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Construction In Brief: Fall / Winter 2009

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Avoid Bidding Pitfalls

By Anthony M. Bottenfield

It is no secret that we are facing difficult and often uncertain economic times. As a result of the current economic conditions, many private construction projects have been put on hold, while the bidding for public projects has become even more competitive as an increasing number of contractors are looking to the public sector for work. At the same time, an increasing number of unsuccessful bidders are challenging bids through bid protests. So, now more than ever, it is extremely important to pay careful attention to your bid submissions and to ensure that bids are accurate and responsive to the directions set forth in the invitations to bid.

Navigating the public bidding process – no matter which public agency you are dealing with – can be a cumbersome task. Public bidding is often confusing, lengthy, and highly technical. Bids can be rejected for slight, seemingly irrelevant errors or omissions. Developing a strategic plan and staying organized will ease the pain of the bidding process. A few easy steps can help alleviate the stress of completing bid submissions and protect against having your bid challenged or deemed non-responsive.

Step 1: Know the Dates and the Data Required

  • Bid invitations contain numerous time-sensitive requirements that, if overlooked, will put you at a disadvantage and possibly result in a disqualified or inaccurate bid
  • Once you have received and reviewed the invitation to bid, make a checklist of all of the data and documentation that you will need to complete the bid. On that checklist, highlight every item that requires the gathering of information not in your possession.
  • Take note of important dates, including the date of the pre-bid meeting, the bid submission date and the last day upon which you may submit written questions to the agency or its representative, to clarify any ambiguities in the invitation, scope of work, plans, drawings, or other documents. The same goes for requests to substitute or provide "or equals" on a project. If you wish to use a material other than what the bid and project specifications require, your request to substitute must be submitted to the agency in a timely manner.

Step 2: Know the Law

  • Know the law for the type and location of the project you are bidding. Each state has its own requirements for what information is mandatory, what information can be waived, and what information is so "material" to the bid that the bid is deemed defective without that information.
  • Pay specific attention to the bid directions. Although a state's laws may mandate certain requirements, the state agency may, and often does, require information that is above and beyond any statutory requirements.
  • Make sure that your required certifications and registrations, as well as those of your subcontractors, are current and contain the correct information.

Step 3: Know the Information

  • Submit written questions to the state agency or its representative if you have any uncertainty about a bid requirement. This is your chance tohave your questions answered by the agency so that you can complete your bid accurately. The question and answer period is one way to help protect against errors and omissions in your final bid.
  • Know how the question and answer exchange between the contractors and the state agency will be conducted. Make sure to keep up to date and continue to monitor questions submitted and answers provided.
  • Regularly check any relevant agency websites. Some government agencies have taken to answering the questions of prospective bidders and updating important bid information (including changing the bid submission date!) on their websites. It is important that you monitor the websites in order to prepare and submit your bid based upon the most current information.

Step 4: Know Your Rights

  • Public works projects are generally supposed to be awarded to the lowest responsive and responsible bidder
  • Even if you are the low bidder, your bid can be challenged by another bidder and/or rejected by the government agency if it contains a defect deemed to be "material."
  • It is important to know the timing and procedures for challenging or protesting a bid. If you are the lowest responsive bidder, you will want to know how long another bidder has to challenge your bid. And, conversely, if you are not the lowest bidder, but have reason to believe that the lowest bidder submitted a defective bid, you should know the deadline for filing a protest.
  • Bid protests must occur quickly and are highly dependent on the facts. If you wish to protest another's bid, gather all of the information that you can and act quickly. Generally speaking, the sooner you file a bid protest, the better.
  • Similarly, know the timing, procedure, possible reasons, and consequences of withdrawing your bid. In some circumstances, you may be able to avoid significant financial losses on a project if you made a mistake in your bid that allows you to withdraw it. It is generally important to obtain legal counsel in such a situation so that you can withdraw your bid without penalty.

Following these four simple steps will help the public bidding process to go more smoothly.

A Stronger CASPA Reveals the Meter is Running

By Jason A. Copley

If you are a contractor or subcontractor in Pennsylvania trying to obtain payment for work you performed, the Pennsylvania Contractor and Subcontractor Payment Act (CASPA) is one of your strongest allies, and it has just gotten a little stronger due to Zimmerman v. Harrisburg Fudd I, L.P., a Superior Court of Pennsylvania decision that Cohen Seglias recently obtained for a client. Generally, CASPA allows a contractor or subcontractor for a private project to recover not only its unpaid contract balance, but also attorneys' fees, interest and penalties if they are the "'substantially prevailing party" in a lawsuit. Zimmerman gives the law more teeth when it comes to collecting an award because it awarded interest, penalties and attorneys' fees that had accrued after a judgment had been awarded to the contractor. One word of caution, however: if you bring a claim under CASPA and lose, you could be liable to pay the other party's attorneys' fees.

The Zimmerman case involved Zimmerman, a contractor that had entered into a contract with Fudd, the owner, for the installation of floor and wall improvements for a restaurant Fudd was building. Fudd failed to pay Zimmerman, so Zimmerman brought an action against Fudd under CASPA to recover the amount due. An award was entered in favor of Zimmerman, which included $11,565.29 in statutory interest, penalties and attorneys' fees under CASPA.

Zimmerman pursued collection of the judgment, but Fudd attempted to block Zimmerman's collection efforts by filing various motions. The court denied Fudd's efforts to block collection and Fudd's bank paid Zimmerman. Fudd appealed and, a year later, the Superior Court affirmed the trial court's order denying Fudd's attempts to block collection.

After prevailing on appeal, Zimmerman filed a motion with the court seeking interest, penalties and attorneys' fees that had accrued after the judgment and during Fudd's efforts to block collection. The trial court denied Zimmerman's motion, and Zimmerman appealed.

In analyzing Zimmerman's case, the appellate court focused on the section of CASPA discussing the awarding of attorneys' fees, which provides that "the substantially prevailing party in any proceeding to recover any payment under the Act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses." The court reasoned that Zimmerman was clearly the substantially prevailing party, and that the language in the statute awarding fees for "any proceeding to recover any payment" under CASPA encompasses any phase of litigation, including the collection-of-judgment phase, as well as any appeals arising out of those collection efforts. The court found that CASPA covered Zimmerman's fees in defending Fudd's appeal, in addition to the fees Zimmerman incurred in filing its own appeal to collect its attorneys' fees.

The Zimmerman case is a warning to any recalcitrant owner or contractor that "the meter may be running" even after judgment is entered pursuant to CASPA. Interest, penalties and attorneys' fees expended by the substantially prevailing party continue to accrue even throughout appeals. As such, all cases litigated to a judgment pursuant to CASPA will require the unsuccessful litigant to carefully consider its post-judgment decisions. These decisions include fighting collection and even appealing the underlying judgment.

FROM THE COURTS: A New Twist on "Pay-if-Paid"

By Edward T. DeLisle

The United States District Court for the Eastern District of Pennsylvania recently issued a key opinion regarding "pay-if-paid" clauses in Pennsylvania. Sloan Company v. Liberty Mutual Insurance Company involved the construction of a $90 million project along the Delaware River in Philadelphia. The plaintiff and subcontractor, Sloan, sued Liberty Mutual, the surety, because the general contractor failed to pay Sloan approximately $1 million.

As one of its defenses to payment, Liberty Mutual claimed that there was a "pay-if-paid" clause in the contract between Sloan and the general contractor. Liberty Mutual argued that neither the general contractor nor the surety was under any obligation to pay Sloan because the owner had not paid the general contractor.

The contract's payment clause stated that "final payment shall be made within thirty (30) days after the last of the following two occur, the occurrence of all of which shall be conditions precedent to such final payment . . . 6) contractor shall have received final payment from the owner for the subcontractor's work." Conditional language, such as this, is often associated with "pay-if-paid" clauses. Sloan, however, argued that this clause was nothing more than a "pay-when-paid" clause, meaning that it acted as a timing mechanism for payment and did not shift the risk of non-payment to the subcontractor. The court agreed with Sloan.

Focusing on the initial phrase of the payment clause ("final payment shall be made"), the court determined that this language clearly indicated that payment would be made at some point. Given this language, and considering that courts generally frown upon the forfeiture of rights, the court concluded that the conditional language contained in the payment clause was insufficient to shift the risk of loss to Sloan. As a result, the court awarded judgment in Sloan's favor for all undisputed monies owed.

While it is unclear how Pennsylvania's appellate courts would rule under similar facts, the Sloan case provides potential assistance to contractors facing a "pay-if-paid" defense.

Do MATOC's Hurt Construction Bidding? Examining the Use of Multiple Award Task Order Contracts (MATOC's) in Federal Procurement

By Michael H. Payne

The gradual shift from sealed bidding to contracting by negotiation has resulted in the adoption of "creative" procurement methods by federal agencies. As the federal construction budget has grown and the size of the procurement workforce has declined, federal agencies have been finding it difficult to administer solicitations. The solution has been to combine several procurements into a single solicitation under a contract vehicle known as Multiple Award Task Order Contract (MATOC). In this way, the government can select several MATOC contractors who will compete among themselves for contracts to be awarded on a task order basis. Each task order is the equivalent of what was formerly a stand-alone, single-project procurement.

The purported authority for MATOC is found in the Federal Acquisition Regulation (FAR), at FAR 16.5. This regulation deals with Indefinite Delivery Indefinite Quantity (IDIQ) contracts, and was historically employed to procure supplies and services. It is questionable whether the procedure was ever intended to apply to construction projects because the procurement of buildings on an IDIQ basis simply is not the same as the procurement of ammunition (supplies) or electrical repairs (services). Nevertheless, the Government insists that the FAR does allow the use of IDIQ/MATOC contracting to procure construction, just as it does for supplies and services. Therefore, if the Government needs to construct classroom and other training facilities at military installations over an eight-state region, a MATOC procurement can be used to allow the agency to award the contracts on an as-needed basis by soliciting proposals from the pre-selected MATOC contractors.

Although the legality of MATOC procurements for construction has been challenged, the U.S. Court of Federal Claims has ruled that the use of IDIQ/MATOC for the procurement of construction is permitted since the FAR does not specifically prohibit it. The Court has stated, with regard to the Corps of Engineers, that "[t]he Corps, like other federal procurement entities, has broad discretion to determine what particular method of procurement will be in the best interests of the United States in a particular situation." As a result, for the foreseeable future, we expect to see a continuing stream of various forms of multiple award contracts.

In the last issue of Construction in Brief, we discussed how companies that are new to federal contracting can make use of federal opportunities in "Taking Advantage of Federal Construction Contract Opportunities ...Does a Newcomer Have a Chance?" www.cohenseglias.com/library/files/cohseg_sumfallnewsletter09.pdf

Along those lines, MATOC procurements, because of their size and scope, are well-suited to the creation of joint ventures and teaming arrangements. These arrangements can work to the benefit of contractors who do not have prior federal experience. By assembling a team that includes companies with federal experience, as well as capable companies who have experience in the private sector, contractors can combine their strengths in a manner that will strengthen the overall appeal of a federal proposal. Although there are many different types of teaming arrangements that can be employed, great care must be taken to avoid affiliations between large and small business concerns if the procurement is a small business set-aside. When entering into, or merely considering entering into, a joint venture or teaming arrangement, it is important to seek experienced legal counsel to make sure that your agreements comply with federal rules and regulations.

Read more about Federal contracting issues at www.fedcon.com

WHAT'S NEW

Cohen Seglias attorneys have been busy this Fall giving seminars and writing articles. Steven M. Williams presented "Fair Housing and Landlord/Tenant"to The Apartment Association of Central Pennsylvania at The Reserve at Hershey Meadows Club House in Hummelstown. Steven D. Usdin gave a seminar on "Leveraging Payment in Troubled Times" at the Construction Financial Management Association's (Philadelphia Chapter) Conference at Downingtown Country Club.

Lane F. Kelman and Christopher J. Soper co-authored "Green Construction: New Liabilities Require New Practices," which appeared in a supplement to The Legal Intelligencer. The article discussed areas of potential liability, resulting potential litigation and exposure for contractors and designers making the transition into green construction. The piece also explored green contracting pitfalls that may result in litigation and potential ways to insulate oneself from liability associated with the failure to timely achieve LEED Certification, green building tax credits or meet project specifications. A copy of the article can be downloaded at www.cohenseglias.com/publications.php.

We want to congratulate Edward T. DeLisle for being selected as the "Associate of the Year" for 2009 by the Pennsylvania Utility Contractors Association (PUCA). The Associate of the Year Award is given annually to a PUCA member who has made significant contributions to the underground utility contracting business and to the association. The firm has been a PUCA member since 1998, and Mr. DeLisle a member since 2002. Currently, Mr DeLisle chairs the association's Governmental Relations Committee and assists PUCA members with certification as women-owned or minority-owned businesses. Additionally, Mr. DeLisle has crafted a contract document to be used by PUCA members that ensures compliance with the new Home Improvement Consumer Protection Act.

Finally, Cohen Seglias is pleased to welcome Jason C. Tomasulo and Kathleen Carr Marshall to the Firm.

Jason C. Tomasulo
Mr. Tomasulo joins the Philadelphia office as senior counsel in the Construction Group. Prior to joining Cohen Seglias, Mr. Tomasulo served as General Counsel for Keating Building Corporation. He received his J.D. from The George Washington University School of Law and graduated magna cum laude and Phi Beta Kappa from Boston College with a B.A. in Political Science. Mr. Tomasulo is a member of the American Bar Association's Forum on the Construction Industry, and is admitted to practice in Pennsylvania, Maryland, Virginia and the District of Columbia.

Kathleen Carr Marshall
Ms. Marshall joins our Delaware office as an associate in the Business Practice Group. She concentrates her practice on commercial litigation with an emphasis in bankruptcy and represents businesses and individuals in complex commercial disputes. Prior to joining Cohen Seglias, Ms. Marshall was an associate in the Delaware office of a midsize California-based firm. She received her J.D. from The George Washington University School of Law and graduated summa cum laude and Phi Beta Kappa m The Catholic University of America with a B.A. in History.

For additional information, contact Crystal Garcia at (215) 564-1700 or cgarcia@cohenseglias.com

 

 

 

The Consequences of Misclassifying an INDEPENDENT CONTRACTOR

One of the most common and most costly mistakes an employer can make is to misclassify an employee as an "independent contractor." The classification of a worker as an employee or independent contractor determines the employer's obligations and liabilities to that worker and to both the state and federal governments. Misclassifying employees as independent contractors, even if unintentional, exposes employers to substantial fines and penalties and even criminal prosecution and jail time.

Generally speaking, an "employee" is someone who must follow the direction of the employer as to how, when and where to perform his or her work. An "independent contractor," on the other hand, has more discretion in the details of performing his or her work and may have more than one customer. As many employers have discovered, the classification of an individual as an employee or independent contractor requires a review of many specific factors, and the line distinguishing an employee from an independent contractor is often blurry.

Some employers treat workers as independent contractors instead of employees to avoid payment of certain payroll taxes, overtime compensation or fringe benefits, or to avoid payment of prevailing wage rates on public projects. These employers may be tempted to rely on "industry practice," job titles, or written agreements stating that the workers consent to being treated as independent contractors, and mistakenly believe that such pretenses will shield them from liability if the workers are misclassified.

However, employee misclassification has significant consequences. According to a recent report by the Government Accountability Office (GAO), state agencies reportedly found in 2007 that employers misclassified at least 150,000 employees as independent contractors. The Department of Labor (DOL) and Internal Revenue Service uncovered these misclassifications during investigations of other labor law or tax violations, or in connection with unemployment or workers' compensation benefit claims. In response to the GAO's findings, the DOL and IRS have escalated their investigations of worker misclassifications through audits and inspections of employers. The IRS recently announced a three-year effort, beginning in November 2009, to audit as many as 6,000 companies for employment tax compliance and proper worker classification.

The IRS will randomly choose the companies being audited, rather than rely on discovering such misclassifications through other investigations.

Legislators have also focused on this issue. Earlier this year, Rep. Jim McDermott (D-Wash.) introduced the "Taxpayer Responsibility, Accountability, and Consistency Act of 2009." The bill, which is presently pending, would amend the IRS Code to modify the rules relating to the treatment of individuals as independent contractors or employees, including requiring the IRS to inform the DOL of cases involving employee misclassification, and significantly increasing employer penalties for misclassification. This bill would repeal existing safe harbor provisions in the current IRS Code, making it substantially more difficult for employers to avoid employment tax liability for misclassifying an employee as an independent contractor.

Currently, at least eleven states, including Delaware, Maryland and New Jersey, have laws aimed at eliminating the practice of misclassifying employees as independent contractors, and many of these laws are targeted directly at construction contractors. For example, New Jersey's Construction Industry Independent Contractor Act presumes that all persons working for construction contractors are employees, and places the burden on the contractor to prove otherwise. A construction contractor found to have misclassified employees as independent contractors is subject to monetary fines of up to $1,000 and/or up to 90 days' jail time, for each offense. Importantly, each week in which the employee is misclassified (even for a single day during that week) is treated as a separate offense, meaning that penalties for a single misclassified worker can easily amount to tens of thousands of dollars. In addition, the contractor is subject to far more severe penalties, including fines of up to $150,000 and up to 10 years' imprisonment, if the contractor is found to have "knowingly" misclassified an employee as an independent contractor. Additional states, including Pennsylvania, are considering similar laws. Still others, including Ohio, have ramped up their enforcement efforts and collaboration among agencies to catch and penalize employers that misclassify employees as independent contractors.

In light of the increased scrutiny of independent contractor relationships, employers need to focus on proactive efforts to ensure they have properly classified their independent contractors. These efforts should include internal audits and effective remedial measures. Due to the complexity of the issue and the differing standards involved under applicable federal and state laws, employers should actively involve their labor counsel in the auditing process to help reconcile the applicable laws, evaluate the factors, and address legal and employee relations issues involved in the remedial process.

Screening Applicants on Facebook is Not a GR8 Idea

Nearly half of all employers who responded to an August 2009 Careerbuilder.com survey use social networking sites such as Facebook, Twitter, MySpace, and LinkedIn as a routine part of job applicant screening. Using social networking sites and other information available on the Internet to screen job applicants can be useful in some circumstances, but can also become the basis of refusal-to-hire claims because of the type of information to which the employer has access.

According to the Careerbuilder.com survey, 35% of the respondents have rejected applicants who posted material including: "provocative or inappropriate" content, content involving drinking or drug use, "bad-mouthing" of former employers, co-workers or clients, "poor communication skills", discriminatory comments, misrepresentations about qualifications, and sharing of confidential information from former employers.

Obviously, employers should legitimately be concerned about hiring employees with a history of disclosing an employer's confidential information or lying about their qualifications. However, making decisions based on more subjective factors such as "poor communication skills" or "provocative or inappropriate content," can be problematic when defending against a refusal-to-hire claim because a jury may not view the use of a smiley face or "text message" language (e.g., the use of "GR8" instead of "great") in the same light as a prospective employer.

Another problem employers face when using social networking sites to screen job applicants is that they could inadvertently learn far more than they want to know (or should know) about an applicant's personal history. For example, photographs of an applicant or his family can indicate the applicant's race, sex, age group, or ancestry. In addition, photographs or postings may indicate sexual orientation, disability, union affiliation, or other information protected by law.

Even a simple search of an applicant's name may reveal a blog or Internet posting where the applicant thanks friends for their support during her illness, or complains about problems with medical insurance for a disabled child or spouse. A rejected applicant could claim that the employer perceived the applicant to be disabled or associated with a disabled person, or that she was not hired due to her history of workers' compensation claims.

Although employers generally know not to use an individual's age, race, sex, disability, or other prohibited characteristics when making a hiring decision, we frequently see discrimination claims that allege little more than an employer's knowledge of an applicant's race or sex, and that conclude that the employer must have used that information in rejecting the applicant. These claims can be bolstered if the employer used a social networking site as a part of the job applicant screening process.

All things considered, it generally is not wise to use social networking sites or other Internet sources as part of the applicant screening process. It is unlikely that an employer will uncover information that can be lawfully used in the decision process and prevent a bad hiring decision, and far more likely that an employer will uncover information that influences the hiring decision or establishes knowledge that the applicant belongs to a protected class. Instead, employers should rely on objective selection and hiring criteria, and use methods such as post-offer drug testing and reference checks when making hiring decisions. It is a good idea for employers to seek legal counsel to assist in developing sound procedures for the selection and hiring process, and implementing best practices to ensure a safe, productive workplace.

EXPLORING CREDITOR OPTIONS IN BANKRUPTCY

What should my company do if we have delivered goods to a customer who has filed bankruptcy?

In these troubling economic times, many businesses are choosing to restructure and reorganize, or wind-down their business operations by filing for bankruptcy. While this can be a trying process for a debtor, it can be even more frustrating for creditors who learn that a customer with an outstanding balance has filed for bankruptcy. Proper preservation of claims is crucial for creditors to ensure recovery from a debtor. This is especially true for vendors who have supplied materials to a debtor within 20 days of the bankruptcy filing. The Bankruptcy Code section 503(b)(9) was amended in 2005 to better assist creditors in this scenario. Such creditors should move to secure their claim as quickly as possible by filing a request for a 503(b)(9) claim.

What is a 503(b) claim?
A 503(b)(9) claim gives vendors the value of any goods they delivered to a debtor within 20 days before the date of the filing of the bankruptcy petition. This claim will be treated as an Administrative Claim, which means that the vendor will receive payment from the bankrupt estate before other classes of unsecured creditors, but after a secured creditor (usually a bank). The vendor, under certain circumstances, may also seek a return of the goods in question.

How do I secure my claim?
The mere filing of a standard proof of claim is not enough to secure a 503(b)(9) claim. Instead, the vendor must submit its 503(b)(9) claim by filing a motion with the Bankruptcy Court. The motion needs to be filed in a timely manner, meaning at the earliest time the vendor becomes aware of the bankruptcy filing.

The vendor must show in its motion that it sold goods to a debtor, that the goods were received by the debtor within 20 days prior to filing bankruptcy, and that the goods were sold in the ordinary course of business. Services are generally excluded from the definition of "goods."

When you learn that a company has filed a bankruptcy case, you should contact counsel to protect and move forward your claims.