Lamson, Dugan and Murray, LLP, Attorneys at Law

President Obama Takes Action Impacting Federal Government Contractors

Posted in Government Contracting

Earlier this month, President Obama took action to impose additional compliance obligations on federal government contractors. An executive order will prohibit federal contractors from retaliating against employees who discuss their pay with each other. He also directed the Department of Labor to adopt regulations requiring federal contractors to Person Wrapped Up in Red Tape of Bureaucracy Rules of Orderprovide compensation data based on sex and race.

Non-Retaliation: This executive order provides that contractors will not discharge or in any other manner discriminate against any employee or applicant for employment because the employee or applicant has inquired about, discussed, or disclosed compensation information with another employee or applicant. This executive order supports the National Labor Relations Board’s position that employees may discuss wages, hours and working conditions.

Compensation Data: The President also directed the Department of Labor to establish new regulations requiring federal contractors to submit data on compensation paid to employees, including data by sex and race. The Department of Labor may then use this data to target enforcement efforts when the data reveals discrepancies between employees of different race or gender.

Take Away: Contractors should review their policies and eliminate any that prohibit or limit an employee’s ability to discuss wages with fellow employees and they should review their compensation practices to make sure they do not detrimentally impact particular groups based on ethnicity or sex.

 

The OFCCP’s Rules are Now Final—Are You Ready?

Posted in Office of Federal Contract Compliance Programs (OFCCP)

OFCCP-Logo

If you are doing work on Stratcom in Omaha, or any federal project, you are obligated to comply with the new Office of Federal Compliance Programs’ (OFCCP) final rules, effective March 27, 2014. Under these new rules, contractors have additional obligations, including gathering data and setting hiring goals for individuals with disabilities and protected veterans.

Here are a few important aspects of the new rules:

Update the Equal Opportunity Clause: Contractors must include the following language, in bold, in their contracts:

This contractor and subcontractor shall abide by the requirements of 41 CFR §§ 60-1.4(a), 60-300.5(a) and 60-741.5(a). These regulations prohibit discrimination against qualified individuals based on their status as protected veterans or individuals with disabilities, and prohibit discrimination against all individuals based on their race, color, religion, sex, or national origin. Moreover, these regulations require that covered prime contractors and subcontractors take affirmative action to employ and advance in employment individuals without regard to race, color, religion, sex, national origin, protected veteran status or disability.

Utilization Goals: The new rules require contractors to increase their outreach and recruitment of individuals with disabilities by 7% and set a hiring benchmark of 8% for protected veterans. In order to measure whether a contractor has met this goal, you will need to track your workforce and know how many current employees have disabilities or are protected veterans. Failing to meet this goal does not result in sanctions, but contractors will be required to show how they attempted to achieve these benchmarks through their recruitment and hiring practices.

Pre-Offer Invitation to Self-Identify: Contractors must now allow applicants to self-identify their disability and/or veteran status at the pre-offer stage. This is in addition to the already existing post-offer self-identification requirement. Contractors must use the Department of Labor’s self identification form.

These new rules do require an update of your Affirmative Action Plan and the way you track your hiring. If you have questions about the new rules, you can review the Q&A prepared by the Department of Labor on the Veterans rules  and Disability rules , or contact your attorney.

 

Union THUGS Indicted for Racketeering

Posted in Unioin Campaign

iStock_000009410739SmallThe business manager of the Ironworkers Local 401 and ten members were recently charged with conspiracy to commit criminal acts of extortion, arson, destruction of property, and assault in order to force construction contractors to hire union ironworkers. (Hat tip to Wally Zimolong’s excellent blog, Supplemental Conditions)

This case, brought by the U.S. Attorney out of the Philadelphia, stems from the Local 401’s tactics to force contractors to use union labor. According to the indictment, a group of Local 401 members would approach construction foremen at work sites and threatened them with violence and destruction of property unless union members were hired. This groupwas referred to as “The Helpful Union Guys” or THUGs. Nice.

The indictment highlighted a few of the union members’ activities. At the Quaker Meeting House project, Local 401 members went to the construction site, set a crane on fire and cut steel beams and bolts, causing over $500,000 in damage. They also picketed a shopping mall project and assaulted some of the non-union workers with baseball bats. Finally, they picketed an apartment complex project and threatened the contractor enough to get him to turn over the job to a union-affiliated contractor.

If convicted of all charges, the union members face prison terms of 35 to 130 years.

Of course this is an egregious situation, but certainly shows the extremes that some union members will pursue to ensure that union labor is used on a project.

 

The EPA’s Final Rules on Stormwater and Erosion

Posted in EPA

On March 6, 2014, the EPA issued the Construction and Development Effluent Guidelinesepa-logo-1 and standards at 40 CFR Part 450.The significance of these new rules is that the EPA elected to use best management practices (BMPs) to control stormwater and minimize soil erosion pollutant discharges instead of a numeric limit on the amount of dirt in stormwater runoff from construction sites.

Under the new rule, construction site owners and operators are required to:

  • implement erosion and sediment controls;
  • stabilize soils;
  • manage dewatering activities;
  • implement pollution prevention measures;
  • provide and maintain buffers around surface waters;
  • prohibit certain discharges, such as motor fuel and concrete washout; and
  • utilize surface outlets for discharges from basins and impoundments.

The new rules will apply to construction sites that require National Pollutant Discharges Elimination Systems (NPDES). States are also required to incorporate the new rules into permits the next time they are renewed. This may not be a big change because a number of states have been issuing permits with the BMP requirements. Nevertheless, it may take up to five years for the new regulations to be fully implemented.

The new rules will go into effect on May 5, 2014.

 

Waiver of Change Order Requirements? It Can Happen.

Posted in Construction Contracts

In the last post, I discussed a Montana case in which the contractor failed to follow the notice provisions contained in the contract and lost its claim because of it. But, sometimes a court will excuse your failure to follow the technical requirements of the contract. In a recent Nebraska case, the court excused a subcontractor’s failure to follow the notice provisions and allowed it proceed with its claim.

The case of Paul Reed Construction & Supplyl v. Acron involved a road construction projectiStock_000003390628XSmall[1] in western Nebraska. Acron was hired to crush asphalt and concrete highway surface material. The contract contained the typical change order language: no changes in the work shall be agreed upon in writing; any claim for adjustment shall be made in writing within 10 days; and Failure to provide notice of a claim within 10 days shall be deemed a waiver When Acron arrived on site, it had to wait nearly a month to start crushing. When material was available to crush, it was often too big and had to be broken down. To its credit, throughout these problems, Acron e-mailed Paul Reed’s Chief Operating Officer notifying him of the problems and delays. Paul Reed acknowledged the problems and delays, but never issued any written change orders. Acron submitted invoices seeking additional compensation, in excess of $250,000, all of which were rejected by Paul Reed.

In the ensuing lawsuit, Paul Reed claimed that Acron waived its claim because it did not have a written change order for the additional work. Acron argued that Paul Reed’s request for the work and refusal to provide written change orders should not allow it to avoid paying Acron.

The court agreed with Acron, finding that the parties to a contract may avoid a written change order provision where their words, acts or conduct amount to a waiver or modification of the provision. Specifically, the court found that Paul Reed knew about the additional work Acron was performing and by its actions and inactions approved it. The court’s opinion references a number of e-mails from Acron to Paul Reed and it appears that these e-mails saved Acron from the fate of the Montana contractor in the last post.

Take Away: While it is best to comply with the notice requirements, , well documented requests for approval of additional work may support a contractor’s claim that the upstream contractor waived technical compliance with the contract.

Know When to Provide Notice Under Your Construction Contract

Posted in Construction Contracts

iStock_000023063573Small (1)Time and time again, courts rule that contractors must follow notice requirements in order to submit a claim for additional time or compensation. This blog looks at yet another example of a contractor that failed to follow the notice requirements and lost its demand for additional pay.

This case, JEM Contracting v. Morrison-Maierle, involved a highway project in Montana. The contract provided:

Contractor shall notify the Owner and Engineer in writing about differing subsurface or physical conditions within 5 days of discovery and before disturbing the subsurface. . . . No claims for an adjustment in the contract price or contract times will be valid for differing subsurface or physical conditions if procedures of this paragraph are not followed.

On the first day on the job, JEM Contracting encountered subsurface conditions that differed from those in the bidding documents. JEM discussed the differing site conditions with the engineer’s onsite representative. JEM claims the engineer said that additional compensation would be paid because of the site condition.  Eighteen days later, and after disturbing the area, JEM provide written notice of the differing site conditions to the county and requested additional compensation.

The engineer denied JEM’s claim, finding that the claim was not supported and was out of time. The contractor submitted the claim to the county, which also rejected the claim. JEM sued the county and engineer. The trial court found in favor of the engineer and county, ruling that JEM failed to timely submit its claim for additional compensation.

This case is yet another example of the importance of knowing and understanding the notice requirements of your contract.

Take Away: You need to review each contract for the notice provisions and follow them if you want your claim paid.

 

Additional Insured Endorsement – What Coverage Does it Provide?

Posted in Insurance coverage

iStock_000015701146XSmallThe Fifth Circuit Court of Appeals recently ruled in Woodward, LLC v. Acceptance Indemnity Insurance Company, that a general contractor, named as an additional insured, did not have coverage for claims that a subcontractor performed faulty work. At issue was the language in the additional insured endorsement, which provided coverage for ongoing operations, not completed operations. The court held that the damages arose out of completed operations not the subcontractor’s ongoing operations, so the insurer had no obligation to defend the general contractor in the lawsuit challenging the quality of the subcontractor’s work.

In this case, the subcontractor named the general contractor as an additional insured. The additional insured endorsement provided that the general contractor was an additional insured, but only with respect to liability arising out of the subcontractor’s ongoing operations performed for the general contractor. The court interpreted this to mean that the additional insured endorsement would only cover claims based on the subcontractor’s actions actually in process and would not encompass completed operations. In essence, the general contractor was only an additional insured for liability caused by the subcontractor’s active work on the site and did not cover property damage manifesting itself after the subcontractor stopped working on the site.

While this case applies Mississippi, the issue Midwestern readers should consider is the court’s conclusion that non-conformance with the plans, in essence a construction defect claim, arises from completed operations. The court noted repeatedly that the additional insured endorsement excluded liability for property damage occurring after all work had completed. In essence, the additional insured endorsement will not provide coverage for claims arising after the work is completed.

Take Away: You should review your additional insured endorsement. And, you should review your contract to make sure you are either requiring (general contractor) or providing (subcontractor) the proper additional insured endorsement.

 

Iowa Subcontractors Rejoice—IDOT Has to Cover GC’s Shortfalls

Posted in Bond Claims, Uncategorized

Iowa subcontractors convinced the Iowa Supreme Court that the Iowa Department of Construction Worker EcstaticTransportation (“IDOT”) should cover unpaid balances the general contractor owed to subcontractors. Although this ruling will only apply to situations where the IDOT has waived the bonding requirement for certain contractors, it’s still a great win for subcontractors.

This case, Star Equipment v Iowa,  involved the construction of a roadside rest area along Interstate 80. Universal Concrete was selected as the general contractor and, as a Targeted Small Business, IDOT waived the construction surety bond requirement. IDOT accepted the work in September, 2011, but Universal Concrete failed to pay three of its subcontractors, totaling about $30,000. IDOT retained about $3,500 and told the subcontractors that they could split the $3,500, but no other funds would be paid.

The subcontractors sued, arguing that when IDOT waived the bonding requirement for a general contractor, IDOT guaranteed that the subcontractors would be paid. The Iowa Supreme Court agreed, finding that Iowa law permitted subcontractors to recover from IDOT amounts they could have recovered from the surety if IDOT had not waived the bond.

Also of note is that the Iowa Supreme Court allowed the subcontractors to recover their attorney fees from IDOT, including fees incurred at trial court and on appeal. Given the cost of litigation, I’m sure IDOT ended up paying significantly more than the $30,000 originally demanded by the subcontractors.

Take Away: If you do not get paid on an IDOT jobs and the general contractor was not required to post a bond, you may be able to recover from IDOT.

 

No Persuader Rule, For Now.

Posted in Unioin Campaign

The Department of Labor just announced that its Persuader Rules will not be issued in UnionMarch, 2014, as had been expected. Exactly why the rules have been delayed is anyone’s guess, but the delay may be an effort to avoid the issue until after the mid-term elections this November.

While the rules have been delayed, they are a very big deal. As we have blogged in the past, the rule proposes to eliminate the “advice exception” to the Labor-Management Reporting Disclosure Act. This would mean that employers would have to report to the government any time they engage labor counsel to assist them with organizing campaigns. The report would be available to the public, detailing all labor work the attorneys performed.

If the employer is a federal contractor, the rule would also work with Executive Order 13494, which excludes from any billing, claim, proposal or disbursement the costs incurred in undertaking activities to persuade employees about their right to organize.

We will continue to monitor the Department of Labor’s efforts to publish these regulations. And while there are no changes to be made to your company’s reporting policies, you should be prepared to adopt some changes should the Department of Labor finalize a publication date.

 

Be Careful What you Agree To –Even Permits May Create Problems

Posted in Breach of Contract

We see it all the time. Boilerplate language in a contract that becomes a major issue down iStock_000003390628XSmall[1]the line. A recent case revealed the problems a contractor had with permits when the contractor’s estimate contemplated an easy permitting process and compliance, but in actuality it was much, much more difficult.

The case Bell/Heery v. United States, involved Bell/Heery’s request for additional compensation under a federal contract. Bell/Heery submitted a bid for a prison project. As explained in the bid, Bell/Heery anticipated that the New Hampshire Department of Environmental Services (NHDES) would issue a permit allowing Bell/Heery to “cut-to-fill” the site, which involved excavating materials from one area and moving it to another area to level the entire site. NHDES did not agree with Bell/Heery’s proposed construction method and refused to issue the permit. Instead, NHDES required a multi-step construction process through which only 40 acres of land were disturbed at a time. Complying with NHDES permitting requirement was a much more expensive and time consuming process than Bell/Heery had anticipated, to the tune of $7,000,000.00.

Due to the increased cost created by NHDES, Bell/Heery asked for more money from the government contracting officer. The contracting officer rejected the request, finding that Bell/Heery had assumed the risk of the permitting process and it was liable for any costs associated with the permitting process and construction methods required by the permitting process. Bell/Heery appealed to the Court of Claims, which found:

The Permits and Responsibilities clause clearly and unambiguously placed the burden of obtaining and complying with state and local permits for the construction project solely on BH without additional expense to the government.

So, Bell/Heery was stuck absorbing the $7 million costs to comply with the NHDES permits.

Take Away: What do your contracts say about permits? Do you just assume that permits are going to be easy? Should you incorporate some language that will allow you to charge the owner any additional costs associated with obtaining or complying with permits?