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Construction in Brief: 2013 Volume 3

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Don’t Be Fooled — New Jersey Court Warns of Misleading Bid Forms

By George E. Pallas and Kathleen M. Morley

Under the New Jersey Local Public Contracts Law, bid specifications set forth a list of documents that are required to be submitted along with a bid at the time of the submission. With respect to these mandatory submission requirements, the contracting entity is without discretion to waive a bidder’s failure to comply and any such failure automatically renders a bid fatally defective. When this provision was first added to the Local Public Contracts law about a decade ago, it generated confusion as to whether the enumerated “mandatory requirements” represented an exhaustive list of all fatal and non-waivable defects and, therefore, whether public entities necessarily had discretion to waive any other defects. Since then, New Jersey courts have clarified that there is a broad range of non-waivable bid defects that are not specifically enumerated in the bid statute and, in fact, any other bid defect also can be fatal if it is deemed “material.”

Presumably based on the statute’s mandatory requirements provision, public entities in New Jersey began using standard form “bid document checklists” in their bid packages. Widely used iterations of these forms set forth a checklist of documents separated into two sections. One section lists those documents, if not submitted, “shall be a mandatory cause for the bid to be rejected” and the other lists those that “may be a cause for the bid to be rejected” if not included. The first listing of documents typically consists of the “mandatory requirements” enumerated in the Local Public Contracts Law. While likely intended to assist and aid bidders, the format and ambiguous language of these forms has led to greater confusion regarding a contracting entity’s discretion to waive certain bid defects or omissions.

In fact, a frequently used bidder’s checklist form of this type issued by the state agency responsible for supervising compliance with the Local Public Contracts Law — the New Jersey Division of Local Government Services — was scrutinized by the Appellate Division of the New Jersey Superior Court in P & A Construction, Inc. v. Township of Woodbridge. In this case, the second low bidder on a public project brought an action for injunctive relief against a township, arguing that the apparent low bid should have been rejected because it was not accompanied by a certified financial statement. The standard form document checklist used by the Township listed a certified financial statement as one of the documents where the failure to submit “may” be cause for rejection of the bid. The Township rejected the challenge to the low bid, contending instead that it had the authority and discretion to waive the defect because the financial statement was not one of the documents listed in the mandatory submission checklist. The appellate court held that submission of the financial statement was, in fact, a mandatory, non-waivable requirement despite the fact that it was contained in the “may” be rejected list. The court found that the language in the form stating that failure to submit those documents “may” be cause for rejection only meant that failure to submit one of those documents would result in rejection if the contracting agency found the deficiency material, not that submission was unequivocally optional. Notably, the court specifically acknowledged that the language on the form relating to the submissions that “may” be cause for rejection if not submitted was susceptible to erroneous interpretation by bidders “that a contracting agency has unfettered discretion to waiver a bidder’s failure to submit one of those items.” Consequently, the court explicitly advised and noted that “the language in this standard form should be changed.”

While the Division of Local Government Services, perhaps heeding the court’s warning, appears to have modified its standard form bid document checklist to eliminate the two subsections of documents and the potentially misleading language, it is evident that New Jersey entities continue to use the outdated forms, which the Appellate Division of the Superior Court specifically recognized as causing confusion among bidders. A client recently came to the firm for assistance with this very scenario when its bid on a public project was rejected as non-responsive after being misled by the document checklist form in the bid package and mistakenly believing that it was optional to submit a certified financial statement with its bid. The contracting entity in that case was still using the old standard form checklist, which listed the financial statement in the “may” list.

What is important to remember — and could be critical to the responsiveness of your bid — is that failure to submit any item listed on a bid document checklist is always potential grounds for rejection of a bid irrespective of any qualifying or conditional language included on the form. Additionally, if you are bidding on public projects in New Jersey, you should be aware of and on the lookout for the continued use of the outdated checklist forms, which have been explicitly recognized by courts as capable of erroneous interpretation by bidders. The P & A Construction case serves as an important reminder that, even if a document is identified with qualifying language suggesting that failure to submit the document is not necessarily fatal, the omission of that document nevertheless may cause a bid to be fatally defective if it is considered to be material. To minimize unnecessary risk of rejection of a bid, make every effort to submit all documents identified in bidder checklists even if you are inclined to believe that the submission of one or more of them may be optional.

George is a Partner with the Firm and Kathleen is an Associate, both practicing in the Construction Group. They can be reached at (215) 564-1700, gpallas@cohenseglias.com or kmorley@cohenseglias.com.

Appellate Clarification of Pennsylvania Mechanics’ Lien Law

In a recent Pennsylvania appellate court decision, the court clarified the Pennsylvania Mechanics’ Lien Law in the context of when groundwork is performed as part of planned construction, but the building is never built. The filing of a mechanics’ lien on a property for unpaid labor and materials can be a powerful option for a contractor seeking payment for work performed on a project. But what happens when site preparation work takes place, but, construction of the planned building does not? A Pennsylvania appellate court recently answered this question by asking another: what is the nature of the contractor’s work? If the contractor’s work was part of the planned construction of a building, the appellate court reasoned that the property could be lienable — even if the structure in question is never erected.

Background of B.N. Excavating

In B.N. Excavating, Inc. v. PBC Hollow-A, L.P., et. al., a Pennsylvania appellate court considered whether a site contractor who performed excavation and groundwork on a property in connection with a planned two-building project could file a mechanics’ lien on the property. Significantly, construction of the planned buildings did not take place. The site contractor, B.N. Excavating, was never paid for its excavation and groundwork by the contractor and sought to file a mechanics’ lien to recover payment for the work performed.

Because the proposed buildings were never built, the owner of the property argued that a cause of action for a mechanics’ lien was invalid. The owner alleged, among other things, that the contractor’s site and groundwork was not “incidental to the erection of construction” because the structures did not actually exist. The Pennsylvania Superior Court disagreed and ruled that the site contractor’s lien claim could proceed with litigation notwithstanding the fact that construction of the buildings did not proceed as planned. The Superior Court noted that because the excavation work was performed as an integral part of a construction plan, the activity fell within the realm of Pennsylvania’s Mechanics’ Lien law, even though the planned structures remained un-built.

Impact of B.N. Excavating

Before B.N. Excavating, it was unclear as to whether a successful mechanics’ lien claim could be filed in connection with work performed on a construction site when the planned structure was not actually built. Now, contractors, subcontractors, and suppliers know that their right to a mechanics’ lien is not tied to whether a planned building is ultimately erected, but rather to the nature of the work performed. If the work is an integral part of the building and construction plan, a cause of action for a mechanics’ lien can likely proceed.

Developers and owners looking to protect their property rights should be similarly guided by B.N. Excavating. Now, if work on the site and ground proceeds, but construction of the actual building structure does not, the Mechanics’ Lien law might still be applicable.

If you have questions about potential exposure to lawsuits in light of the B.N. Excavating case, you should contact your attorney.

Jennifer is Senior Counsel with the Firm, practicing in the Construction Group. She can be reached at 215.564.1700 or jhorn@cohenseglias.com.

Protect Your Customers — New Pennsylvania Case Upholds Disclaimer Waiving an Employee’s Right to Sue

By Jason A. Copley and Jeffrey Brydzinski

Does your business require your employees to perform work or services offsite at a customer’s place of business? Are you a customer concerned with the risks associated with having third-parties perform work on your premises? Is this an issue for you or your insurance carriers when negotiating customer service contracts? If the answer to any of these questions is yes, a third party release in the form of a “Worker’s Compensation Disclaimer” could limit the associated risks of this rapidly growing business model. This is thanks to a recent decision by the Pennsylvania Supreme Court, holding that such waivers do not violate Pennsylvania’s public policy and can properly waive an employee’s right to sue a customer for work-related injuries covered by the Worker’s Compensation Statute.

In Sabrina Bowman v. Sunoco, Inc., a security guard working for Allied Barton Security Services (“Allied”) signed a worker’s compensation disclaimer at the inception of her employment promising that she would not sue Allied’s customers for work-related injuries. While performing work at the refinery of one of Allied’s customers, Sunoco, Inc. (“Sunoco”), the guard was injured by slipping on snow and ice. As a result, she initiated a worker’s compensation claim against Allied and commenced a lawsuit against Sunoco. The guard claimed that the disclaimer she signed should be voided as against public policy to the extent that it contained a prospective waiver, meaning the employee was asked to waive a cause of action that had not yet accrued. The guard also claimed that the disclaimer contravenes an employer’s right to subrogation, meaning the opportunity for an employer to recoup expenses spent on an injured worker from its customer. Finally, the guard claimed that the disclaimer violated the general principals of contract law because it released liability for actions not accrued at the time of the release. The Court, in a decision of first impression, rejected all three of the guard’s arguments and upheld the worker’s compensation disclaimer that limited the guard’s recovery to only worker’s compensation benefits.

In reaching its finding, the Court interpreted Section 204(a) and Section 319 of the Pennsylvania Worker’s Compensation Act (“Act”). Section 204(a) of the Act provides: “No agreement, compensation, or release of damages made before the date of any injury shall be valid or shall bar a claim for damages resulting therefrom: any such agreement is declared to be against the public policy of this Commonwealth.” 77 P.S. § 71(a). The Court found that this provision only applies to an employer’s attempt to limit its own liability for any future injury the employee may suffer. Section 204(a) does not apply to third-party customers because a third-party release does not attempt to deprive an employee of worker’s compensation rights, as would an employer release. The release rather, pertains exclusively to the customer’s tortious liability. Therefore, a third-party release does not undermine the public policy considerations of Section 204(a) of the Act. Section 319 provides: “where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employee…against such third party…” 77 P.S. §671. Although this right is bestowed upon an employer under the Act, the Court noted that an employer can elect to waive this right as a business decision that affects only itself — this election does nothing to prevent the employee from receiving full and just compensation for his or her work-related injuries. Therefore, a third-party release also does not clash with the economic public policy of Section 319 of the Act.

Finally, with regard to waivers that release liability for actions not accrued at the time of the release, the Court relied on a long line of cases holding that these waivers generally are only invalid if they involve future actions entirely different than ones contemplated by the parties at the time of the release. For example: an employee executes a general release of liability from all claims resulting from any automobile accidents. The waiver would not bar a medical malpractice claim against a doctor who performed surgery related to injuries from the accident because the release could not have contemplated negligent treatment for the injuries.

So what do you need to know when preparing a third-party worker’s compensation disclaimer?

• The disclaimer can only waive an employee’s right to sue third-party customers or clients for injuries covered by the worker’s compensation statutes.

• As a matter of public policy, the disclaimer cannot attempt to deprive an employee of his or her rights under the Act, shield the employer from liability, or deprive an employee of compensation for work-related harm.

• The disclaimer effectively waives the employer’s right under the Act to subrogate against its customer.

Jason is Managing Partner of the Firm and Jeff is a Senior Associate, both practicing in the Construction Group. They can be reached at (215) 564-1700, jcopley@cohenseglias.com or jbrydzinski@cohenseglias.com.

Building in New Jersey after Superstorm Sandy? New Rules Regarding Construction in a Flood Zone

By Jonathan A. Cass and Jennifer R. Budd

In January, Governor Chris Christie signed an Executive Order and proposed emergency regulations regarding construction after Superstorm Sandy in flood prone areas of New Jersey. After a public hearing in March, the emergency regulations were made final on March 25, 2013 (“Regulations”). Below are some highlights of the new Regulations and the anticipated effects of the Regulations. 

What’s changed?

Before the storm, the building code and any flood-proofing Regulations in the state were based on flood maps adopted by the New Jersey Department of Environmental Protection (“DEP”) that were drafted in the 1970’s and 1980’s. Unfortunately, these maps underestimated the 100-year flood elevations by anywhere from one to eight feet. The Federal Emergency Management Agency (“FEMA”) is in the process of re-evaluating its flood maps for New Jersey. These maps determine what properties are in flood zones and the predicted severity of such flooding. One of the changes, which will have a widespread effect, is the adoption of FEMA’s 100-year flow rate maps, including advisory, proposed, or effective mapping.

Owners and their architects and contractors rebuilding in New Jersey will need to consider FEMA’s most recent maps (“New Maps”), regardless of whether the map at issue is considered to be final and approved. All of these maps are available on FEMA’s website at: http://www.region2coastal.com/sandy/abfe.

The Regulations propose the following for construction in flood-prone areas:

  • A building is substantially damaged if the cost of restoring it to its original condition would equal or exceed 50% of the market value of the structure beforethe storm damage occurred.
  • A repair of a structure means to mend or rebuild less than 50% of the structure as long as the “size, shape or location of the structure is not altered.”
  • In regards to a home, an individual permit for reconstruction, substantial improvement, or for new construction may not be issued by the DEP unless the lowest floor of the home is constructed or modified such that it is set at least one foot above the elevation set by the New Maps.
  • A repair need not result in a structure that is above the flood elevations.
  • The “lowest floor of a building,” including private residences, only includes a space that may be used for permanent or temporary occupation and does not include an unfinished crawl space, entryway, and/or garage if it is used solely for building access, parking, or storage.
  • The DEP may issue an individual permit for reconstruction of a commercial building that has suffered damage due to the storm that is not set at least one foot above the elevation set by the New Map if an architect or engineer certifies that the building will be constructed in accordance with flood-proofing requirements.
  • The Regulations also permit, for the first time, commercial buildings to be “wet flood-proofed.” Wet flood-proofing allows for flood waters to move freely in a building without damaging the structural integrity of the building.
  • A mixed-use building that contains three or more units for temporary or permanent residence, such as a building with retail or office space on the first floor and apartments above, may not be “wet flood-proofed.”

What are the cost implications?

When a property owner plans to rebuild, a DEP permit need not be sought as long as: (1) the “footprint” of the building is not increased by more than 300 square feet; (2) the lowest floor of the building is built at least one foot above the elevation set by the New Maps; (3) any basement or ground floor garage is not to be used for habitation; and (4) the building is not moved closer to any large body of water or into a floodway. This will save the owner the cost and potential delay associated with obtaining a DEP permit, although other permitting from municipalities likely will still be needed.

According to the Regulations, homeowners whose primary residence was substantially or severely damaged will be eligible for funding from FEMA to help cover the cost of the work associated with complying with the regulations. Flood insurance premiums are expected to rise drastically in the Garden State due to changes in the National Flood Insurance Program, and because the New Maps likely will place more properties in flood zones than before the storm, while other properties will be placed in more severe flood zones. But, FEMA anticipates that property owners who choose to comply when rebuilding could see their flood insurance premiums drop by more than 200%.

In light of the new permitting requirements imposed by the Regulations and potential cost-savings in flood insurance premiums, architects and builders should be aware of the changes. The change to the definition of “lowest floor of a building” is important when designing homes as a finished garage or basement because these areas will be considered the “lowest floor of a building” and will need to meet the elevation requirements to qualify the property owner for flood insurance savings.

Some prroperty owners looking to renovate or expand their properties will not be required to comply with the Regulations because their structures were not “substantially damaged.” However, those owners may seek information on the potential long-term cost savings in flood insurance premiums versus the short-term increase in the cost of design and construction.

Jonathan is a Partner with the Firm and a member of the Commercial Litigation Group. Jennifer is an Associate and a member of the Construction Group. They can be reached at (215) 564-1700 or jcass@cohenseglias.com or jbudd@cohenseglias.com.

What’s New

Brief Note:

We hope everyone enjoyed their Summer and are now ready to gear up for a productive Fall. We are excited to announce the launch of the Firm’s Facebook page! Please like our company page for timely updates on Firm news and new legislation. As always, please feel free to reach out to us with any questions.

Ashling
Co-Editor-in-Chief

Kate
Co-Editor-in-Chief

Anthony
Assistant Editor

New Faces

We are pleased to welcome Associate Amy Kirby to the Federal Construction Group. Amy focuses her practice on all aspects of Government contract litigation, including pre-bid dispute resolution, active contract management, litigation of contract disputes, and final contract closeout.

Recent Victories

After a week-long trial, Roy Cohen and Matthew Gioffre received a verdict from a Bucks County jury for our client, Klipper Construction Associates, Inc., in the amount of $726,809. The verdict included compensation for contract balance, additional work, delay costs, and unanticipated rock excavation and trenching on a project performed for the Warwick Township Water and Sewer Authority. The verdict also included damages for lost profits that resulted from Klipper’s loss of bonding capacity after the Authority failed to adequately compensate Klipper for its work on the project. The jury made a specific finding that the Authority acted in bad faith by withholding Klipper’s contract balance, which will allow Klipper to recover interest, penalties, and attorneys’ fees under the public Pennsylvania Procurement Code. These statutory damages will likely exceed $350,000 and will result in a final judgment approaching $1.1 million.

Edward Seglias, Jennifer Horn, and Robert O’Brien obtained summary judgment in the Court of Common Pleas of York County on behalf of our client, the School District of the City of York. Rado Enterprises, Inc. v. School District of the City of York involved a contract where Rado agreed to provide labor and materials necessary to perform heating, ventilation, and air conditioning construction work for the demolition, reconstruction, and partial renovation of the William Penn Senior High School in York, Pennsylvania. Rado filed a lawsuit against the School District alleging claims for loss of productivity or inefficiencies in excess of $1 million. The School District filed a counterclaim against Rado for breach of contract and violation of the Pennsylvania Procurement Code.

In the Motion for Summary Judgment, the School District argued that the claims for loss of productivity or inefficiencies were barred under the contract between the parties and failed as a matter of law due to a lack of essential expert testimony on the issue of causation. In this regard, Cohen Seglias argued that the critical path methodology and analysis was necessary to establish causation, and that the plaintiff’s expert had failed to establish any causal link between the alleged breach and plaintiff’s damages. The Court agreed and granted the School District’s Motion for Summary Judgment, thus defeating Rado’s loss of productivity and inefficiency claim in its entirety. The successful Motion for Summary Judgment enabled Cohen Seglias to resolve the minor remaining portions of the parties’ claims without additional litigation.

Awards

We are pleased to announce that twelve attorneys have been named Super Lawyers and three attorneys have been named Rising Stars, by Law & Politics Magazine in their 2013 edition.

The Firm’s Pennsylvania Super Lawyers named for their work in Construction Litigation are: Anthony Byler, Roy Cohen, Jason Copley, Edward DeLisle, Shawn Farrell, John Greenhall, Jennifer Horn, George Pallas, and Edward Seglias. Marc Furman and Jonathan Landesman were named for their work in Labor and Employment and Michael Payne for his work in Government Contracts. The Firm’s Rising Stars include Anthony Bottenfield and Matthew Gioffre who were recognized for their work in Construction Litigation and Catherine Nguyen for her work in Labor & Employment. George Pallas and Shawn Farrell were also named New Jersey Super Lawyers for their work in Construction Litigation.

Select members from this list also will be included in the Business Edition list. Law & Politics publishes Super Lawyers annually to recognize accomplished lawyers in more than 70 areas of practice.

Kerstin is the Firm’s Marketing Director. She can be reached at (215) 564-1700 or kisaacs@cohenseglias.com.