What’s New?

In this issue, you will learn practical tips to avoid or make the most of bid defects for New Jersey public projects. You’ll also get an in-depth explanation of why the design-build model is currently a no-go for Pennsylvania public projects and the bill that might change that. This issue also includes an analysis of the most recent Pennsylvania Supreme Court decision on the Mechanics’ Lien Law and information about how you can protect your lien rights before it’s too late. Lastly, check out our Q&A on diversity, equity, and inclusion in the construction industry.

As we approach the end of 2021, we hope you take a moment to reflect on all you’ve accomplished this year and your goals for 2022.

Sydney Pierce, Co-Editor-in-Chief
Christopher W. Sexton, Co-Editor-in-Chief

New Faces

Emily A. Letcher is the newest addition to our Wilmington office, joining as an associate with a primary focus on civil litigation. She litigates corporate disputes involving governance, fiduciary duties, dissolution of organizations, and other contractual matters before the Delaware Court of Chancery, Delaware Superior Court, and the U.S. District Court for the District of Delaware.

Evan Rassman also joined the Wilmington office as an associate. He regularly represents real estate developers, investors, banks, retail tenants, and other stakeholders in various complex commercial real estate transactions, including project financing, joint ventures, acquisitions and sales, real estate lending, commercial leasing, workouts, and restructurings. In addition, Evan frequently advises clients in the Philadelphia and Delaware markets at all stages of their transactions.

Sydney M. Smith joined our Washington, DC office as an associate. She helps individuals and companies navigate complex investigations and prosecutions for federal and local criminal violations brought by state attorneys general, the U.S. Department of Justice, and other federal and state agencies. Sydney’s work also involves guiding clients through internal investigations, helping to evaluate potential wrongdoing and develop solutions to remediate possible ethics and compliance violations.

Cohen Seglias Ranked in Chambers USA 2021

We are excited to announce that Cohen Seglias is recognized in the 2021 edition of Chambers USA: America’s Leading Lawyers for Business, the preeminent legal ranking of attorneys and law firms.

The firm’s Construction Group is named a leading practice in Pennsylvania, and our New Jersey construction practice is again similarly recognized. Chambers USA describes the group as a “[r]obust construction team with expertise in litigation and complex contract negotiations. Noted for representing a range of general contractors and subcontractors in the construction industry, including electrical, mechanical and concrete specialists.” Clients laud the firm as “a great firm among the leaders in the construction area.”

The publication notes these attorneys for their outstanding work in the construction field: Shawn Farrell (new this year), Roy Cohen, Edward Seglias, George Pallas, Jason Copley, and Michael McKenna. The firm continues to increase its rankings from the previous years, and this group represents the largest number of Cohen Seglias attorneys recognized by Chambers USA.

Cohen Seglias Ranked Seventh in Nation by Construction Executive’s “The Top 50 Construction Law Firms® of 2021”

We are proud to announce that Cohen Seglias is ranked seventh in the latest national rankings in Construction Executive’s “The Top 50 Construction Law Firms® of 2021.” Construction Executive, a leading industry publication, surveyed hundreds of law firms with dedicated construction practices throughout the United States. Factors in the rankings covered the general scope and breadth of the firm’s construction practice, including the number of construction attorneys; the number of states in which the firm is licensed to practice; and the year in which the construction practice was established.

The American Lawyer South Trailblazers 2021: Paul Thaler and Shan Wu

Congratulations to Paul Thaler and Shan Wu, who are among the inaugural class of The American Lawyer’s South Trailblazers! Those selected as Trailblazers are attorneys based in the southern region of the United States who have made significant marks on the practice, policy, and technological advancements in their practice areas.

Washington, DC office managing partner Paul Thaler is noted for his innovative research misconduct practice. In his interview with The American Lawyer, he discusses how he came to focus on this area of law, the changes that have come about in research misconduct investigations, and what the future may look like. He remains hopeful that “…we can continue to make improvements to the process and [the] interpretive law governing the process that [will] provide better protection to science as a whole, as well as the stakeholders involved while enabling scientists to continue research that makes all of our lives better.”

Shan Wu is recognized for his role in pioneering the area of student defense, which he speaks about in the publication’s supplement, describing how he came to realize that the university systems are unique and require a different approach. He also talks about the challenges parents and students face when navigating the education system, observing that, “Too often in the past, parents, and students simply passively followed the lead of the schools believing that the same school that sought their admission and made them feel welcome would never take any negative action against them. Sadly, those assumptions were frequently wrong and devastating consequences would follow from blemishes on transcripts, suspension, and expulsion.”

2021 NJBiz Leaders in Law: Michael F. McKenna

Cohen Seglias is pleased to announce that partner Michael McKenna is listed on NJBiz’ inaugural “Leaders in Law” list. A panel of independent judges, experienced with the justice system, selected honorees (lawyers and general counsel) for their dedication to their occupation and communities. Mike, who is managing partner of the Newark office, concentrates his practice on the construction industry, counseling contractors, engineers, architects, owners and subcontractors on myriad legal issues. He has participated in more than 200 trials, mediations, and arbitrations across the country and internationally, helping to resolve disputes resulting from the construction of tunnels, subways, bridges, airports, sewers, foundations, marine, sub-aqueous and other heavy construction.

2021 Habitat for Humanity Philadelphia Building HOPE Virtual Lunch-In

As a longtime supporter of Habitat for Humanity Philadelphia and its mission to build strength, stability, and self-reliance through shelter, Cohen Seglias was proud to sponsor its Building Hope Virtual Lunch-In this year. The Building Hope Luncheon is Habitat Philadelphia’s signature annual event that celebrates community, highlights their work and partnerships, and shares the successes of the families with whom they work. Through our Block Builder sponsorship of $10,000, Cohen Seglias is helping Habitat Philly achieve their goals. At the Virtual Lunch-In, Ed Seglias spoke about the firm’s involvement and dedication to Habitat Philadelphia.

New Jersey Public Bidding: Bid Defects That are Likely Fatal

Every contractor who bids on public projects in New Jersey knows the gut-wrenching feeling of spending weeks reviewing project specifications and drawings, performing site visits, attending mandatory bid meetings, and submitting a detailed bid, only to find out that they are the second-lowest bidder when bids are opened. Even worse is being declared the lowest bidder at bid opening only to find out that the second-lowest bidder is protesting your bid, claiming it defective, and demanding it be thrown out. Under either scenario, a careful pre-bid review of your bid documents and a post-bid review of your competitor’s bid documents for bid defects can be decisive in determining who is awarded the project.

The general purpose of New Jersey’s competitive bidding laws is to ensure fair competition and to place all bidders in an equal position. As a result, New Jersey courts have determined that a public entity may waive only immaterial or minor irregularities in a bid. This begs the question: which irregularities are “material” and which ones are “immaterial?”

Determining which bid defects are material, and therefore non-waivable, requires a fact-sensitive inquiry guided by frequently changing statutes and case law. In an effort to provide contractors with a guidepost as they assemble their bids and review competitors’ bids, we have identified a number of bid requirements that the New Jersey legislature and courts have found to be mandatory under the facts presented in those cases. Defects concerning these mandatory requirements are likely to be viewed as material and non-waivable and may serve as the basis for a bid’s rejection.

The New Jersey legislature identifies five requirements that are non-waivable, fatal defects when required by the bid plans and specifications in N.J.S.A. 40A:11-23.2. The five requirements are:

1. A bid guarantee (commonly referred to as a bid bond) in the amount of 10% of the bid, but not in excess of $20,000 in compliance with N.J.S.A. 40A:11-21
2. A certificate of a surety company stating that the surety will provide the contractor with any required performance bond or guarantee bond in compliance with N.J.S.A. 40A:11-22
3. A statement of corporate ownership as required by N.J.S.A. 52:25-24.2
4. A list of subcontractors in compliance with N.J.S.A. 40A:11-16 for the following categories of work:
   1. Plumbing and gas fitting and all kindred work
   2. Steam power plants, steam and hot water heating and ventilating and refrigeration apparatus, and all kindred work
   3. Electrical work, including any electrical power plants, tele-data, fire alarm, or security system
   4. Structural steel and ornamental ironwork
   5. General construction
5. An acknowledgment that the bidder received any notice or revisions or addenda to the bid documents

To the extent that the lowest bidder fails to submit any of the foregoing documents or fails to fill them out properly, a court may determine that the bid is fatally defective and reject it as unresponsive.

For bid defects not specifically identified in N.J.S.A. 40A:11-23.2, New Jersey courts have adopted a two-part test to determine whether a bid requirement is material and non-waivable. First, if waiving the bid defect would deprive the municipality of its assurance that the contract would be entered into, performed, and guaranteed according to the specified requirements, the bid requirement may be deemed mandatory. Second, if a waiver of the bid defect would adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders or otherwise undermine the necessary common standard of competition, the bid requirement may be deemed mandatory.

By applying this standard, New Jersey courts have found several additional bid requirements to be mandatory and non-waivable when, under the facts presented in those cases, the bid invitation sought information that the bidder failed to provide, including:

• Failing to submit a statement of compliance with N.J.S.A. 45:14C-2(h) (requiring a licensed master plumber that holds at least 10% of the outstanding shares of stock in the corporation to perform plumbing work)
• Failing to submit a certificate of experience describing the work performed by the contractor and its identified subcontractors for the previous three years
• Failing to submit a plant and equipment questionnaire describing, among other things, the type of equipment the bidder or its subcontractors owned and intended to use for the project and the bidders’ plan for performing the work
• Failing to submit a certified financial statement prepared within the last twelve months
• Failing to submit separate bids for different time periods (g., one-year, two-year, three-year, and five-year options) as required by the bid specifications
• Submitting a bid that fails to disclose all of the contractor’s ongoing projects to ensure that the contractor would not exceed its aggregate rating provided by the Division of Property Management and Construction if awarded the project
• Failing to submit subcontractors’ business registration certificates as required by the bid specifications
• Failing to submit separate, non-contingent pricing for different line items as required by the bid specifications
• Failing to provide bids for alternates as required by the bid specifications

This list is certainly not exhaustive, and, as mentioned previously, the courts’ determinations that these requirements were mandatory were made after fact-intensive inquiries, including a detailed review of the bid specifications and instructions to bidders and evaluating the magnitude of the bidders’ errors. Future legislative amendments and court decisions could easily add to, or subtract from, the list above.

The important takeaway for public bidders is to comply neatly with the requirements of the bid invitation because a failure to provide the requested information may result in a deficiency that falls within the foregoing examples and is determined by the court to be a basis for bid rejection. Nevertheless, when an error is made, the foregoing examples illustrate the types that may prove fatal to the bid.

An equally important takeaway is that second-lowest bidders should carefully scrutinize the lowest bidder’s bid package to determine whether there are any fatal defects that would subject that bid to a good faith protest. This exercise could make the difference between being awarded the project or not.

PA Supreme Court Decision Highlights the Importance of Strict Compliance with Mechanics’ Lien Law

One of the most powerful tools in a contractor’s arsenal for obtaining payment on a construction project is a mechanics’ lien claim, which is a security interest that attaches to the owner’s property interest and “clouds” the title to the property until payment is made to the contractor or subcontractor.

Because mechanics’ liens restrict free and clear titles, Pennsylvania courts require strict compliance with the Mechanics’ Lien Law (the Lien Law). The Lien Law contains certain requirements for a lien to be “perfected” or valid. For example, a lien claim must be filed within six months of completing the contractor’s work, and subcontractors must notify the property owner of their intention to file a lien claim at least 30 days prior to filing the actual lien claim. After the lien claim is filed, notice must be served on the owner within one month, and an affidavit of service must be filed with the court within 20 days of serving the owner. Failure to comply with any of these requirements may result in the lien claim being stricken and the contractor losing its right to recover from the proceeds of the property.

In most instances, an owner’s lawyer will raise any number of defects in an attempt to invalidate the lien claim, but sometimes certain defects are overlooked. Until recently, it was an open question as to whether defects identified late in the process could still invalidate a lien claim. For example, what happens if the lien claim was filed and served in the proper timeframe, but the affidavit of service was not filed—and the owner’s lawyer did not object until after discovery was completed? Or even after the trial? A contractor might think that an objection raised so late in the game would not be effective in invalidating its lien claim. The Pennsylvania Supreme Court decided that issue this year in Terra Firma Builders, LLC v. King.

In this case, Terra Firma was contracted to perform construction work at the Kings’ family home in Haverford, Pennsylvania. A dispute arose between the parties, and the Kings did not permit Terra Firma to complete its work. After initially filing but withdrawing a lien claim, Terra Firma filed and served a second lien claim—but they failed to file an affidavit of service within 20 days of service as required by the Lien Law. In fact, Terra Firma never filed an affidavit of service at all.

The Kings did not challenge Terra Firma’s failure to file an affidavit of service until after a second trial, more than five years after Terra Firma filed the lien claim. Although Terra Firma argued that the Kings waived their right to object, the trial court ruled in favor of the Kings and struck the lien, finding that Terra Firma never properly “perfected” the lien in accordance with the Lien Law. The issue made its way to the Pennsylvania Supreme Court, which held that a challenge to the validity of a lien claim could be raised at any time—even after a trial.

The Supreme Court reasoned that the plain language of the Lien Law states that, to “perfect a lien, every claimant must” file an affidavit of service within 20 days of service. The Lien Law also states that the failure to timely file an affidavit of service “shall be sufficient ground for striking off the claim.” Thus, by not timely filing the affidavit of service, Terra Firma failed to perfect its lien claim, and, as a result, the court held that the lien claim was invalid. The Supreme Court also reasoned that the Lien Law does not impose a time limit to raise defects in perfecting a mechanics’ lien claim—even after a trial.

Although the Supreme Court only decided the specific issue concerning the timely filing of an affidavit of service and its effect on the validity of a lien claim, the logic could be applied to many other defects under the Lien Law. Although there may be some uncertainty, there is one clear lesson to be learned from the Terra Firma decision: do not wait to involve your attorney in preparing your mechanics’ lien claim. Although you may believe there are reasons to do so, delays in filing may result in little or no time to correct defects.

Hiring lawyers well-versed in both filing and perfecting mechanics’ liens is crucial. The mechanics’ Lien Law is complicated and often difficult to navigate, and as the Terra Firma decision makes clear, the requirements will be strictly construed, often to the contractor’s detriment.

Blame the Separations Act: Why the Design-Build Model Is Unavailable to Pennsylvania Public Owners

When it comes to public projects in the Commonwealth of Pennsylvania, the Separations Act is a major impediment to public entities that want to utilize design-build or engineer-procure-construct (EPC) project delivery models.

In Pennsylvania, the Architects Licensure Law defines design-build as “a project delivery method whereby a design-build entity signs a single contract to provide a combination of architectural and construction services to a client.” Similarly, the EPC model is a single point project delivery model whereby an owner contracts with one entity responsible for engineering, designing, and constructing the project, taking it from start to finish and, depending on the terms of that agreement, often delivering a “turn-key” facility. As a general statement, EPC projects are impacted by the same laws that apply to design-build projects.

While the Pennsylvania Procurement Code authorizes state agencies and state-related institutions to enter into design-build agreements for public projects, the Separations Act interferes with applying the design-build or EPC methods. The Separations Act requires public entities to solicit bids and award multiple and separate prime contracts for general construction services, electrical, HVAC, and plumbing for projects with total costs of construction exceeding $4,000. The Separations Act does not mention the public entity contract for the design, which seems to imply that it will be a separate pubic entity/designer contract as is typical with design-bid-build projects. Another drawback is that the Separations Act forces a public entity owner to act as a quasi-general contractor/construction manager. Indeed, as a Pennsylvania court has held, a public entity cannot delegate the task of awarding prime contracts, or any other oversight responsibilities, to a construction manager or general contractor.

The Separations Act requirement that public entity owners separately contract with certain trades eliminates a public entity’s ability to enter into a design-build delivery method when there is a single contract with a design-builder.

There is yet another hurdle in implementing design-build: the requirement that public entities comply with Pennsylvania’s Procurement Code and its competitive sealed bidding requirements. The Code favors the design-bid-build procurement model as it allows the public entity a vehicle to select the lowest responsible bidder. Design-build does not lend itself to awarding the lowest responsible bidder. While in some states the public entities go through the artifice of having competitive design-build based on 30% design drawings, this model seems to be a marriage of the worst of design-bid-build with the worst of design-build. This is because an advantage of design-build is to limit the public entity’s exposure to the time performing the design and to give contractors and the designer more latitude to work together and use their imagination. Much of that opportunity is taken away by an only 30%-complete design. Further, it does not limit the public entity’s exposure to claims for extra work as the use of 30%-complete design drawings still carries with it exposure for errors or design deficiencies found in the 30% design and those not yet found in more complete iterations of the design.

There is no doubt there is a need for change. Pennsylvania seems to be the lone remaining state requiring separate contracts for each portion of a public building contract. Criticism of the Separations Act is also based on the strikingly low $4,000 threshold, which has not changed since 1981. Thus, the Separations Act essentially applies to any public project, given current financial magnitudes for even “simple” construction work.

Pennsylvania lawmakers have taken note of some of this criticism. House Bill 710, whose primary sponsor is Representative Perry A. Stambaugh, proposes to amend the Separations Act by raising the $4,000 project threshold to a figure of $250,000, subject to adjustments and annual increases. The thought is that smaller public projects will not need to go through the bureaucracy of the Separations Act requirements.

Representative Stambaugh believes “the current threshold amount is far too low and causes public bodies to have to spend taxpayer money on archaic meeting requirements. After all, the original purpose of the law was not to apply to relatively small projects, which it now does.”

House Bill 710 was introduced in March 2021 and is currently pending before the Pennsylvania State Legislature’s Labor and Industry Committee. If passed, it will theoretically make the design-build model an option when less than $250,000 is involved. However, it would do nothing to remove the separate contracting or competitive bidding requirements. Candidly, given that most public projects exceed $250,000 in total costs, House Bill 710 does little to liberate public projects from the bureaucratic restraints of the Separations Act. Further, it does nothing to implement public entities’ ability to go with the more progressive procurement model of design-build. For now, true design-build will not be a viable procurement for public entity projects in Pennsylvania until more significant legislative changes are made.

Construction Inclusion Week 2021 – Q&A

The week of October 18, 2021 was the construction industry’s inaugural Construction Inclusion Week (CIW), a time devoted to identifying ways to advance diversity, equity, and inclusion (DEI) in the industry. A consortium of general contractors planned the week in order to educate and enlighten industry leaders about key topics. Cohen Seglias attorneys share their thoughts on diversity-related issues in this Q&A.

Q: What is one area of DEI where you’ve seen the construction industry make progress?

Jackson Nichols: The most progress I’ve seen in the construction industry has been the hiring of young leaders at the management level who are female and racial minorities. I have seen this throughout the industry at many different companies, at least in the DC Metro area. I would like to see more of these young leaders offered leadership and management opportunities as they grow within their companies. Leadership at the top still tends to be white and male.

Q: What are some ways construction companies and industry-supporting firms can continue to cultivate diverse talent?

Lisa Wampler: Once a company has diverse talent, it needs to make sure that it is taking all the necessary steps to advance and retain them. Leaders and managers also need to educate themselves about the importance of inclusivity in the workplace and work to build a corporate culture that encourages the right behaviors and mindsets. Buy-in and follow-through from company management and leaders are absolutely necessary if we want to see change.

Jackson: I think continuing to organize and promote events about diversity and its importance is beneficial for the recruitment of diverse talent. I also think that more firms should highlight the research out there indicating that diversity makes companies healthier and more profitable.

Q: Why do you think DEI matters in the workplace?

Jackson: Diversity, equity, and inclusion matter because they make people feel they are genuinely part of a larger, cohesive group and not a cog in a machine.

“Having diversity, equity, and inclusion in the workplace not only reflects our society but also gives a voice and much-needed training and jobs to those who have been overlooked.”