Lamson, Dugan and Murray, LLP, Attorneys at Law

Does a General Contractor Have to Tell a Subcontractor that its Bid is Too Low?

Posted in Construction Contracts

iStock_000003145625XSmallWe have all seen this situation before. The bids come in, the lowest is taken, and lo and behold, the subcontractor finds out that it cannot perform for the amount listed in the bid. When this happens, the subcontractor may take the position that the general contractor should have told the subcontractor that their bid was too low. The case of Fidelity And Deposit Co of Maryland v Casey Industrial Inc. shows that it is be very difficult for the subcontractor to show that the general contractor should have told the subcontractor that its bid was too low.

In this case, Fidelity And Deposit Co of Maryland v Casey Industrial Inc. to supply and install piping for a power plant. Topps Mechanical estimated that it would need 10,000 linear feet to complete the job. In actuality, 35,000 linear feet were required to complete the job, resulting in a cost overrun of $4 million. Topps bonding company assisted in getting the job completed and litigation ensued.

Topps, through its surety, claimed that Casey Industrial breached an implied duty of good faith and that Casey Industrial had superior knowledge such that it should have told Topps that its bid was too low. The superior knowledge doctrine is an exception to the general rule that contractors in a firm, fixed price contract assume the risk of increased performance costs.

The superior knowledge doctrine typically applies to those situations where:

  • the contractor takes on a project without vital knowledge of a fact that impacts performance costs or duration;
  • the owner is aware that contractor has no knowledge of this fact;
  • any contract specifications supplied misled the contractor or did not put it on notice to inquire; and
  • the owner failed to provide the relevant information.

 

The court found that Topps was fully informed of all relevant aspects of the project and Casey Industrial had no obligation to disclose the quantity of piping that would be needed for completion of the project. The court commented that the contract even cautioned that:

 ”Topps must satisfy themselves as to the amount of pipe and fittings required to complete this system.”

And, Topps employees even testified that they did not believe that Casey Industrial was “holding out” on them and not giving Topps all the information needed for an accurate bid.

Take away: A general contractor does not have a duty to tell the subcontractor that its bid is too low where the subcontractor has been given all information necessary to submit an accurate bid.

 

Getting Paid for Your Work Presentation to NARI

Posted in Construction Contracts

I had the pleasure of presenting to the Omaha chapter of the National Association of the Remodeling Industry (NARI) last week on steps they could take to ensure that they get NARI Presentationpaid for their work.

The majority of our discussion dealt with construction contracts and clauses that should be included in their construction contracts. The clauses that I recommended included:

  • Identification of contract document
  • Detailed scope of work
  • Dealing with concealed conditions
  • Insurance
  • Payment terms
  • Warranties
  • Dispute Resolution
  • Change orders

I appreciate the opportunity to present and I thought we had a great discussion about how the NARI members could improve their construction contracts. If you’d like a copy of my presentation, including sample construction clauses, please let me know.

 

Construction Litigation — Can you win and collect?

Posted in Construction Litigation, Uncategorized

My friend and construction attorney, Chris Hill, raises a great point in his blog, Construction Law Musings, this week.  He addresses the two questions you should always ask when pursuing construction litigation.  The first, “Can you win the case and get a judgment?”  The second, and as important, “Can you collect on that judgment?”

I invite you to check out Chris’s post Think Twice About Heading to Court with a Construction Claim.

The DOL Proposes Regulations to Establish a Higher Minimum Wage

Posted in Department of Labor

On June 17, 2014, the U.S. Department of Labor issued its proposed rules to implement 600px-US-DeptOfLabor-Seal_svg(8)Executive Order 13658 which requires federal contractors to pay a higher minimum wage. The Executive Order requires the hourly minimum wage to be increased to $10.10 an hour.

Here are a few highlights of the proposed regulations:

Effective Date

The proposed rule will apply to contracts that are entered into after January 1, 2015.

Covered Contracts

Only certain types of contracts will be covered. These include:

  • Procurement contracts exceeding $2,000 for construction covered by the Davis-Bacon Act;
  • Service contracts exceeding $2,500 covered by the Service Contract Act;
  • Concession contracts under which the federal government grants a right to use federal property, – including those contracts excluded from the Service Contract Act coverage; and
  • Contracts to provide services to federal employees, their dependents, or the general public on federal property.

Required Contract Language

The new rule requires federal agencies to include a minimum wage clause in all covered contracts and all contractors and subcontractors must include the same clause in lower-tier subcontract. A portion of the required language is:

(a) Executive Order 13658. This contract is subject to Executive Order 13658, the regulations issued by the Secretary of Labor in this part pursuant to the Executive Order, and the following provisions. (b) Minimum Wages. (1) Each worker (as defined in § 10.2) employed in the performance of this contract by the prime contractor or any subcontractor, regardless of any contractual relationship which may be alleged to exist between the contractor and worker, shall be paid not less than the applicable minimum wage under Executive Order 13658. (2) The minimum wage required to be paid to each worker performing work on or in connection with this contract between January 1, 2015 and December 31, 2015 shall be $10.10 per hour through December 31, 2015

The remainder of the required language can be found in Appendix A to section 10.  Given the length of the required contract language, I hope reference can be made to the regulation instead of adding the entire clause.

The proposed regulations can be found here.

The Department of Labor’s fact sheet on its proposed rules can found here.

 

Playing Close to the Line Can Get You Burned

Posted in Business Ethics

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Down in Florida, CH2M Hill and AECOM Technical Services were vying for the billion dollar project. CH2M Hill and AECOM submitted their proposal in the spring of 2013. CH2M Hill then submitted materials directly to county official prior to its August presentation. CH2M Hill was awarded the project.

AECOM cried foul, claiming that CH2M Hill violated local rules when it submitted materials directly to county officials. The county’s ethics chief cleared CH2M Hill of any wrongdoing, but the mayor decided that bidding irregularities mandated an additional round of presentations before a newly assembled panel. This new panel decided that AECOM should be awarded the project.

CH2M Hill then started its torrent of claims, arguing that AECOM misled the county about its experience. The county investigated CH2M Hill’s claims and found that 14 of 15 were without merit. The county is now finalizing the details of the project with AECOM.

I don’t profess to know what happened at the county level and whether CH2M Hill violated the county’s rules by providing materials directly to county officials. All I do know is that CH2M Hill had the project in hand, was embroiled in an ethics investigation over whether it violated local rules, and then lost the project after the mayor demanded a new review panel because of bidding irregularities in the first go round. Maybe CH2M Hill’s conduct did not violate the rules, but it was close enough to the line to make the county reconsider its bid. How close to the line is your company getting? Could your conduct cost you a bid?

Improve Your Safety Program, Improve OSHA Compliance

Posted in OSHA

I recently came across an article in Construction Executive, by Edwin Foulke, listing 13 ways to improve your OSHA compliance record. Mr. Foulke is a prolific writer and presenter on occupational safety and health issues, and author of the Workplace Safety and Health Law Blog  You can find a copy of his article here.

Although Mr. Foulke’s article mentions 13 actions that can improve your OSHA compliance, a few of them stood out to me.

Develop an overall safety plan. Although OSHA does not presently require a written comprehensive safety plan, it does require that supervisors be trained in specific hazard areas. Employers would be well advised to create a overall safety strategy to not only train supervisors, but to also review your safety practices to ensure they are up to date.

Understand OSHA’s Multi-Employer Citation Policy. All contractors on a worksite should understand that more than one employer may be cited for a hazardous condition that violates an OSHA standard. This concept is particularly applicable where one employer creates a hazard that causes harm to another employer’s employee.

Comply with OHSA’s record keeping requirements. OSHA’s compliance officers are paying close attention to employers’ record keeping practices, particularly the OSHA 300 Logs—the log of work-related injuries and illnesses. Employers would be well served to review their last several years of logs to make sure that they accurately reflect all injuries. It’s so much easier to review them now instead of reviewing them with an OSHA compliance officer.

These are just three highlights of Mr. Foulke’s excellent article. I recommend you review all 13 points he raises to improve your OSHA compliance efforts.

 

Tremendous Construction Growth in Omaha

Posted in Construction Activity

BuildZoom recently published an article on Rising Construction Activity. What I found interesting was that Omaha has had the most consistent growth since 2011.

The article compared cities such as Atlanta, Durham, Sacramento, Portland, Seattle and Omaha. For the years 2011, 2012 and 2013, Omaha consistently outpaced the other cities listed in the survey.

As set froth in the article, in 2011, Omaha issued nearly 35,000 building permits, nearly 40,000 in 2012 and over 50,000 in 2013.

This is tremendous growth for any city, and it’s heartening to see that Omaha in particular is doing so well.

 

 

 

 

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CGL Coverage in Nebraska

Posted in Insurance coverage

After last week’s blog about what is covered by a CGL policy, I received a number of questions about whether Nebraska courts would cover faulty workmanship. So, what is covered by a CGL policy in Nebraska? The latest Nebraska Supreme Court case on this issue, Auto-Owners Ins Co v Home Pride Companies Inc, in 2004, ruled that faulty workmanship is not covered under a CGL policy. But, the insurer was still required to defend Home Pride. Here’s why.

What Happened?

Home Pride was hired to shingle an apartment complex. Home Pride hired a subcontractor to do the work. The owner was dissatisfied with the work and filed a suit against Home Pride claiming that it failed to install the shingles in a workmanlike manner and that the faulty workmanship caused substantial damage to the roof and buildings.

The Lawsuit

The insurer filed suit asking the court to decide whether Home Pride’s insurance policy covered the faulty workmanship of a subcontractor that Home Pride hired. The insurer argued that that faulty workmanship does not constitute an “occurrence” under the policy. The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

The Court’s Analysis

The court looked to the policy and found that faulty workmanship, standing alone, is not covered under a CGL policy, but an accident caused by faulty workmanship is a covered occurrence. So, what’s that mean? The court found that an example provided the best explanation. A subcontractor was hired to clear, grub, grade, and construct the subbase for a road construction project. The subcontractor failed to remove a number of tree stumps in the roadbed and moisture seeped into the road base, deteriorating the road. Had the pavement not failed and the developer brought an action to recover the cost of removing the tree stumps from the roadbed, the defective work, standing alone, would not have been “property damage” or an “occurrence” under the policy. The damages, however, extend beyond the cost of removing the tree stumps because the failure to properly compact the roadbed led to property damage, namely, the failure of the road surfaces. The damage to the road was an “accident” and thus covered under the policy.

What Does this Mean?

CGL insurance will not cover all faulty workmanship claims. In essence, if a contractor’s work is faulty and has to be redone, it will not be considered an occurrence under the policy and an insurer will likely deny the claim. But, if the faulty work causes problems elsewhere, such as a leaking roof causing structural damage to the building, the insurer will likely have to provide coverage.

Changes to the “Nebraska Construction Prompt Pay Act”

Posted in Nebraska Prompt Pay Act

This post was written by Jessica Nolan, a summer associate at Lamson Dugan & Murray, LLP.

The Nebraska Construction Prompt Pay Act, Nebraska Revised Statutes, §§ 45-1201 to 45-1210, was amended and approved by the Governor on April, 16 of this year. The approved changes to the statutes (§§ 45-1201 to 45-1210) will be effective July 17, 2014. Importantly, the changes will only impact contracts entered into after that date. The significant changes are set forth below:

Definition of Contractors and Subcontractors

  • The Act excludes from the definition of a contractor an individual or entity that is performing work on a contract for the state or an individual performing work on a federal-aid or state-aid project for a political subdivision and is paid by the state.
  • The Act excludes from the definition of a subcontractor an individual or entity that is performing work for the state or performing work for a federal-aid or state-aid project of a political subdivision and is paid by the state.
  • The Act defines “Substantially Complete” as the stage when the project is sufficiently complete to allow the owner to occupy or use the project as intended.

Requests for Payment

  • Owner’s or their representatives shall release and pay all retainage for completed work, in accordance with the contract, within (45) days (this changed the previous (30) day requirement) after the project or after substantial completion of a designated portion. In addition when a subcontractor has completed work in accordance with the contract and all of the conditions precedent have been met, the contractor shall pay all of the retainage due to the subcontractor within (10) days after the contractor receives the retainage receipt from the owner.

When Payments May be Withheld

  • An owner, a contractor, and a subcontractor may only withhold retainage in an amount that does not exceed the specified contract amount, and it shall not exceed a rate of 10%. The Act no longer allows an owner to withhold retainage until the entire project is substantially completed. If the scope of work for the contractor or the subcontractor is 50% complete the contractor may withhold only 5% retainage.

Attorney’s Fees

  • The Act provides the court may award reasonable attorney’s fees and court costs to a plaintiff that pursues a claim.

These changes should help contractors in limiting retainage and demanding attorney’s fees if they have to hire counsel to get paid for their work.