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Construction In Brief: Summer 2007

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Cohen Seglias Pallas Greenhall & Furman PC

Summer 2007 Issue

Cover Story:Things are NOT always what they Seem
Lessons Learned About Project Delays
          -  by Jack Graham, Esq.

Imagine you are a contractor on a project that is supposed to take approximately fourteen months to complete. The owner, however, failed to obtain certain permits which impacted your ability to perform your work in the manner and sequence in which you originally planned. In addition, you faced bad weather that further delayed the project. As a result, the project was delayed at least five months.

You have a slam dunk delay claim against the owner, right? Not so fast.

Now, imagine the owner claims that the weather and permit approval have had virtually no impact on the progress of the work and that your mismanagement caused the delays. As a result of your slow progress on the project, the owner effectively terminates your contract, not allowing you to finish approximately 50% of the work.

Even if the owner disagrees with your assessment, the combination of late permits and bad weather are pretty tough to beat in terms of establishing the cause of delay, right? You should still win something in a case for delay damages against the owner, right? If you have not properly documented your claim, don’t be so sure.

Cohen Seglias was recently involved in a case in the Philadelphia Court of Common Pleas involving this fact pattern. Cohen Seglias represented the project owner in a suit brought by the general contractor. Following a two week jury trial, a jury of eight took just one and one-half hours to deliberate and find in favor of our client, the owner. In fact, the jury awarded $1.4 million to the owner for additional costs in completing the general contractor’s remaining contract work after the termination.

You may be asking yourself, how did the jury reach this result? The pivotal factor in the case was the owner’s ability and the general contractor’s failure to document their respective positions. At trial, the general contractor did not provide the jury with any compelling documentation that abnormal weather conditions or the permitting issue delayed its work progress. In contrast, the owner provided the jury with a large amount of documentary evidence, including correspondence, meeting minutes and schedules, that demonstrated that the delays to the project were, in fact, caused by the general contractor’s own mismanagement.

So how do you avoid the general contractor’s fate? You cannot just show up in court with a good story that is inadequately documented and expect to be successful. In order to make sure that you are in a position to successfully assert or defend against claims, you must implement a protocol for document retention and claim documentation that is consistently followed on every project. That way, if you do find yourself in a courtroom, you will have the documentation to support your position. The following are a few key claims documentation strategies that, at a minimum, should be undertaken on every project:

1. The site superintendent or project manager should record, on a daily basis, the number of personnel on site, the work activities being performed, the location of work, and any delay or impact experienced. Each day, you should submit the report to all parties to the contract and retain a copy for your file;

2. As soon as there is a problem, document any delay, additional cost or other impact in writing. Keep the contract handy and consult the claims notice provision to make sure that your notice contains all necessary information and is transmitted to the appropriate party within the correct amount of time;

3. Maintain all project correspondence, including email, in a central location. It is helpful to maintain project correspondence in chronological order;

4. Take pictures of the project site at regular intervals;

5. Update your schedule at regular intervals and note any delays or impacts. Make sure updated schedules are transmitted to all parties to the contract.

The foregoing steps are a fundamental part of good business practice and are relatively easy to implement. If you ever find yourself litigating a construction claim, the effort taken to follow these documentation strategies will pay dividends in the courtroom.

Labor & Employment Law:
{What to Keep, What to Toss}

               -- by Tom C. Zipfel, Esq.

Do you believe that documenting personnel issues is a waste of your time and resources? Do you believe that “it never happened if it’s not in writing”? If you answered “yes” to either question, then you are making a big mistake. Unfortunately, too many businesses do not recognize their mistake until they are a party to a lawsuit.

Whether you are facing a charge of discrimination before an administrative agency, defending a sexual harassment lawsuit, or dealing with the Department of Labor, records can be your best friend. In other words, they can win your case.

Records establish reality. As an employer, you are in the best position of anyone to properly document personnel issues, and thereby, establish reality on your own terms. So what documents should you have, and how long should you have them?.

These statistics indicate that employers need to do a better job of preventing sexual harassment, and should re-evaluate their existing policies and training. The following provides an overview of issues of which employers should be aware and steps that employers can take to bolster their policies and training:

1. Employment Applications -for as long as the employee works at your Company, and for at least three (3) years thereafter.

2. EEO-1 Forms - Title VII says to maintain the most recent report, but it is a good idea to retain them forever in order to demonstrate the historical diversity of your workforce. If you don’t know what an EEO-1 Form is, call counsel. You may be violating the law by not completing one.

3. I-9 Forms - for as long as the employee works at your Company, and for at least three (3) years thereafter.

4. Union Documents -(such as arbitration awards, side-letters of agreement, collective bargaining agreements, etc...) - keep those forever.

5. OSHA Records - generally, five years after the date of an injury. Be careful - some OSHA standards, such as exposure to toxins, require thirty year retention.

6. Employee Evaluations - Title VII says one year from the date of action. We recommend as long as the employee works at your Company, and for at least three (3) years thereafter.

7. Wage and Hour Documents - the Fair Labor Standards Act says three (3) years. However, some state laws can go back as far as six years (e.g., New Jersey). As such, you should keep these documents for a minimum of six (6) years.

8. Discipline Notices - Various statutes say one to three years. We recommend as long as the employee works at your Company, and for at least three (3) years later.

Maintaining these records is a “preventive medicine measure” that will help in warding off some lawsuits and will be your best defense in others. Remember, documentation is your best cure for personnel claims.

Q&A: With The Business Practice Group
To File or Not to File: Bankruptcy Advice 
               -- by Steven D. Usdin, Esq.

What are the types of bankruptcy filings available to a company?

There are two sections of the Bankruptcy Code for businesses to consider when contemplating a possible bankruptcy filing. The first, Chapter 7, arises in situations where the company can no longer be a viable entity and needs the Court to assist in the liquidation of its assets. In this scenario, an independent Trustee is appointed to shut down the business, collect the assets and distribute them to creditors. In Chapter 7, the company loses total control of its operations and the Trustee completes all activity to shut all things down.

The primary opportunity for a business to continue to operate and deal with its creditors is in Chapter 11. In Chapter 11, the company continues to operate while negotiating with its bank and creditors to present a Plan of Reorganization for the continued operation of the business.

Are there signs to look for prior to considering the filing of a bankruptcy case?

There are several key factors consider when evaluating whether a bankruptcy fling will be of help to a company. Some of these factors include the following:

• Is the company having difficulty making creditor payments timely?
• Has a significant non-recurring event hampered operations?
• Has the bank or a secured lender threatened to shut down business operations?
• Has a Union threatened a job action of some type?
• Has a major supplier threatened to terminate services to the company?
• Is there a possible devastating delay in the ability of the company to perform on its contracts?

When is the right time to seek advice on the possibility of the need to file a bankruptcy?

The single most important factor is to talk to counsel as soon as any of the factors mentioned above arise, rather than wait to discuss these things when it is too late. Many times, a bankruptcy is NOT recommended, and alternatives should be discussed as soon as possible so that there is time to explore and implement the alternatives and to allow them to take effect. These discussions, however, need to take place sooner rather than later in order to avoid bankruptcy. Timing, therefore, is critical. 

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:
Understanding the Impact of the “SUBCONTRACTOR EXCEPTION”
             -- by Lisa M. Wampler, Esq.

Have you ever found yourself in this situation? You are awarded a contract to perform general contracting services on an addition or a similar renovation project for a local senior high school. You in turn hire a roofing subcontractor to install a new roof. Your subcontractor fails to follow the contract specifications when installing the insulation and the sprinkler pipes in the ceiling freeze during the winter. The pipes burst, causing water to infiltrate the building and damage the interior walls and floors. The school district looks to you to pay for the damage and fix the roof, but your commercial general liability (“CGL”) insurance policy contains a “your work” exclusion barring insurance coverage for property damage to your work. Will your insurance carrier pay for the damage caused by your subcontractor’s work despite this exclusion?

The “your work” exclusion only bars coverage for property damage to “your work” arising out of it or any part of it and included within the products-completed operations hazard. The purpose of this exclusion is to eliminate insurance coverage for the cost of correcting a contractor’s defective workmanship that damages the contractor’s own work. With this exclusion alone, the CGL policy would cover the costs to fix all the damage to the building (barring any other applicable exclusions in your policy, like, for instance, mold), but it would not cover the cost of the labor and material to correct any of the faulty work.

Fortunately for general contractors in Pennsylvania, there’s a subcontractor exception to the “your work” exclusion. When the subcontractor exception is present in your CGL policy, your insurance company cannot deny coverage when the damaged work or the work out of which the damage arose was performed by your subcontractor. In some states, the courts have even extended the definition of “subcontractor” for purposes of the exception to include a supplier of a defective product or an engineer that designs a defective component of the work, which causes the damage. As a result of the subcontractor exception, not only is the cost of the damaged property covered, but so is the cost to correct your subcontractor’s work.

Given the value that the subcontractor exception has in guarding against the risk of construction defects, you should carefully examine your next CGL policy to make sure you have this protection in your insurance arsenal. If you do not have coverage for your subcontractor’s negligence, you should require your subcontractors to carry their own insurance and request periodic insurance certificates from them to ensure that their coverage is current. Most importantly, general contractors should also have all of their contracts reviewed to make sure that their policy meets their insurance needs.

If you have any questions about your policy or coverage, you should consult with your insurance agent or counsel.

Update on PA Gaming
The Pennsylvania Supreme Court has dismissed the legal challenges imposed by certain interest groups intent on stopping the casino projects, which means they are likely to move forward quickly. Foxwoods and Sugarhouse casinos could open as early as next year, pending city approval. Foxwoods has announced it is looking for vendors to fill $65 million of work toward phase 1 of the gaming facility. There are tremendous opportunities available to those building slots facilities in Pennsylvania. The time to act is NOW! Cohen Seglias is available to counsel you on the Gaming Act and Gaming Control Board Regulations.

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

Cohen Seglias is pleased to announce that Shawn Farrell and Jack Graham have been selected to serve on the Board of Directors of the Philadelphia Chapter of the Building Industry Association. The BIA promotes development and construction in the City of Philadelphia. It works closely with representatives of federal, state and local governments as part of that effort, along with local community development organizations. Congratulations Shawn and Jack.

In addition, two of our attorneys have been recognized nationally and internationally for their commitment to their field. Roy Cohen has been identified in the “International Who’s Who of Business Lawyers 2007” in the area of construction law. Roy is one of only 5 construction practitioners in Pennsylvania that share that distinction. Marc Furman has been named as one of the top 100 labor attorneys in the country by the Labor Relations Institute. This is the second year in a row that Marc has earned that distinction. Congratulations Roy and Marc.

Finally, since our last publication, we have added several new attorneys to the firm. Jonathan Cass has joined our Business Practices Group following nine years with a local, mid-sized firm, where he worked primarily with banking and other financial institutions. In addition, Scott Hofer has joined the firm’s Construction Group after practicing in the area of construction litigation in Washington, D.C. for five years. Welcome Jonathan and Scott.

Words From Our Editor:
               -- by Janet L. Treiman, Esq.

Welcome to the Summer 2007 Edition of Construction in Brief. It is important that all businesses review their documentation policies frequently. As such, we offer insight in this issue about the importance of creating project documentation and retaining documentation relating to personnel issues in order to limit your claim headaches down the road. In addition, we discuss the “subcontractor exception” to the “your work” exclusion in your CGL policy which may provide coverage for certain claims.

As always, we welcome you to submit suggestions for future articles that may be of interest to you, either by regular mail or e-mail at:

Remember, 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!