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Construction In Brief: Summer 2012

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Exercise Caution When Submitting Bids Online

Increasingly, public bidding requirements include provisions mandating that bidders submit their bids electronically to aid in the effective processing and analysis of those bids. Examples include website bidding portals such as PennBid.net used by many Pennsylvania municipalities and public school districts, the Electronics Contract Management System ("ECMS") used by the Pennsylvania Department of Transportation ("PennDOT"), and Bid Express used by the New Jersey Department of Transportation ("NJDOT"). There is also bidding software such as Expedite used by the Delaware Department of Transportation ("DelDOT"). In the federal arena, the Federal Acquisition Regulation, at 48 CFR 4.502, provides that the "Federal Government shall use electronic commerce whenever practicable or cost-effective."

However, as with any computer-based program or website, technical problems can arise during the electronic bidding process. Under Pennsylvania law, instructions to bidders that are identified as mandatory must be strictly followed for the bid to be valid. Otherwise, a non-conforming bid is subject to mandatory rejection. These strict bidding requirements can pose a problem in the context of electronic bidding, where issues with electronic bid irregularities easily can occur without any fault or knowledge of the bidding contractor. In such cases, questions arise as to whether a bid is still valid even if a glitch occurs when submitting an online bid.

The Pennsylvania Commonwealth Court case of Glasgow, Inc. v. Pennsylvania Department of Transportation highlights this very issue. In Glasgow, a contractor's bid for a PennDOT road reconstruction project was submitted via the ECMS. The bidding instructions stated that "[w]hen . . . required documentation is not provided by the apparent low bidder within the time specified, the bid will be rejected." After bids were opened, PennDOT informed the contractor via e-mail that it was the apparent low bidder and instructed the contractor to submit certain required documents relating to Disadvantaged Business Enterprise ("DBE") participation by a certain time via the ECMS. Unfortunately, although the contractor uploaded all of the required documents identifying its DBE subcontractors on the website (and the DBE subcontractors acknowledged their selection via the website), the contractor failed to press the "submit" button that officially submitted the information to PennDOT. Accordingly, PennDOT rejected the bid because the information had not been submitted by the required time and the bid was awarded to the next lowest responsible bidder. The apparent lowest bidding contractor protested PennDOT's rejection of its bid.

The Pennsylvania Commonwealth Court upheld PennDOT's rejection of the bid and found that until the contractor hit the submit button, no information had been provided. In fact, the court likened the situation to that of having to "click on a submit button" when concluding an internet purchase. The Court relied upon PennDOT's argument that until officially submitted, the contractor's documents were not readily accessible and that the contractor retained "a great deal of flexibility regarding the use of particular subcontractors." In addition, the Court noted that the contractor had no responsibility to commit to the information it provided "until it actually clicked on the submit button." Ultimately, the court held that the contractor's failure to submit DBE subcontractor information via PennDOT's internet bidding website was a material defect warranting rejection of the contractor's bid and award to the next lowest bidder.

Similar issues have been addressed by federal courts in protests addressing electronic commerce and submissions by e-mail. In Watterson Construction Co. v. United States, the Court of Federal Claims considered a case involving a negotiated procurement where the government rejected an e-mail proposal as untimely. There, the government's e-mail server received plaintiff's revised proposal at least a half-hour before the deadline but the proposal was not delivered to the contracting officer's "inbox" until four minutes after the deadline. Relying on the federal regulations and court precedent from before the "electronic age," the Court of Federal Claims held that the proposal received by the contracting officer after the solicitation deadline may be accepted if "[t]here is acceptable evidence to establish that it was received at the Government installation designated for receipt of offers and was under the Government's control prior to the time set for receipt of offers" and would not unduly delay the acquisition. In reaching this decision, the Court analogized electronic commerce requirements with traditional procurement requirements and found that the plaintiff's proposal was not late and a contractor should not be responsible for the risk of late delivery after relinquishing control of an e-mail bid that reached the government office in time. However, because the contract had already been awarded to another bidder, the plaintiff could not be awarded the contract, but could only recover its bid preparation costs.

The Glasgow decision serves as a stark warning to contractors: be careful when submitting bids electronically. Your bid will only be considered valid if you follow every online direction and satisfy each bid package requirement. In federal procurements, the Watterson decision demonstrates that when the problem is in the government's system, the government and not the contractor is responsible, just as in the days of snail mail. Similar results should prevail in state and local electronic bidding environments.

Contractors, both federal and local, when faced with procurements that use electronic commerce can best protect themselves by taking the following precautions when submitting bids electronically:

(a) read and re-read the entire bid package and instructions to bidders;

(b) provide all required documents and information solicited in the bid instructions and on the bidding website;

(c) follow all directions relating to use of the website so that your bid is not only complete but also correctly uploaded or submitted to the website and public entity;

(d) prepare for the submission of your bid well in advance of the deadline to avoid electronic errors and keep accurate and detailed records of your online bid submissions;

(e) take advantage of bid submission training seminars provided by many third-party electronic-bidding website providers so you can become more comfortable with the bidding website systems in advance of the bid submission date; and

(f) transmit bids in PDF format and "scrub" all meta-data associated with e-mails and files before transmitting.

By following these guidelines, you can minimize the risk of having your bid rejected or having to file costly bid protests. If you have questions regarding bid requirements, contact an attorney prior to submitting a bid.

Joe is a Partner with the Firm and practices in the Federal Construction Contracting Group. Wendy is an Associate and practices in the Construction Group. They can be reached at (215) 564-1700 or jhackenbracht@cohenseglias.com or wbennett@cohenseglias.com.

A Brief Note

There are many exciting things happening here at Cohen Seglias that we are happy to share with you in this issue. Most notably, we have welcomed Tony L. Byler and Evan A. Blaker to the Firm. Please read our What's New section below to learn a bit more about the expertise they both bring to construction and commercial litigation law, as well as a brief Q&A with Evan on page 6. As always, feel free to reach out to us or any of our attorneys with questions.

Ashling A. Ehrhardt, Esq.
Co-Editor-in-Chief

Kathleen J. Seligman, Esq.
Co-Editor-in-Chief

What's New

By Kerstin Isaacs

New Faces

Cohen Seglias is pleased to announce that Byler & Blaker LLC has joined the Firm. Tony L. Byler and Evan A. Blaker bring over 36 combined years of experience in construction, labor & employment, and commercial litigation.

Tony, the managing partner of Byler & Blaker, has joined the Firm as a Partner in the Construction Group. As a trial lawyer, Tony has handled major construction disputes for both plaintiffs and defendants involving educational facilities, hotels, bridges, high-rise residential buildings, prisons, waste water treatment plants, parking garages, docks, assisted living facilities, and shopping centers.

Evan has joined the Firm as a Partner in the Commercial Litigation Group. He focuses his practice on a wide range of practice areas, including employment, personal injury, construction, and commercial litigation/business disputes, including breach of fiduciary duty claims and commercial collections, with a concentration on contractor supply houses.

New Law Update

The Supreme Court of Pennsylvania recently limited application of the prevailing wage law to multi-phase construction projects involving a mix of private and public funding. In 500 James Hance Court v. Pennsylvania Prevailing Wage Appeal Board, the project was bifurcated into two phases, with private funding for the "shell" phase and public funding for the interior "fit out" of the building. The Prevailing Wage Appeals Board held that prevailing wages were required for both phases of construction. The Commonwealth Court later reversed the Board's decision, holding that splitting the project into "shell" and "fit out" phases was not an unlawful evasion of prevailing wage rates. The Supreme Court agreed and ruled that where a bifurcated construction project is financed by private and public funding, and at least one phase is financed entirely by private funds, prevailing wages need only be paid on those phases that receive public funding.

Recent Victory

Roy Cohen, John Greenhall, Tony Byler, Lisa Wampler, and Dan Fierstein were successful in negotiating a favorable settlement for an electrical contractor client ("Client"). The Client contracted with a solar energy provider ("System Owner") for the design and construction of eighteen solar energy systems to provide electricity for various public schools in four school districts. Each of the school districts entered into long-term agreements with the System Owner to purchase energy from the System Owner. As most of the projects approached final completion, the System Owner withheld the Client's contract balances totaling approximately $9 million due to alleged time of performance issues. The Client maintained that any of the alleged issues were excusable and that the contract balances were being unjustifiably withheld because the alleged timing issues were either outside of the Client's control or directly caused by the System Owner's conduct or failure to act.

The System Owner claimed it was entitled to offset the Client's entire contract balance based on the time of performance issues. On top of this offset, the System Owner claimed it was entitled to an additional $4.3 million in other damages. The parties entered into arbitration before the American Arbitration Association and, after an intensive two month period during which thousands of documents were exchanged and reviewed, along with expert reports and arbitration statements, Cohen Seglias assisted the Client in negotiating a settlement agreement that was highly favorable for the Client.

Roy Cohen can be reached at (215) 564-1700 or rcohen@cohenseglias.com.

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

Employees Injured On The Job In New Jersey – Are You Sure You Are Covered?

By Jonathan A. Cass

ABC, a general contractor, is working on a multi-story building in New Jersey. While constructing the building, Bob, one of ABC's employees, sustains serious brain damage when he is struck in the head by construction debris falling from an upper floor of the building. It turns out that the debris had been thrown from the building by another ABC employee who was trying to hit a dumpster located on the ground near where Bob was walking. So long as ABC has workers' compensation insurance, ABC is going to have insurance coverage for any claims that Bob brings against ABC, right? Surprisingly, the answer can be no if Bob decides to bring an action against ABC outside of the workers' compensation system, something that is happening more frequently due to recent developments in New Jersey law.

To understand this unfortunate state of affairs, it is necessary to understand the New Jersey Workers' Compensation Act, N.J.S.A. 34:15-1 et seq. ("Act"). Under the workers' compensation system, an employee injured (or killed) on the job is entitled to have the medical care necessary to treat his injuries paid for, and to receive payment of a percentage of his gross weekly wages during the period of time he is unable to work. Although the injured employee is entitled to receive benefits even if the accident was his fault, he is not entitled to receive compensation for the pain and suffering associated with his injury.

An employer insures itself from workers' compensation claims by purchasing a workers' compensation and employers liability insurance policy ("WC policy"). The WC policy will pay for the legal costs and expenses associated with defending a workers' compensation claim, and any benefits awarded to the injured employee. It also includes employers liability coverage (referred to as "Part Two" coverage), which is intended to provide coverage for claims outside of the workers' compensation system – such as a claim brought by an employee alleging that his injury was caused by the employer's negligence or failure to provide a safe workplace.

The benefits provided under the Act are intended to be the injured employee's exclusive remedy against both the employer and any co-employees who were responsible for his injuries. This means that an employee cannot file a lawsuit against the employer and co-employee who caused the accident asserting common-law claims (such as a tort-based claim for negligence) outside of the workers' compensation system. However, the Act does provide a single exception that permits the employee to bring an action against his employer outside of the workers' compensation system when his injury was caused by his employer's "intentional wrong."

The so-called "intentional wrong" exception was recently interpreted by the Supreme Court of New Jersey in Laidlow v. Hariton Machinery Company, Inc. In Laidlow, the plaintiff employee sustained a hand injury when his gloved hand was pulled into a mill machine that he was operating. Laidlow brought an action in the Superior Court of New Jersey against his employer (and his supervisor) arguing that his injury had been caused by his employer's "intentional wrong."

During the discovery phase of the lawsuit, Laidlow established that a guard on the machine had been intentionally disabled by the employer. For more than twelve years, Laidlow repeatedly asked his supervisor to restore the guard because it was unsafe to operate the machine without it. However, Laidlow's requests were ignored. The employer admitted that the guard had been removed for "speed and convenience," and an engineer retained by Laidlow certified that the employer knew there was a "virtual certainty of injury" to Laidlow "arising from the operation of the mill without a guard."

In response to the lawsuit, the employer sought to dismiss the case on the grounds that Laidlow's injuries had not been caused by the employer's "intentional wrong." The Court held it is necessary to perform a two-part analysis to determine whether an employer has committed an "intentional wrong." The first step is to determine whether there is sufficient evidence for a jury to conclude that the "employer acted with knowledge that it was substantially certain that a worker would suffer an injury." If the answer is in the affirmative, then the court must take the second step to determine whether the facts of the accident "constitute a simple fact of industrial life or are outside the purview of the condition the Legislature could have intended to immunize under the Workers' Compensation bar."

The Laidlow decision essentially removed the requirement that the employee prove that his injury resulted from an intentional act of the employer. As a result, plaintiff's attorneys have filed many more lawsuits outside of the workers' compensation system on behalf of employees who had been injured or killed on the job.

Employers who were sued sought coverage under the employers liability section of their WC policy. The employers liability coverage has an exclusion for "bodily injury intentionally caused or aggravated" by the employer. This exclusion had been traditionally used by insurance companies to deny insurance coverage for lawsuits brought by employees alleging that their employer had committed an "intentional wrong." However, in a victory for employers, a subsequent decision by the New Jersey Supreme Court held that the "intentionally caused or aggravated" exclusion did not apply to the new "substantially certain" standard established by Laidlow, thereby providing coverage for such claims under the employers liability coverage portion of the WC policy.

In response to this development, the New Jersey Compensation Rating and Inspection Bureau, the entity that regulates workers' compensation insurance in New Jersey, issued a new policy endorsement titled "New Jersey Part Two Employers Liability Endorsement" ("New Endorsement"). The New Endorsement excludes coverage for lawsuits brought by employees under the "substantial likelihood" standard.

Laidlow and the Bureau's response created the worst of both worlds for New Jersey employers. It increased the likelihood that a severely injured employee will attempt to circumvent the exclusive remedy provision of the Act by suing his employer in the Superior Court of New Jersey, while at the same time triggering the creation of the New Endorsement that eliminated the insurance coverage needed for those lawsuits.

What should employers working in New Jersey do to protect themselves? First, employers should advise their insurance brokers and agents of this issue and determine whether their workers compensation carriers will agree to issue a policy without the New Endorsement. If the insurance carrier is willing to do so, there will likely be an increased premium charge since the carrier is assuming a greater potential risk. Second, employers should emphasize work-place safety and ensure that employees are not put in a position of having to work under dangerous conditions where injury is "substantially certain." In the event that you find yourself facing such a situation, contact an attorney for the purpose of trying to obtain coverage for such a lawsuit.

Jonathan is a Partner with the Firm and practices in the Commercial Litigation, Insurance Coverage & Risk Management Groups. He can be reached at (215) 564-1700 or jcass@cohenseglias.com.

Securing Federal Set-Aside Contract Work Through Joint-Venture or Teaming Agreements

By Edward T. DeLisle and Maria L. Panichelli

On March 7, 2012, the Government Efficiency Through Small Business Contracting Act (H.R. 3850 – 112th Congress (2012)) cleared the House of Representatives' Small Business Committee. The bill, designed to increase the number of federal contract opportunities for small businesses, would raise the government's goal for prime procurement contracts awarded to small business concerns from 23% to 25% of all prime contracts per fiscal year. Similarly, the bill seeks to raise the government's goal for small-business subcontracting from 35.9% to 40% of all applicable contracts. This bill is indicative of a growing trend in federal contracting: the continual increase in the amount of setaside contracts for small businesses.

Contrary to what many contractors believe, however, an increase in the percentage of set-aside contracts for small businesses does not necessarily eliminate large businesses from participating in the performance of those contracts. Large businesses can compete for virtually any small business setaside contract, if they properly "team" with small businesses. Moreover, under the right circumstances, small businesses can joint-venture with each other on set-aside contracts, even if one or more of those small businesses alone would not otherwise qualify to compete for that contract.

Eligible small business set-aside participants can also benefit from joint-ventures or teaming agreements. These arrangements allow small businesses to pool their resources to compete for larger federal projects. Joint-venturing and teaming are good ways for relatively inexperienced contractors to break into the federal contracting arena, an area in which experience and past performance can prove critical to securing a contract. By teaming with a more experienced, larger contractor, a small company can acquire the experience needed to secure future federal contracts on its own.

In short, joint-venturing and teaming are useful tools for all contractors and the possibility for forming such arrangements should be explored, albeit with the understanding that there are limitations. For example, under normal circumstances, only an 8(a) business – a business that is defined as a "small" business and is also owned and operated by a member of a disadvantaged socio-economic group – can bid for an 8(a) "set-aside" contract. As part of a joint-venture, however, a non-8(a) company may bid for the contract. This is permissible only when at least one party to the joint-venture has been classified as an 8(a) business, and the non-8(a) company involved in the joint-venture also is "small" by the U.S. Small Business Adminstration's ("SBA") standards.

To determine whether a contractor qualifies as "small," the contractor must examine the North American Industry Classification System Code associated with the contract. This number is set forth in the solicitation itself. The contractor must then reference the "size standard" associated with that code, as found in the SBA's Table of Small Business Size Standards. For the most part, with respect to general contracting work, a contractor will be considered "small" if it has an average of $33.5 million in annual receipts over three years. In specialty trade contracting, anything below $14 million in annual receipts over three years is considered "small."

Assuming that the proposed joint-venture complies with the above, it must nonetheless satisfy certain additional requirements in order to obtain SBA approval: (1) the 8(a) company must own at least 51% of the joint-venture; (2) the 8(a) company must be the managing partner of the joint-venture; (3) a special bank account must be set up for the joint-venture; and (4) profits must be commensurate with the work performed by each member of the joint-venture. Most importantly, the 8(a) participant to the joint-venture must perform at least 40% of the work performed by the joint-venture, which is itself required to perform between 15% (general contracting) or 25% (specialty contracting) of the total contract amount. To ensure SBA approval of a joint-venture on an 8(a) set-aside (which must be done prior to the award of the 8(a) contract), the work breakdown should be set forth in the joint-venture agreement itself, and in sufficient detail so as to allow the SBA to determine whether the above work-percentage requirements will be met.

The other option, if a joint-venture is not possible, is for parties to enter into a "teaming arrangement." A teaming agreement is a promise by a prospective prime contractor (usually the small or small, disadvantaged company) to another party (usually a large business), to negotiate a subcontract in the event of an award. Teaming agreements must be disclosed at the time of bid or submission of a proposal. Under a teaming arrangement, the subcontracting partner can perform up to 85% percent of the contract price (exclusive of materials) in a general construction contract, and up to 75% of the contract price in a specialty trade contract.

While keeping these limitations in mind, contractors should explore the various joint-venture or teaming arrangements available to them. These special arrangements open up new contracting opportunities, and are a great tool for expanding and diversifying business.

Ed is a Partner and Maria is an Associate, both practicing in the Federal Construction Contracting Group. They can be reached at (215) 564-1700 or edelisle@cohenseglias.com or mpanichelli@cohenseglias.com.

Q&A with Evan A. Blaker

By Evan A. Blaker

Partner Evan A. Blaker recently joined Cohen Seglias Pallas Greenhall & Furman PC as part of the Commercial Litigation Group. We sat down with him to discuss his background and his thoughts on the state of the construction industry.

Q: What is your background?
A: I have been practicing law as a trial litigator for more than 20 years. Most recently, over the past 10 years or so, I have concentrated my practice in construction-related claims and disputes in Pennsylvania and New Jersey, with a particular emphasis in representing contractor supply houses. This represented somewhat of a change in my practice focus coinciding with my teaming up with a former associate, Tony Byler. Tony and I had been at the same firm for several years and eventually left and went in separate directions. During that time, Tony developed a construction law practice that grew to the point where he needed help and called me and asked me to join him in what would become Byler & Blaker.

Q: What is your practice philosophy?
A: To treat all of my clients as if they were members of my family. And the fact is that I have developed strong friendships with virtually all of my clients. Counseling folks that you consider your friends becomes easy as there is a deeply engrained mutual respect and understanding of the things that matter most in any given scenario. And while I am a proponent of litigation being a last resort, when it does become time to do battle, preparation is key because for me and my competitive nature, losing is simply not an option.

Q: What strengths do you bring to Cohen Seglias?
A: I have been actively engaged in litigation practice for over 20 years. I know the rules of procedure in Pennsylvania and New Jersey, both Federal and State Courts, like the back of my hand and can effectively utilize them to benefit my clients. There is no substitute for experience, which I bring to the firm.

Q: What are you looking forward to with the move to Cohen Seglias' Commercial Litigation Group?
A: The move to CSPG&F is exciting on several different fronts. First, I am eager to use the wider CSPG&F platform to provide my existing clients with expertise in areas in which I don't practice, like transactional work and estate planning. I am also eager to provide my expertise to the Firm's clients.

Evan can be reached at (215) 564-1700 or eblaker@cohenseglias.com.

Bidder Beware: Recent Pennsylvania Case Provides Cautionary Reminder of the Perils of Failing to Conform to Public Bid Specifications

By Edward Seglias and Kathleen M. Morley

In a time when competition among bidders is already fierce, it is particularly important that public bids are responsive and compliant with the specifications. Failure to do so, even if it is a minor error, can result in a bidder's disqualification. A recent Pennsylvania appellate court decision serves as a cautionary reminder of the perils of a bidder's failure to conform precisely to bid specifications.

In Dragani v. Borough of Ambler, a taxpayer ("Taxpayer") challenged a municipality's award of a waste services and recycling contract. The Taxpayer argued that the award should be revoked based on alleged defects in the bid submitted by the apparent low bidder ("Bidder"). The bid specifications required that each bidder accompany its bid with a consent of surety form from a surety with an underwriting authority of at least $20 million.

In challenging the award, the Taxpayer argued that the Bidder should be disqualified because it submitted a consent of surety form from a surety with only $16 million in underwriting authority, as opposed to the required $20 million. The Bidder argued that this was a curable, nonmaterial defect that was waivable by the municipality. Agreeing with the Bidder, the trial court held that the defect in the bid was not material and that the municipality had reserved the right to waive defects.

On appeal, the Commonwealth Court of Pennsylvania reversed the trial court's decision and held that the Bidder should have been disqualified because the defect involving the consent of surety form was material. The court found that, although the municipality had reserved the right to waive bid defects, the municipality did not have discretion to waive a mandatory requirement. Because bidders were required to submit a consent of surety form in accordance with the specifications at the time of the bid, the court ruled that the Bidder's failure to submit a consent of surety form from a surety with $20 million in underwriting authority was a legally disqualifying error.

In support of its decision, the court cited the general rule that requirements in bid documents are mandatory and must be strictly followed for a bid to be valid and responsive. This general rule, the court noted, is based on the underlying public policy of avoiding favoritism, fraud, and corruption in the award of public contracts. The court acknowledged the recognized exception to the general rule: municipalities may waive non-material, non-statutory requirements in circumstances where such waiver would not deprive assurance of the proper performance of the contract or adversely affect competitive bidding. However, the court identified a caveat to this exception in circumstances where the defect involves a requirement that the bid specifications treat as non-waivable (i.e., where the specifications state that a bid will be rejected if a bidder fails to comply with the requirement).

While there are situations where a public entity may waive defects in a bid, the Dragani case serves as an important reminder that these situations are limited and that a bidder must exercise care in the preparation of public bids. Notably, the decision re-affirms that bids that fail to conform to specifications may, and frequently must, be rejected, even where the public entity has expressly reserved its right to waive bid deficiencies.

When bidding on public jobs, it is crucial that contractors know and understand the specifications and requirements for bidding. Contractors bidding on public jobs must be mindful of the stringent conformity requirements and the high cost of seemingly inconsequential mistakes or omissions. By ensuring compliance with all bid specifications and requirements, contractors can avoid the unfortunate situation of expending valuable time and resources in the preparation of a bid only to have it disqualified due to a technical oversight.

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