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Construction In Brief: Spring 2006

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Cohen Seglias Pallas Greenhall & Furman PC
CONSTRUCTION IN BRIEF

Spring 2006 Issue


Cover Story:

BEWARE: Your Public Projects May Require American-Made Products
What Should Your Company Do?
      -  by Rene David Quinlan, Esq.

If you are working on a public project that is using federal funds, you may be required to use materials and components that are at least 50% American made. This means that everything you supply on such a project -- from steel columns and beams to interior finishes -- may need to be made from a majority of American products. In addition, some states require that a certain percentage of steel in the material or component be American-made on public projects. In the event that you knowingly or unknowingly supply or install a foreign-made component on a public project, you may not be able to get paid for that work! And unless you’ve ensured that your subcontractor or supplier was advised of the requirement, you may be forced to pay your subcontractor or supplier without receiving payment from the public entity.


The federal act is known as the "Buy American Act of 1988." This act requires that "substantially all" of the "articles, materials and supplies" for public use be "mined, produced, or manufactured … in the United States." Federal courts have interpreted this act to mean that the cost of the American-made components must exceed 50% of the cost of the end product. Significantly, the end product is what is delivered to the project site. For example, each individual steel beam that is delivered to the site is an "article" that must comply with the Buy American Act.

Pennsylvania has a similar act that is limited to steel. The Pennsylvania act precludes public agencies from making payment for steel products that are not made from at least 75% United States steel. In addition, a willful violation of the act may result in the entity being prohibited from doing public work for a period of five years.

New Jersey’s statue, unlike the federal and Pennsylvania acts, provides that "only domestic materials shall be acquired or used for any public work." Although this appears to be a rather strict requirement, the statute does not apply if the needed materials are not produced in the United States in commercial quantities and of a satisfactory quality.

Interestingly, Delaware has not yet adopted a "state" equivalent of the federal government’s Buy American Act. However, the courts have not yet addressed whether state projects may also be subject to the federal act -- that is, whether the federal act would apply as a "minimum" requirement for any public project. As such, it is best to thoroughly review your contract and the project specifications, and to consult with the public entity and your attorney to ensure full compliance with your contract and the applicable law.

How do you protect yourself? First, know your contract, the specifications, and how the applicable public laws apply to your work. Second, ensure that your subcontractors and suppliers comply with all project requirements and all applicable "Buy American" acts. You can accomplish this by properly incorporating contract documents into your subcontract and material agreements. Finally, demand to see appropriate documentation -- before the materials and components are procured -- that confirms compliance with "Buy American" acts.

Knowing the Buy American acts that apply to your public project, and enforcing their provisions will not only ensure that you are paid for your work, but in the words of Pennsylvania’s Steel Products Procurement Act, will also "aid and promote the development of the steel industry of the United States in order to stimulate and improve the economic well-being of the Commonwealth and its people."


Labor & Employment Law:
Dispelling Myths About Disability Leave
               -- by Jonathan Landesman, Esq.

There was once a time when considering an employee's request for disability leave was fairly straightforward. The sole determining factor was the company's business needs. No more. With the passage of the Americans with Disabilities Act (ADA) and Family and Medical Leave Act (FMLA), employers must navigate a virtual maze of federal laws and regulations. In addition, when an employee's disability arises from a work-related accident, the Workers' Compensation Act (WCA) must be considered.

This article explains common myths about disability leave and the interplay between the ADA, FMLA, and WCA.

MYTH -- A disabled employee may be terminated as soon as her 12-weeks of FMLA time are exhausted.

While it is true that eligible employees are entitled to a maximum of 12 weeks of FMLA-protected leave per year, the ADA often entitles disabled employees to longer periods of leave. There are no bright line rules concerning the length of leave under the ADA. Leave must be carefully reviewed on a case-by-case basis, and the duration hinges on the size of the employer, the nature of the employee's position, and the employer's ability to find a temporary replacement worker. Even though employees are not entitled to an open-ended leave of absence, in some cases the ADA requires a leave of absence in excess of six months to a year.

MYTH -- An employer may not charge time against an employee's FMLA-bank while he is receiving workers' comp benefits.

It is always to an employer's benefit to "burn" through an employee's FMLA bank as quickly as possible. Time taken off by an employee who is receiving workers' comp benefits should be concurrently counted as FMLA time. This procedure should be clearly spelled out in an Employee Handbook, and a notice should be sent to the employee which specifically designates the leave as FMLA qualifying.

 

MYTH -- Because an employee's claim petition for workers' comp benefits has been denied, an employer does not have to provide a leave of absence.

A determination that an employee is eligible or ineligible for benefits under the WCA does not affect an employee's rights under the ADA or FMLA – WCA benefits hinge upon the existence of a "work-related injury", the FMLA requires a "serious health condition", and the ADA covers a "qualified individual with a disability". Each of these terms has a special, independent meaning. Likewise, an insurance carrier's determination that an employee is disabled under the terms of a long or short term disability policy has no bearing on an employee's rights under the ADA, FMLA or WCA.

MYTH -- Once an employee provides a completed FMLA medical certification form, an employer may not ask for more detailed medical information.

While it is true that the Department of Labor has issued a medical certification form to be provided to an employee requesting FMLA leave, employers may require more detailed medical information. Indeed, in order to determine whether an extended leave of absence is required under the ADA, employers have a right to receive detailed information concerning an employee's diagnosis and prognosis. Pointing to HIPAA, employees sometimes refuse to provide this information. This position is simply wrong; indeed, the HIPAA regulations provide a specific exemption for work-related inquiries.


Q&A: With The Business Practice Group
A Look at Legal Entities / Preparing Estate & Gift Tax Exemptions
               -- by Wayne C. Buckwalter, Esq.

What type of legal entity suits my business plan?

Businesses with multiple owners have several available choices including: General Partnership, Limited Partnership, C Corporation, S Corporation, Limited Liability Company and Limited Liability Partnership. In certain circumstances, it may be advisable to use a combination of entities to achieve the most favorable result. Businesses with one owner may also operate as a sole proprietor. All entities may also use a Fictitious Name or Names.

Many factors must be considered in creating a business entity. These include initial cost of formation, income tax at the entity level, liability protection for the owner or owners, pretax medical accounts, retirement and deferred compensation plans, and choices for income and capital distributions to the owner or owners.

Our Business Department is experienced in working with business owners to structure a plan to consider, understand and optimize the creation and maintenance of a successful business entity best suited to the client's present and anticipated future needs.

How should I prepare my estate plan with the varying Estate and Gift Tax Exemptions through 2011?

Under current federal law, the Estate Tax Exemption is $2 million per person for 2006 through 2008, $3.5 million per person for 2009, unlimited for 2010 and $1 million per person for 2011. For the same period, there is a lifetime gift Exemption of $1 million per person and a yearly gift Exemption of $12 thousand per donor per donee per year adjusted annually for inflation. Gifts in excess of the yearly exemption reduce the lifetime exemption.

With proper planning, these variables do not require the re-creation of an estate plan on a yearly basis. A carefully prepared strategy and estate planning documents which contain a formula to cover these variables do not require a constant "redo" of the overall plan. A periodic review and possible reallocation of beneficiary designations, asset values and ownership will maximize the tax savings result without a major overhaul.

Our Trusts and Estates Department is experienced in helping individuals, families and family owned businesses complete this process to achieve the goals of the client with optimal income and estate tax planning.

Question for our Business Practice Group?
Submit it to Janet L. Treiman, our editor, and you might just see it appear in this column.


Construction News:
Coordinating Multi-Prime Contract Projects
 
             -- by Stephanie Wisdo, Esq.

On multi-prime projects, owners contract directly with various trade contractors to complete the work and typically rely upon the contractors or a construction manager to coordinate the work. Multi-prime contracts can be problematic for the prime contractors because it may be unclear as to who actually has the duty to coordinate the work. Moreover, in most situations, an individual prime contractor is powerless to compel its fellow prime contractors to coordinate properly their work.

As a practical matter, it is difficult for an individual prime contractor to compel its fellow prime contractors to complete their work in a timely and workman-like manner because the contractor does not control the purse strings for these projects. However, the underlying contract can be drafted in such a way as to give an individual prime contractor a limited amount of power to compel its fellow prime contractors to fulfill their duty to coordinate work. Prime contractors are given this power by designating them as "third-party beneficiaries" in the underlying contracts, which allows a prime contractor, who has been damaged by another contractor's failure to coordinate its work, to recover these damages.

Still, even with the limited ability to recover damages, prime contractors do not have authority to compel others to coordinate work because the prime contractors do not have the power of the purse or the power to terminate one another’s contracts. Therefore, the coordination of work remains problematic and contractors are always well-advised to put the owner on written notice of any issues impacting the coordination or scheduling of work.

Generally in multi-prime contracts, it is the owner’s duty to coordinate all of the work on the project. Nevertheless, assuming that an individual prime contractor does not have a duty to coordinate all of the work on a project, the individual prime contractor still has a duty to coordinate its own work on a project with that of the other prime contractors. Indeed, the underlying contract will generally require the contractor to take reasonable steps to coordinate its work so as to facilitate the general progress of the project. Accordingly, contractors should carefully review the underlying contract to determine the extent of their duty to coordinate.

Initially, a contractor’s duty to coordinate might be fulfilled simply by the timely submission of that contractor's scheduling information to whomever is preparing the project schedule. Next, the contractor must review the schedule and the scheduling information provided by the other contractors, and put the owner on written notice of any coordination issues that might adversely impact the schedule. As time passes, the duty to coordinate requires each contractor to ensure that its work is being installed within the time required by a frequently changing project schedule and to object, in writing, if its work cannot be completed within the time allotted due to changes in the project schedule.

In addition, the duty to coordinate may include an obligation to ensure that the contractor’s work will actually fit into the project itself. For example, the duty to coordinate might include: (1) taking field measurements to ensure proper matching and fitting of work; (2) installing equipment in certain locations so as to maximize its accessibility to other contractors; (3) verifying that any installed equipment is fully operational; and (4) providing for any necessary integration or attachment to the work of other contractors. Again, the contractor should object, in writing, if a preceding contractor's work contains discrepancies or defects that could adversely impact its own work on the project.

In summary, the extent of a contractor's duty to coordinate its work on a multi-prime project is not always clear. But it is clear that contractors cannot afford to be passive when potential or actual problems occur. Rather, contractors should complain early, and complain often about issues adversely impacting the coordination or scheduling of their work. Moreover, these complaints should always be memorialized in writing as the contract requires.


What's New At The Firm?
  
-- by Edward T. DeLisle, Esq.


Cohen Seglias is pleased to announce the expansion of our Delaware Office. The firm added several thousand square feet of space to accommodate the needs of its clients, both new and old, in the Greater Delaware Valley. The firm's new address is 1007 Orange Street, Suite 1130. In addition, Jim Harker has joined the Delaware office as a partner. He has over thirty years of real estate, commercial transaction, and general commercial litigation experience.

Since our last publication, the attorneys of Cohen Seglias have continued to speak to the public on important issues. Roy S. Cohen recently spoke at the National Construction Conference for the American Institute of Certified Public Accountants on the topic of "Protecting the Contractor in a Difficult Economy." Marc Furman provided a seminar entitled "Talking the Talk: Misusing Employment-Related Terms Can Cost You" to the Delaware Valley Industrial Resource Center in Philadelphia. Shawn R. Farrell and Tom C. Zipfel also spoke to the Southeast Chapter of Associated Builders and Contractors on "The Contractor's Secret Weapon - Bond Claims and Mechanic's Lien Claims" and "How Do I Get a Labor Injunction in Pennsylvania", respectively. Finally, Jason A. Copley was part of a panel presenting a seminar on surety issues to the Construction Financial Management Association (CFMA). He also published an article in CFMA's Building Profits magazine entitled, “A CFM’s Survival Guide To Project Documentation and Claims.”

Finally, Cohen Seglias would like to welcome the addition of several new attorneys. Wendy F. Klein Keane and Kathleen J. Seligman have recently settled into our Philadelphia Office; Eric J. Monzo will work out of the Delaware Office; and Ericson P. Kimbel has joined the firm's Pittsburgh Office. All of our new hires will work in the firm's Construction Group. Welcome everyone!

Words From Our Editors:
               -- by Janet L. Treiman, Esq., Jason A. Copley, Esq.

Welcome to the Spring Edition of Construction in Brief. Spring is a good time for cleaning up your company practices and making sure that you are not only complying with your contract, but all applicable laws as well. As such, the topics covered in this edition include contractual duties to coordinate on multi-prime projects, "Buy American” acts, and employers' statutory rights and obligations to employees on disability leave.

We welcome you to submit suggestions for future articles that may be of interest to you, either by regular mail or e-mail at: JCopley@cohenseglias.com.

As always, if you have a specific legal concern, we recommend that you consult with counsel so that you may receive the best advice. See you next issue!