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Construction In Brief: Spring / Summer 2009

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What does the Economic Stimulus Package Mean for Federal Contractors?

Last February President Obama signed the American Recovery and Reinvestment Act of 2009, which is intended to jumpstart the economy, create millions of jobs, and start paying back debt. The Recovery Act includes a number of provisions to be implemented in Federal Government contracts. An Interim Rule issued on March 31, 2009, implements the "Jobs Accountability Act." Among other things, it requires contractors that receive awards (or modifications to existing awards) funded, in whole or in part, by the Recovery Act to report quarterly on the use of the funds. In addition, a new section was added to the Federal Acquisition Regulation (FAR) called the "American Recovery and Reinvestment Act – Reporting Requirements," and a new clause was added to implement the reporting requirements. Contracting Officers are now required to include the new clause in solicitations and contracts funded in whole or in part with Recovery Act funds, except classified solicitations and contracts. Commercial item contracts and Commercially Available Off-The-Shelf (COTS) item contracts are covered, as well as actions under the simplified acquisition threshold.

Effective March 31, 2009, five (5) interim FAR rules went into effect implementing several requirements of the Recovery Act. These new rules only apply to federal procurement contracts funded with stimulus money. Their goal is increased transparency and accountability in the spending of Recovery Act funds. The new rules include:

1. Reporting Requirements for Recipients of Recovery Funds

This is the most onerous of the new requirements. Contractors must now file quarterly reports documenting their use of stimulus funds. Information on the Recovery Act may be found on the Recovery Act Web site (www.recovery.gov). (A new website is under construction, www.federalreporting.gov, that will facilitate online reporting. The site is expected to be operational shortly.) The newly mandated contract clause, which must be included in all contracts receiving stimulus funds, requires the prime contractor and first tier subcontractors to report the additional contract and funding information.

2. Publicizing Contract Actions

Contracting Officers are now required to enter data in the Federal Procurement Data System for any contract action funded, even in part, by the Recovery Act. They must also post certain award information on the FedBizOpps.gov website for any covered contract action.

3. GAO & IG Access to Employees

The interim rules amend the FAR to provide new authorities to the Comptroller General, or Government Accountability Office (GAO), and agency inspector generals (IGs). GAO and agency IGs are now authorized to audit prime contracts andsubcontracts and interview prime contractor personnel; and the GAO is authorized to interview subcontractor personnelfor certain contracts funded by the stimulus plan. The rules, however, do not grant IGs the authority to interview subcontractor employees. Notably, a separate interim rule authorizes the Comptroller General to interview current contractor employees when conducting audits regardless of whether the contract is funded by the stimulus plan. Commercial-item contracts that are not funded by the Recovery Act are exempt from the new oversight authority.

4. Whistleblower Protections

Additional protections for state, local, and federal government contractor whistle blowers are also provided for in a new clause of the interim rules. Essentially, the clause prohibits a non-federal employer who has received stimulus funds from discriminating against an employee as a reprisal for making a disclosure of what the employee reasonably believes to be evidence of gross mismanagement, misuse, or waste of stimulus funds or a violation of law related to a contract involving stimulus funds. In addition, contractors receiving stimulus funds must now post a notice of their employees' rights and remedies relating to whistle blower protections. This whistle blower clause must be included in all stimulus-funded contracts and subcontracts.

5. Buy American Requirements for Construction Materials

Last, but not least, the rules implement the Buy American requirements for federal buildings and public works funded by the Recovery Act. It prohibits, with certain exceptions, the use of stimulus funds for the construction, alteration, maintenance, or repair of a public building or work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.  

New and pre-existing compliance obligations will continue to be of paramount importance due to the increased authority and funding provided to GAO and the agency IGs to perform oversight functions. Undoubtedly, the mix of new reporting obligations and increased oversight is a significant change in the compliance environment faced by government contractors and could expose contractors to new liability risks. These requirements are evolving, and further changes are possible when the final rules are issued.

HOME IMPROVEMENT HEADACHES

By Lisa M. Wampler

Have you ever thought about branching out into the home improvement business? Or maybe you just do home improvement work as a favor for a friend or neighbor? With Pennsylvania's recent enactment of the Home Improvement Consumer Protection Act (HICPA), contractors will have to be extra cautious when providing home improvement services to residential customers. Under HICPA, which went into effect on July 1, 2009, contractors now face new registration and contract document requirements that have not previously been imposed and are subject to criminal sanctions if found to be engaged in "home improvement fraud." Given the significant burdens, costs and restrictions that HICPA places on every contractor, compliance with the new regulations is critical.

HICPA requires every contractor who performs more than $5,000 of home improvement work on an annual basis directly for private residences to register with the Bureau of Consumer Protection of the Pennsylvania Attorney General's Office.

You do not have to actually own or operate a home improvement business to be affected by the new law -- simply agreeing to perform any home improvement is enough. Examples of home improvement work that HICPA covers include the construction, replacement, installation or improvements of driveways, certain landscaping, roofs, painting, siding, insulation, waterproofing and central heating or air conditioning. Notably, new home construction is exempt from the HICPA requirements.

To register, every applicant must provide general contact information, such as the name, home address, telephone number and social security number of each officer of the company, as well as a complete description of the nature of the business. Additionally, contractors must disclose whether the company has ever 1) been convicted of a criminal offense relating to a home improvement transaction, fraud, theft, deception or fraudulent business practices, 2) had any final civil judgment entered against it relating to a home improvement transaction in the last 10 years, or 3) filed for bankruptcy. While HICPA is designed to protect consumers from unscrupulous contractors, every contractor who wants to perform home improvement work must abide by its stringent terms.

As of July 1, 2009, every contractor covered by HICPA is expected to have updated their contracts to include the specific requirements of HICPA, otherwise the contracts will be deemed invalid and unenforceable. HICPA requires that every home improvement contract valued at $500 or greater be in writing and include the following provisions:

  • the contractor's name, address, telephone and registration numbers
  • the approximate start date and completion date for the work
  • a detailed description of the work to be performed, the material to be used and a set of specifications
  • the names, addresses and telephone numbers of all subcontractors on the project
  • the total sales price under the contract (thus, time and material contracts are unlawful under HICPA)
  • the amount of any down payment

Certain standard contract provisions, like a hold harmless or confession of judgment clause or terms that award attorneys' fees to the contractor, are also voidable by the owner. Effectively then, HICPA has legislated away a contractor's right to privately contract with its customers. Using a contract that doesn't comply with HICPA may be considered an "unfair or deceptive act or practice" under Pennsylvania's Unfair Trade Practices and Consumer Protection Law (UTPCPL), subjecting contractors to the threat of treble damages, plus costs and attorneys' fees, even for a trivial omission from the contract. A contractor may also be exposed to civil penalties under the UTPCPL if it materially deviates from plans or specifications without a written change order. Additionally, HICPA identifies a list of other specific acts deemed to constitute the offense of "home improvement fraud" which can be prosecuted as a felony or misdemeanor. With HICPA now in effect, it is important that all contractors who provide home improvement services review their current business practice to ensure they are in compliance with HICPA's requirements.

UNFORESEEN SITE CONDITIONS: The Perfect Storm

As contractors prepare to bid on construction projects funded by the American Recovery and Reinvestment Act, commonly known as the economic stimulus package, they should understand that the United States has not undertaken public construction of this scope and scale since the New Deal. Many things have changed in the construction industry in the 75 years since the New Deal was implemented, including the proliferation of construction litigation. There is no question that the increase in public construction made possible by the economic stimulus package will be accompanied by a steep increase in contract disputes.

One issue that contractors who will be working on projects funded by the economic stimulus package should be aware of is the potential existence of site conditions different from those disclosed in the contract. Contractors should be aware also of contract terms that allocate responsibility for any increased construction costs associated with unforeseen site conditions discovered at the project site. Projects funded by the economic stimulus package present conditions for a perfect storm of unforeseen site conditions claims because (1) government agency personnel will be strained by the administrative work associated with preparing the projects for bid, (2) government agencies will be under pressure to quickly begin projects and (3) the utilization of stimulus funds will be under intense third-party scrutiny. As a result, it is imperative that contractors carefully review any representations regarding the site conditions made by the owner in the contract documents and take advantage of any inspection or testing opportunities presented by the owner.

The economic stimulus package includes nearly $200 billion in funds earmarked for public construction projects, including highway, bridge, railway, public transit, sewer, drinking water, flood protection, affordable housing and energy con- struction. The availability of funding for public construction projects will present unprecedented opportunities to contractors who perform public work. However, the increased availability of such a staggering amount of funding in such a short period of time will present unique challenges to government agencies as they attempt to assemble the project plans, specifications and bidding documents.

Government agencies will be under pressure to put projects out to bid and commence construction in a timely fashion. This pressure is not new or unique, but the sudden availability of a huge amount of funding for a large number of diverse projects will likely put a strain on agency personnel and resources, and will challenge the agencies' ability to prepare comprehensive and accurate project documentation. On top of the time constraints, government agencies will, as usual, feel pressure to bring the projects to completion under budget. Additionally, third-party scrutiny of the agencies' utilization of economic stimulus package funding will be more intense than traditional third-party examination of project funding, so government agencies will be more conservative in their willingness to spend stimulus funds.

The scheduling and budgeting pressures facing government agencies in their implementation of economic stimulus package funds may impair government agencies' ability to prepare comprehensive and accurate contract documents and may even create an incentive to issue less complete project documents as a strategy for allocating responsibility for differing site conditions to contractors. These factors could cause a perfect storm of unforeseen site conditions claims.

Many construction contracts, particularly contracts for public work, contain disclaimer clauses in which the owner attempts to (1) disclaim responsibility for inaccuracies in information regarding site and soil conditions provided to the contractor in the contract documents and (2) allocate the risks associated with unforeseen site conditions to the contractor. These disclaimer clauses often appear in contract documents where the site conditions are "unclassified" or unknown. However, disclaimers may also appear in contracts where the site conditions are "classified" – where the project owner provides specific representations and information regarding site conditions to the bidders.

Courts have struggled with the enforceability of disclaimers for unforeseen site conditions, particularly in cases where the owner made positive representations about the site conditions and the contractor then relied on those representations in preparing its bid price. Where an owner provides the contractor with an affirmative and inaccurate representation or misleading information regarding site conditions, courts generally refuse to enforce disclaimer provisions.

However, in addition to providing information relating to the site conditions, many contracts also require the contractor to undertake its own investigation of the condition of the project site. Owners require these investigations in an attempt to allocate the risk for unforeseen site conditions to the contractor. Even where the contractor is required to perform its own site investigation, the contractor can still pursue a claim when unforeseen site conditions are encountered if the contractual investigation procedure would not have revealed the differing condition. Therefore, it is imperative that the contractor conduct all self-inspections required by the contract documents. If the contractor's own investigation reveals a condition that is in conflict with representations made by the owner in the project documents, this conflict should be made known to the owner prior to bidding.

The administrative, scheduling and budgetary stresses placed on government agencies in the rush to implement of economic stimulus package projects could result in less comprehensive and less accurate project documentation and, therefore, an increased potential for the discovery of unforeseen site conditions. Because the contracts for these projects will likely contain disclaimers for unforeseen site conditions and requirements for contractors to perform independent investigations of the existing site conditions, it is essential that contractors preparing bids for these projects pay particular attention to the owners' representations regarding the site conditions and undertake all investigations directed by the project documents.

Forming a More Perfect Union

Cohen Seglias Pallas Greenhall & Furman recently joined with Payne Hackenbracht & Sullivan, a firm which focuses on Federal Contracting issues, to form a cogent entity. Taking our twenty year approach to construction, labor, employment and commercial practices and merging that with a strong national federal construction practice, offers useful insight to clients of all types. Not only does the Federal Construction Contracting Group bring a new perspective, but has many useful tools available. These include:

  • BLOG - This blog is the only one of its kind that deals exclusively with federal construction contracting, making it a very informative resource for contractors.  www.fedconblog.com
  • CONSULTING - The Federal Construction Consulting Group is a body that works with Cohen Seglias to provide advice and assistance to federal contractors in the preparation of proposals on federal procurements. There has been a dramatic shift in the last few years regarding contracting by negotiation. Preparing a proposal that convincingly demonstrates a contractor's ability to successfully perform the project is critical -- and we can help in this process.
  • SEMINARS - As our economic times change and evolve, so does the approach we take to federal construction contracting. Today the focus is more likely to be about "best value". At Cohen Seglias, we offer a forum that comprehensively examines all aspects of federal construction contracting, offering valuable information on understanding the system and an overview of upcoming opportunities. Upcoming seminars include:
    • OCT 6 Pittsburgh, PA at the Westin Hotel Convention Center
    • OCT 13 Orlando, FL at the Hyatt Regency
      See our website for registration and other details: www.cohenseglias.com

WHAT'S NEW

Cohen Seglias is pleased to announce new additions to our team. Our summer associate program brings us Rayna Kessler from Temple University School of Law and Jennifer Budd from Rutgers School of Law. In addition, we have welcomed three new associates to our Philadelphia office. They are as follows:

Lawren H. Briscoe
Lawren has joined our Labor and Employment Group. She focuses her practice on representing and counseling employers in all aspects of employment law. Lawren received a B.S. from Howard University and her J.D. from The University of Pennsylvania School of Law. Prior to joining the firm, Lawren was at a large Philadelphia firm practicing employment law.

Elise M. Carlin
A new associate of our Business Practice Group, Elise received her B.A. from the University of Richmond and her J.D. from Temple University School of Law. Prior to joining Cohen Seglias, Elise worked as an associate in a firm based in Fort Washington, PA.

Jeffrey Brydzinski Joining our Construction Group is Jeffrey Brydzinski, a Muhlenberg College and Widener University School of Law graduate. Prior to joining Cohen Seglias, Jeffrey was an associate at a large Philadelphia-based firm where he concentrated his practice in construction law.

PUT A SOLDIER TO WORK: Why (and How) Your Company Should Recruit Military Veterans and Members of the Military Reserves

The stagnant economy and the promise of federal dollars through the Economic Stimulus Package has led many companies to enter the realm of government contracts for the first time. The acceptance of federal government dollars is accompanied by certain employer obligations and reporting requirements, including preparation of affirmative action plans and statistical analyses of workforce demographics based on gender, race, national origin, disability, and veterans' status. The Office of Federal Contract Compliance Programs (OFCCP), enforces these employer requirements and conducts periodic audits of employers subject to the requirements.

Now, the OFCCP has a mandate to aggressively focus on contractors receiving money through the Economic Stimulus Package. The OFCCP's mandate is a direct consequence of the recent scandals involving companies that received federal bailouts and is designed to improve contractor accountability. An area of particular interest for the OFCCP is the contractor's obligation to prevent discrimination against, and to recruit and employ, military veterans and others with military backgrounds.

Federal contractors and subcontractors with contracts of at least $10,000 are required to take certain affirmative steps to recruit military veterans and other persons with a military background. If the contract is $100,000 or more ($25,000, if entered before 2003), the contractor also must establish an affirmative action plan to recruit and employ veterans and others with military backgrounds, such as members of the National Reserve.

If your company is a federal government contractor, subcontractor, or plans to capture some economic stimulus dollars, you can get a head-start on satisfying your affirmative action requirements, and benefit your workforce overall, by using the below resources.

Below is a non-exhaustive list of resources for finding qualified job seekers with military experience. Most of these resources are free of charge, and employers can post job openings, as well as search resumes of veterans seeking employment.

At the top of the list is Military.com (www.military.com), which is a division of Monster.com. Military.com connects employers to job seekers with current or past military experience. Employers can search resumes and post jobs specifically targeting applicants with military experience. Other sites and programs directed at employers include RecruitMilitary.com, HireVetsFirst.gov, VetJobs.com and MilitaryHire.com.

Employers that wish to direct their search specifically at veterans returning from Iraq and Afghanistan can contact organizations such as Hire Heroes USA (www.hhusa.org), which provides resume search and job posting services.

Employers also should ensure that their job application procedures provide qualified individuals with disabilities and disabled veterans with an equal opportunity to apply and compete for jobs. Online systems must operate with adaptive technology, computer graphics must be adjusted for those with visual impairments, and company kiosks must be wheelchair-accessible. The OFCCP announced a mandate focusing on this issue in September 2008, and employers should make sure that they are in compliance.

In addition, the OFCCP also has announced a program aimed at encouraging employment of military veterans by formally recognizing federal contractors and subcontractors that have undertaken successful efforts to employ covered veterans. The program is called "Good-Faith Initiative for Veterans Employment" or "G-FIVE Initiative." Those contractors and subcontractors that receive a "G-FIVE Rating" will be granted a three-year exemption from OFCCP compliance reviews. Contractors and subcontractors can be nominated for this designation by the OFCCP, or can request that they be considered for this designation. We recommend that contractors and subcontractors consult with legal counsel before applying, to ensure that they are compliant with OFCCP requirements generally and do not open themselves up to unwanted OFCCP scrutiny.

Finally, it is important to keep in mind that, in addition to satisfying your affirmative obligations as a federal government contractor or subcontractor, recruiting and employing veterans and others with military backgrounds can provide very practical benefits. Employers frequently describe veterans and Reserve members in their workforce as reliable, professional, motivated, and self-disciplined. These are qualities that every employer desires, and may enhance your overall workforce.  

Recent Developments in the EFCA

The Employee Free Choice Act (EFCA), also referred to as the "union card check bill," is legislation which, if enacted into law, would be the most expansive revision to federal labor law in fifty years. EFCA has three major components: (1) it allows employees to form unions by signing cards authorizing union representation, instead of requiring a secret ballot election; (2) it establishes harsher penalties for employers that violate employee rights when workers seek to form a union; and (3) it creates new mediation and arbitration processes for first-time negotiations, such that an arbitrator would decide the terms of the employer's agreement with the union if the employer and the union do not reach an agreement after 120 days.

Although EFCA was introduced as bipartisan legislation, it has been universally supported by Democrats and opposed by Republicans. Despite its Democratic support, EFCA has come under attack from both parties because of its provision that would eliminate the secret ballot election. Currently, the National Labor Relations Board (NLRB) calls for an election if at least 30% of employees in "an appropriate bargaining unit" have signed union authorization cards. A secret ballot election is held weeks later, giving both the employer and union organizers time to campaign for or against the union. EFCA would eliminate the current requirement of a secret ballot election, and make it easier for workers to unionize by giving them the option of using a simple card check to determine union support. In other words, if a majority of employees in the bargaining unit signed union authorization cards, the union would become their bargaining representative. There would be no election, and virtually no opportunity for employers to present their position against joining the union.

Opponents of EFCA claim that use of card check elections will lead to overt coercion of employees by union organizers. They have long maintained that secret ballot elections are necessary to protect free choice and ensure workers' privacy regarding their decision to join a union. EFCA proponents, on the other hand, argue that change is essential to protect workers' rights to join unions, and that the secret ballot election process has failed to meet the needs of workers.

The controversy over elimination of the secret ballot election has become a substantial obstacle to EFCA's passage. Several Democratic senators have announced that they will not support EFCA in its current form, citing elimination of the secret ballot as the primary factor in their decision. In addition, a co-sponsor of EFCA, Senator Arlen Spector (Pa.), recently announced that he was withdrawing his support for the bill. Senator Spector called the secret ballot "'the cornerstone of how contests are decided in a Democratic society," and criticized EFCA's binding arbitration provision, stating that it might force employers into a contract that they cannot live with. On April 28, 2009, Senator Spector announced that he was changing his political affiliation from the Republican to the Democratic party. It is not known what impact, if any, his party change will have regarding his current opposition to EFCA.

These announcements have dealt a heavy blow to unions and supporters of EFCA.  In 2007, an identical version of the bill died on the Senate floor, receiving only 51 of the 60 votes needed to end debate and force a final vote. The votes were cast along party lines, with Senator Specter providing the bill's sole Republican support. Following the November 2008 election, Democrats have gained enough seats in the Senate to avoid a Republican filibuster. Thus, the main focus of EFCA supporters is not whether the Senate will vote for or against EFCA, but whether it will support bringing the bill to the floor for a vote. This distinction is crucial, because supporters must obtain 60 votes in the Senate in order to bring EFCA to the floor for a vote, but only need 51 votes to pass the bill.

In light of the wavering support for EFCA, some senators are pushing for a compromise bill that would modify or eliminate the controversial card check provision. In May 2009, Democratic Senator Tom Harkin (Iowa), EFCA's chief sponsor, announced that he was "working diligently" with Senator Spector's staff to reach a modified bill that will garner the 60 votes needed to bring the bill to the Senate floor. Senator Spector appears to be open to a compromise, stating: "I'm opposed to giving up the secret ballot or mandatory arbitration as they are set forth in the bill, but I do believe that labor law reform is past overdue." Even President Obama, a strong supporter of EFCA, has expressed willingness to talk with management about tweaks and modifications of the bill.

Although it may be unlikely at this point, if EFCA does make it out of the Senate in its current form, it will have a profound effect on the current state of union organizing by allowing unions to organize workers much more easily. In the alternative, any compromise can be reached between EFCA supporters and opponents will likely center on the most important aspect of the legislation: the right to unionization by majority card check and the mandatory arbitration after 120 days. The elimination of these provisions would certainly be a partial victory to employers, but the trade-off that has been suggested is that of a severely limited election period (i.e., twenty days). While it is doubtful that EFCA supporters will agree to any drastic revisions of the bill, it appears that some form of comprise will have to be reached if there is any chance of EFCA leaving the Senate floor.

Business Practice Group EXPLORING QUESTIONS on COLLECTIONS

By Alexander F. Barth

My attorney recently fought and won a long battle to collect on an unpaid invoice. What can I do to collect on the judgment?

Once you have prevailed on the merits of the case, the litigation moves into its final phase, collection. Unfortunately, after winning the battle the debtor rarely writes a check to pay the judgment, it is more likely that they will begin an aggravating game of trying to avoid paying the judgment.

This can be extremely frustrating; however, there are steps you can take to help maximize your recovery and reduce the overall cost of collecting the judgment. The more information you have on your debtor, the more likely are you are to identify assets that can be converted to cash applied to your judgment. The most important types of information to keep track of are:

Checks. Keep copies of all checks you have received from the Debtor; this will assist in locating the debtor's bank accounts.

Real Estate. Know the Debtor's office location(s). If the debtor owns real estate, you can foreclose on the real property if there is equity available. Also the sheriff can levy on the assets located at the debtors office, taking any cash on hand and the office equipment (e.g., telephone systems, computers, copies, file cabinets) needed by the debtor to continue operations. This can be an effective pressure point to a business that would like to remain operational.

Business Owners. If possible you want to know as much as you can about the owners of the debtor business. This information can assist your attorney in tracing money that may have been fraudulently transferred from the debtor prior to, during or immediately after litigation.

Present Operations. Talk to other contractors and see if you can identify jobs on which the debtor is presently working, or has recently completed. Your attorney can garnish the other projects on which the debtor has worked and have any money owed to the debtor paid directly to you. On a construction project, this can include retainage or bonds held by municipalities for completion and/or maintenance that are not released until the end of a project.

Other Claims. Any other claims the debtor has against third parties (e.g., insurance claims) can also be subject to garnishment.

Other Assets. As best you can, develop a list of readily known assets (e.g., trucks, equipment, supplies). Depending on the size of the judgment, you may want to have your attorney conduct and internal asset search or hire an outside firm to conduct a thorough search of all registered and/or titled assets and real estate owned by the debtor.

Providing your attorney with as much information as you can about the debtor will increase the efficiency and likelihood of recovery.    

Working to Make the L & E Seminar a Hit

Our annual Labor & Employment seminar was a huge success, drawing a crowd from across the Mid-Atlantic region. Discussed at this event were recent trends and issues in the "Employee Free Choice Act" and many other valuable topics.

As industry news is ever-changing, we believe it's important to keep our clients informed and up-to-date. In September, keep an eye out for webinars and free seminars on "hot topics" that have ramifications on your business! Visit our website to register for more on these informational seminars: www.cohenseglias.com