only the lowest because it paid its employees less than the established prevailing wage.  This is a novel theory for recovery, but may provide for an opportunity to challenge improperly low bids.


Between 2009 and 2012, American Asphalt outbid two asphalt companies on 23 public works projects, totaling nearly $15 million.  The two asphalt companies sued American Asphalt alleging that they were the second lowest bidder all 23 construction projects and they would have been the lowest had American Asphalt paid its employees the required prevailing wage.  Importantly, the municipality awarding the contracts was not sued by the second lowest bidders.  Instead, the second lowest bidders alleged that American Asphalt intentionally interfered with a business expectancy and sought damages from American Asphalt, specifically the profit that they lost by not performing these contracts.

 Court’s Ruling

The court ruled that a second lowest bidder may sue the lowest bidder where, but for the wrongful conduct of the seemingly lowest bidder, the second-place bidder would have obtained the contract.  The court specifically rejected American Asphalt’s argument that a disappointed bidder has no legally protectable expectancy interest in being awarded a contract.

This case has been appealed to the California Supreme Court and it will take a few months to work its way through the system.  But, in the meantime, the case provides a novel argument to challenge a low bidder whose bid fails to comply with the requirements of the bid package.

Take Away: If you lose out on a bid, take a look at the winning bid to confirm that the winning bid complied with all requirements of the bid package, including wages.  It may also be of benefit to see whether the winning bid uses employees or a bunch of misclassified independent contractors.

NLRB Broadens the Joint Employer Standard

Posted in Unioin Campaign

nlrb-logoPerhaps in anticipation of Labor Day, the National Labor Relations Board issued its ruling in Browning-Ferris Indus. of Cal. d/b/a BFI Newby Island Recyclery, establishing an easier standard for unions to prove that a joint employer relationship exists.  This will make it easier for unions to make the upstream company, like a parent company, liable for unfair labor practices, even if the upstream company had no direct involvement.

Some Background

BFI runs a recycling plant and contracts with Leadpoint to provide workers to sort garbage in the recycling plant.  The staffing agreement specifically stated that Leadpoint was the sole employer of the personnel it supplied and Leadpoint handled supervision of the employees, not BFI.

Leadpoint’s employees sought to unionize and an election was held.  The union filed a petition seeking a determination that Leadpoint and BFI were a joint employers.

How the NLRB Ruled

The Board found that BFI and Leadpoint were joint employers and BFI and Leadpoint would both be obligated to bargain with the union.  Under the Board’s ruling, two or more entities will be joint employers if they jointly govern the essential terms and conditions of employment.  Specifically, the Board will be looking to see if a common-law employment relationship exists, and if it does, whether the upstream employer possesses sufficient control over employees’ essential terms and conditions of employment.  These essential terms include hiring, firing, discipline, supervision and direction.

What this Means for Employers

The NLRB greatly expanded those entities that will be treated as employers.  For example, the typical staffing agency will be deemed a joint employers with the entity contracting with the staffing agency.  For the entity contracting with the staffing agency, it will now be subject to the obligations of the NLRA.

Another real concern is for those now employers with contract employees on-site that have already unionized.  The union may demand that the now joint employer come to the bargaining table or the union may claim that the now joint employer is subject to a bargaining agreement that it had no part in negotiating.

This decision will also make it easier for unions to bring in a franchisor as a joint employer.  So, be prepared for a lot of McDonald’s type claims against national franchisors.

Liquidating Agreements—Bridging the Privity Gap for Subcontractors

Posted in Construction Contracts

Craig Martin, Construction Attorney Lamson Dugan & Murray, LLPWhat is a subcontractor to do when the owner has demanded additional work, but has refused to pay for it?  Typically, a subcontractor cannot sue the owner because the subcontractor doesn’t have a contract with the owner.  Perhaps the subcontractor and general contractor should enter into a liquidating agreement through which the general contractor can pursue the claim on behalf of the subcontractor.

Liquidating agreements bridge the privity gap between owners and subcontractors who sustain damages because of the others actions.  Liquidating agreements or pass-through agreements grant the general contractor a release of its liability to the subcontractor after the general contractor prosecutes the subcontractor’s pass-through claim against the owner and gives the subcontractor any recovery.

The benefit to liquidating agreements is that when they are properly drafted, they avoid the application of the Severin doctrine. This is the doctrine established in Severin v. United States, a 1943 case, in which the court held that a subcontractor could not recover against the Government if the general contractor was not also liable to the subcontractor on the same claim. This means that the general contractor must be obligated to pay the subcontractor regardless of whether the subcontractor claim is ultimately paid by the Government.

A well drafted liquidating agreement provides that the subcontractor will release all claims it may have against the general contractor in exchange for the general contractor’s promise to pursue the subcontractor’s claim against the Government.  Liquidating agreements should have three basic elements:

  1. the imposition of liability upon the general contractor for the subcontractor’s increased costs, thereby providing the general contractor with a basis for legal action against the owner;
  2. a liquidation or set amount of liability in the amount of the general contractor’s recovery against the owner; and
  3. a provision that provides for the pass-through of that recovery to the subcontractor. 

In addition to these basic elements, the covenant of good faith and fair dealing will be implied.  This covenant requires the general contractor to take all reasonable steps so that the subcontractor’s rights to an eventual recovery, if any, from the owner will be protected. Courts have held that this means that the general contractor has a duty to make a good faith effort to present the subcontractor’s claim to the owner in a fair and serious manner.

Take Away: When a subcontractor is owed money by an owner, negotiating a liquidating agreement with the general contractor may provide an excellent opportunity for recovery.

Flow-Down Clauses Can Drown Your Project

Posted in Construction Contracts

Craig Martin, Construction Attorney Lamson Dugan & Murray, LLPFlow-Down or pass-through clauses obligate downstream contractors to certain provisions contained in the up up-stream contractor contracts, such as the contract between the general contractor and the owner.  These clauses are contained in every major form subcontract and they can expand the scope of your potential liability.  This blog will look at typical language of a flow-down clause, what it means and how you can deal with them.



Typical Flow-Down Clause

A simple flow down clause might provide:

 The Subcontractor agrees to be bound to the Contractor by the terms of the prime contract and to assume to the Contractor all the obligations and responsibilities that the Contractor by those documents assumes to the Owner, except to the extent that the provisions contained therein are by the terms or by law applicable only to the Contractor.

 What Do Flow-Down Clauses Mean?

Flow-down clauses bind a down-stream contractor to the owner or up upstream contractor.  More importantly, to the extent you may have negotiated around landmines in the upstream contractor’s contract, you may have agreed to the same or even worse provisions in the up upstream contract.

For example, if you negotiated extended notice requirements with your upstream contractor, but the prime contract, which was incorporated into your contract through a flow-down clause, contained a shorter time frame, you may be obligated to comply with a the shorter time frame.

Dealing with Flow-Down Clauses

The best way to deal with a flow-down clause is to be aware of the up upstream obligations.  If your contract contains a flow down-clause, ask for a copy of the contract to which you are obligated.  Red flags should rise pretty quickly if your upstream contractor doesn’t have or can’t get a copy.

You should also negotiate the scope of the flow-down.  Ask what the upstream contractor needs with the flow-down.  Are they seeking indemnity?  How about dispute resolution or notice provisions?  Try to limit the extent of the flow-down.

Take Away: A flow-down provision can drown your project.  If you are being asked to sign a contract with a flow-down clause, make sure you review the up upstream contract so that you know the extent of your obligations to the up upstream contractor or owner.

The New “White Collar” Exemption Regulations

Posted in FLSA

This summer the Department of Labor’s Wage and Hour Division issued proposed changes to the white-collar wage-and-hour-divisionovertime regulations under the Fair Labor Standards Act (FLSA).  The white collar exemptions include the executive, administrative, professional, outside sales and computer employee exemptions.  The focus of the proposed regulations is to increase the salary level required to qualify for the exemption from $23,660 per year to $50,440 per year.  The DOL predicts this will cause employers to change the exempt status of nearly 5 million workers who are currently exempt from overtime requirements to non-exempt status – requiring the payment of overtime.

Current Regulations

Under today’s regulations, the white collar exemption applies to employees who are paid at least $455 per week ($23,660 per year) and who customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee.

Proposed Changes

The most significant change is the sizeable increase in the minimum salary requirements for the exemptions.  The proposed regulations more than double the current minimum salary of $455 per week to $921.  This corresponds to the 40th percentile of weekly earnings projected for the first quarter of 2016, based on the Bureau of Labor Statistics.  The DOL also proposes annual adjustments to the minimum salary requirements.

The DOL is also seeking to increase the minimum annual compensation requirement for the highly compensated employee white collar exemption from $100,000 annually to $122,148 annually.

The DOL was also tasked with updating the duties tests contained in the regulations to make them easier to apply, but the proposed regulations do not contain any simplifications.  Instead, the DOL is asking for comments from the industry on the current duties tests.

Take Away

These proposed regulations will definitely impact those employees employers consider exempt. Employer will have to again review job duties and compensation to determine whether exempt employees are truly exempt.   These regulations, once effective, may mean that you will have to pay some employees overtime or increase their salary to meet the minimum salary requirements.  The new regulations are expected to go into effect in 2016.

OSHA Issues New Rules on Injury Record Keeping

Posted in OSHA

On July 28, 2015, OSHA issued proposed rules seeking to clarify an employer’s ongoing OSHA-logoobligation to make and maintain accurate records of work-related injuries and illness.  The new rules were drafted in response to the U.S. Court of Appeals decision in AKM LLC, d/b/a Volks Constructors v. Secretary of Labor, in which a contractor successfully argued that OSHA’s citation was issued well beyond the six month limitation period.

OSHA’s Injury Record Keeping Obligations

The Occupational Safety and Health Act requires each employer to make, keep and preserve records of workplace injuries and illnesses.  29 U.S.C. § 658(c).  OSHA has promulgated a set of regulations which require employers to record information about work-related injuries and illnesses in three ways. Employers must prepare an incident report and a separate injury log “within seven (7) calendar days of receiving information that a recordable injury or illness has occurred,” 29 C.F.R. § 1904.29(b)(3), and must also prepare a year-end summary report of all recordable injuries during the calendar year, id. § 1904.32(a)(2).  An employer “must save” all of these documents for five years from the end of the calendar year those records cover. 29 C.F.R. § 1904.33(a).

OSHA’s Citation Against Volks Constructors

In May, 2006, OSHA inspected Volks and found a number of record keeping violations.  In November, 2006, OSHA cited and fined Volks Constructors $13,300.00, for failing to properly record certain workplace injuries and for failing to properly maintain its injury log between January 2002 and April 2006.  In essence, Volks was cited for violations that occurred from 54 months to six months and 10 days before the citation.

Volks challenged the citation, arguing that it was issued too late because the Act says that “[n]o citation may be issued . . . after the expiration of six months following the occurrence of any violation,” 29 U.S.C. § 658(c), and because the injuries giving rise to recording failures took place more than six months before the issuance of the citation.  Volks lost at the administrative level and lost again before the Occupational Safety and Health Review Commission. Volks ultimately appealed to the U.S. Court of Appeals, which reversed OSHA’s citation.

The Court of Appeals Decision

In a nutshell, the court found that OSHA had waited too long to issue the citation—beyond the six month limitation period contained in the statute.  In an effort to maintain its citation, OSHA argued that the six month period to issue the citation does not begin to run until the five year record retention obligation ends.

The court was not persuaded by OSHA’s argument:

[T]he Secretary’s interpretation has absurd consequences in the context of the discrete record-making failure in this case. Under her interpretation, the statute of limitations Congress included in the Act could be expanded ad infinitum if, for example, the Secretary promulgated a regulation requiring that a record be kept of every violation for as long as the Secretary would like to be able to bring an action based on that violation. There is truly no end to such madness.

Relying on the plan language of the statute, the court concluded that employers must make records of workplace injuries in whatever form the Secretary requires within the time period established by the Secretary—here, seven days after the injury. If they fail to do so, that is a violation. OSHA may cite employers for violations within six months of the violation’s occurrence.

OSHA’s New Regulations

OSHA is proposing to amend its recordkeeping regulations, 29 CFR part 1904, to clarify that employers covered by the recordkeeping requirements have a continuing obligation to make and maintain accurate records of all recordable injuries and illnesses. OSHA asserts that this obligation continues for as long as the employer must maintain records for the year in which an injury or illness became recordable, and it does not expire if the employer fails to create a record when first required to do so.

Interestingly, these new regulations run completely afoul of the court’s decision in Volks. It will be interesting to see if the new regulations are enforceable, given the court’s comments that the record keeping statutes are clear and OSHA’s interpretation of the statute, through its rules, was unreasonable.  The new rules appear to build on OSHA’s original unreasonable interpretation.