Most construction contracts require downstream contractors to indemnify or insure upstream contractors. Isn’t that just a way of saying the same thing twice? No, under Nebraska law, and most states, a duty to indemnify may be void as against public policy, while naming an upstream contractor as an additional insured will provide more certainty that the downstream contractor’s insurer will cover a claim.
An indemnity clause requires one party to pay any sums the other party might otherwise be legally required to pay to a third party.Nebraska has adopted an anti-indemnity statute that sets out the circumstances under which an agreement to indemnify another party for the other’s own negligence is void as against public policy. In essence, an upstream contractor cannot make a downstream contractor indemnify the upstream contractor for its negligence. This statute is based on public policy that we want parties to a contract to exercise care and if a party can be indemnified for its negligence, it will have no incentive to act carefully.
Agreements to insure another party are, however, specifically excluded from Nebraska’ anti-indemnity statute. So, an upstream contractor can require a downstream contractor to name the upstream contractor as an additional insured under the downstream contractor’s insurance policy. By doing so, the insurance the downstream contractor purchases may very well provide coverage for the upstream contractor’s negligence.
As the Nebraska Supreme Court has acknowledged:
It is common practice in construction contracts for owners and general contractors to shift the risk of liability for injuries sustained by a subordinate party’s employees to the subordinate party’s insurer. They usually accomplish this by contractually requiring the subordinate party to make the owner or general contractor an additional insured on the subordinate party’s CGL coverage.
Federated Service Ins. Co. v. Alliance Const., LLC, 282 Neb. 638 (2011).
The main reason for including additional insured language in a construction contract is so that the upstream contractor, now named as an additional insured, will not be limited to the coverage that the insurer owes for the downstream contractor’s liability under an indemnity agreement in the construction contract. If the indemnity agreement is declared invalid under an anti-indemnity statute, then the downstream contractor’s insurer will not be liable for the downstream contractor’s liability under the indemnity agreement. But, with the additional insured language, even if the indemnity agreement is invalid, its invalidity does not impact the coverage extended under an additional insured endorsement.
Indemnity and being named as an additional insured are not the same thing. Indemnity clauses are subject to challenges that they may not be enforceable under a state’s anti-indemnity statute. Being named as an additional insured avoids this problem and provides more certainty that the downstream contractor’s insurer will provide coverage for a claim.
Read my guest post on Chris Hill’s Virginia-based construction law blog Construction Law Musings discussing the recent Florida Supreme Court ruling that limits the application of the Economic Loss Rule to products liability cases. This is a big change in Florida construction law and we’ll have to wait and see if and how this impacts other states. While you are there, browse around and check out the wealth of information on Chris has posted to his blog.
On April 5, 2013, OSHA issued an interesting opinion providing that employees at non-union workplaces may designate a union representative to accompany OSHA’s investigators during inspections. This guidance appears inconsistent with OSHA regulations and is a significant change in OSHA’s interpretation of its regulations.
OSHA’s opinion concludes that non-union employees can select a person who is affiliated with a union or a community organization to act as their “personal representative” to act on the employee’s behalf as a walk-around representative. The difficulty with this interpretation is that 29 C.F.R. § 1903.8 provides that a representative must be an employee of the employer. There is an exception to this rule if the OSHA investigator believes that the presence of a third-party is necessary to conduct an effective and thorough investigation of the workplace. These “exceptions” often times include experts like industrial hygienists and safety engineers. There is certainly no indication that one’s membership with a union somehow aids in an effective and thorough inspection of the workplace.
Aside from OSHA’s apparent inconsistencies with its regulations, this interpretation raises a number of other concerns.
- How is the employee representative selected?
- Can other employees object to the selected representative?
- Can employers object to the employee representative?
- Do objecting employees have the opportunity to select their own representative?
- Does this allow for multiple employee representatives?
- Can the employee representative collect evidence?
- Does the employer have any protection from the release of trade secrets or other confidential information viewed by the employee representative?
OSHA’s latest interpretation letter raises more questions than it answers. Certainly, non-union employers should be concerned about this new policy, and unions may be encouraged to use OSHA investigations as an organizing tool.
The Viewpoint in the latest Engineering News Record (ENR), Lawyer as Constructor?,raised an interesting point – whether the construction industry is better off having attorneys involved in the construction process. The author thinks not, that the use of construction attorneys has taken over the construction process and slowed projects down immeasurably. I have no doubt that once attorneys get involved the process can slow down, but delays on projects are driven more by today’s marketplace than construction attorneys.
Walter Wells writes in his editorial that the American construction industry is being run by lawyers. He compares projects like the Pentagon, which took two years to build, to the Four World Trade Center, which was one third the size and took 12 years to build. He concludes that the threat of litigation and construction lawyers are the reason the Four World Trade Center took so long to build.
But, I think this places too much blame on attorneys and fails to consider the substantially different construction marketplace. Sure, the Pentagon was built in two years, but that project is not an apples to apples comparison to the Four World Trade Center, which took 144 months. I don’t think the Pentagon contractors were dealing with the vast number of interest groups involved in the Four World Trade Center project or the multi-layer bureaucracy involved. Nor do I think the Pentagon had to address the impact the structure would have on endangered plant and animal species that today’s laws require contractors to consider.
Similarly, construction attorneys are not solely to blame for the increase in construction litigation. As the saying goes, it takes two to tango. Contractors are having to defend against construction process related claims as well as post-construction claims. Our society has become substantially more litigious and contractors are often caught in the middle, but have to defend the claim.
I agree that attorneys do occasionally slow down the process and the threat of litigation looms large in every project. But our purpose is to ensure our clients are addressing the multitude of laws impacting the project, the multiple levels of insurance required, and the shifting of each party’s responsibilities set forth in the contract. Today’s market place is substantially different than in the 1940’s and we serve our clients’ interest in preparing construction contracts that acknowledge the changed marketplace and in defending contractors in a litigious environment.
Ultimately, is the construction industry better off having counsel engaged in the project? I think that it is because competent counsel at the beginning of a project can often times help the contractor avoid the claims and litigation that arise during and after the project.
Today’s post is from Sarah Macdissi, an associate in our Litigation Department.
On Friday, May 3, 2013, the Nebraska Supreme Court, in Fisher v. Payflex Systems USA, ruled that Nebraska’s Wage Payment and Collection Act requires an employer to pay an employee for his or her earned but unused Paid Time Off (“PTO”) hours, upon separation of employment. This is true even if there is a provision in the employee manual that the employer will not pay for accrued PTO if the employee is terminated.
Prior to this decision, upon separation of employment, Nebraska’s Wage Payment Act only required an employer to pay earned but unused vacation leave to an employee. The Act did not require an employer to pay an employee for his or her unused sick leave. This is because paid sick leave was contingent upon an occurrence (i.e., sickness) and no contingencies existed for the use of vacation time. An employee was allowed to use paid vacation time for any purpose – provided the employer approved the timing of its use.
Now, under the Court’s new holding in Fisher, earned PTO hours are treated no differently from earned vacation time and must be paid to an employee upon separation of employment. The Fisher Court found persuasive the fact that PTO hours were nearly identical to vacation hours as employees could use both vacation and PTO hours for any purpose, and, like vacation time, the only stipulated condition of accrual for PTO was the rendering of services by the employee. Notably, Fisher did not change the parameters for reimbursement of sick leave – an employer is still not required to pay an employee for unused sick leave upon separation of employment.
If you have a PTO policy in your employee handbook, you may have to revise it to make clear that employees will be paid their accrued PTO upon termination.
As you may have read, the nearly finished Bay Bridge near Oakland, California, has run into another problem. After dealing with years of delay caused by design problems and massive cost overruns, giant steel rods are snapping when they are tightened for the final time.
The steel rods, which are 3 inches in diameter and 17 to 24 feet long, connect three critical pieces of the bridge to the pier and are intended to help control side-to-side sway during an earthquake. To say that the steel rods play an important role in the bridge would be an understatement.
Engineers have figured out the rods became brittle after hydrogen atoms invaded the spaces between the steel’s crystalline structure. Metallurgy experts explained that this is a common problem when steel is excessively hardened and galvanized. One rod manufacturer would not bid on this job because it knew galvanizing super-hardened steel like the steel for these rods could cause this very problem.
Interestingly, the bridge design manual prohibits galvanizing this type of steel and the practice is contrary to long-established industry guidelines. Why engineers opted to galvanize these rods anyway has yet to be explained. But, as noted in Engineering News Records’ Bay Bridge article the engineer making this decision may have simply forgotten about hydrogen impact or did not know.
I have no doubt there will be long drawn out finger pointing and perhaps litigation surrounding the decision to galvanize these rods. And, the ultimate question will be why didn’t they just follow the design manual and use the bolts without galvanization.
For those of you that participated in the Project Management Software Survey from Software Advice – a construction software reviews site — the results are in. The Software Survey showed that 94% of participants rely on some kind of tracking software to manage their projects.
Interestingly, the Survey showed that those contractors that used specialized software platforms, instead of homegrown software, had the best track record for delivering projects on time and under budget.
The Survey also touches on topics such as:
- Recurring Obstacles to Delivering a Project On Budget;
- Recurring Obstacles to Delivering a Project On Time;
- How Well is Your Current System Working; and
- Project Management Challenges.
Software Advice’s Project Software Survey reveals that contractors are facing some real challenges with their software programs, especially those that rely on homegrown software. At a minimum, after reading the Survey, you may not feel so alone in your software frustration.
Every contractor has a form subcontract. But, how long has it been since you reviewed your form? Has it been cobbled together over the past few years? Like the tools in your toolbox, maybe it’s time to review your subcontractor agreement to see if it still works.
Subcontracts can range from a single page to several pages and can include any number of clauses. Here are some clauses that I think are important to include:
- Performance of the Work: You should describe the work that the subcontractor will be doing, either in the actual agreement or in an addendum. You should also identify those pay items for which the subcontractor is responsible, such as taxes, permits, and expenses.
- Insurance: You should identify the types of insurance you expect your subcontractor to maintain and the limits of that insurance. I anticipate that you would include workers’ compensation insurance and commercial general liability insurance, but others may be advisable.
- Compensation: Identify how you are going to pay the subcontractor and how much retainage you are going to hold back and for how long.
- Indemnity: Set forth the subcontractor’s indemnity obligation to the general contractor and perhaps upstream entities.
- Independent Contractor Status: Confirm that the subcontractor is an independent contractor and identify various criteria considered for establishing an independent contractor status, such as the subcontractor’s control of the work and performing work for other contractors.
Subcontracts can be a tremendous tool to limit your liability. But, like your tools, they need to be checked to make sure they still work properly.
As the Nebraska legislature winds down its Spring session, a few bills related to employment are still being considered.
- LB58 – Senator Tyson Larson of O’Neill introduced a bill prohibiting Nebraska employers from requesting or requiring employees/applicants to provide account information and passwords which would allow employers access to employee’s/applicant’s private social networking profiles, such as Facebook.
- LB177 – Senator Jim Smith of Papillion seeks to expand the scope of the Wage Payment Collection Act by allowing the Labor Commissioner to investigate claims against employers, subpoena records and witnesses in connection with enforcement of the Act, and assess civil penalties against employers up to $1,000 per violation.
- LB560 – Senator Heath Mello of Omaha seeks to add whistleblower provisions to the Nebraska Wage and Hour Act and Nebraska Employee Misclassification Act, making it unlawful to discriminate or retaliate against an individual who is opposed to any practice or participated in an investigation under these laws. LB560 would also require employers to:
- keep employment records for five years;t
- require employers to provide employees with 30 days written notice before altering their wages; and
- require employers to provide employees with an itemized statement listing wages and deductions each payday.
- LB485 – Senator Danielle Conrad of Lincoln seeks to amend the Nebraska Fair Employment Practices Act to include sexual orientation as a protective category. The amendment would prohibit employers of 15 or more employees from discriminating against applicants or employees based on their sexual orientation. Religious organizations would be exempt from these amendments.
None of the bills listed above had been prioritized or brought out of Committee, so it is unlikely that any of them will pass this session. But, they may be reconsidered next session. We’ll keep you posted.
State politicians and members of the Pennsylvania Turnpike Commission have been charged with violating state ethics laws and criminal conspiracy by awarding contracts to vendors that contributed to particular state politicians.
According to recently filed criminal charges, the Turnpike Commission’s chief received direction from a State Senator or his chief of staff as to which contractors would be awarded Turnpike contracts. The Senator also directed political fundraising efforts of Turnpike personnel and vendors. For example, the Turnpike chief executive officer is alleged to have used lists of Turnpike engineering and construction firms to generate invitations to political fundraisers and contacted vendors directly to discuss their political participation.
This conduct occurred even though the Turnpike Commission had well-defined procurement procedures in place and utilized a Technical Review Committee. The TRC would advertise for bids, review letters of intent, assess the strength and weaknesses of each bid, and select three to five bids for serious consideration. But, then the State Senator or his chief of staff would contact the Turnpike Commission’s chief executive and tell him which firm should receive the contract, even if that firm was not one of the top five bidders.
The scheme started falling apart when employees started complaining about the improper conduct. A few of these employees were fired and have since sued the Commission, alleging that they were fired for blowing the whistle on the scheme.
The Commission members and the State Senator have been charged with bid rigging, commercial bribery, and criminal conspiracy.
Interesting, but sad story of wasting tax payer money.