HPSS Construction Law Update

April, 2022

HPSS Construction Law News

GET FIRST-HAND LEGAL INSIGHT ON THE CONSTRUCTION INDUSTRY

Steps to Avoid Pitfalls Related to Cost Escalation and Delays of Construction Materials

Even though contractors may not be able to avoid cost escalation and delays in delivery of materials, Contractors can take steps to avoid dissatisfied customers, losses due to cost escalation, and delay damages.

1) Early Communication – Do Not Wait Until Bid Day

Early and effective communication is important. Contractors who inform their customers early in the process (e.g., well before bid day) of the issues with construction materials help their customers establish realistic expectations for their projects. This is not easy because customers may not understand that contractors cannot obtain firm pricing or firm delivery dates. In the past, contractors could get firm pricing that was valid for orders placed through a certain date, and some customers still think that pricing is based on the date the order is placed, not the date the order is shipped. Customers may argue with you when you tell them that the price will be whatever price is in effect at the time of shipment and that you do not know exactly when the material will ship or the price that will be in effect at that time. The more realistic view you give customers of the current state of the construction industry and the problems you are having obtaining materials and fixed prices for the materials, the more likely you and your customer are to have a successful project.

For public projects, early communication is particularly important to get the attention of the owner, architect, contracting officer, and any other owner representatives well in advance of bid day so that they can address how these issues, especially the cost escalation, will be handled in the proposal and contract forms.

2) Include Appropriate Qualifications in the Proposal

Without firm pricing from manufacturers and suppliers, contractors should not submit firm fixed material prices to their customers. For bids submitted to general contractors and private owners, contractors can protect themselves by including a provision explaining that they cannot obtain firm pricing and delivery dates for materials and therefore the price of the proposal is subject to change. The provision should explain that if the price of materials increases between the date of the proposal and the time when the affected material is delivered, the proposal/contract price will also increase by such amount. The provision should also clarify that the contractor will not be liable for delay, liquidated, or other damages due to delays in delivery of materials.

Public owners usually require proposals with firm pricing that remains in effect for a certain number of days after the date of the bid. If the Request for Proposal requires a bid bond, the contractor who submits a bid risks a claim against its bid bond if the contractor does not timely enter into a contract at the firm bid price. Unless the contractor can get the owner to address the uncertainty of material prices before bid day, the bid form may require a fixed price with no qualifications. In such case, the contractor may decide not to bid the project or to submit a bid and take the risk of cost escalation, submit an inflated price to try to cover cost escalation, or submit a price with qualification and risk the bid being rejected.

3) Do Not Sign a Fixed Price Contract

A contractor who signs a fixed price contract has the risk of cost escalation, unless the contract includes a provision that entitles the contractor to an increase in the contract price if the cost of materials increases. Contractors who inform their customers prior to bidding the project and in their proposals that they expect a cost escalation provision in their contracts are usually more successful in negotiating such provisions when the project is awarded. Watch out for “no escalation” clauses stating that the contractor is not entitled to a price increase. Contractors should delete such provisions from the contract to avoid conflicts.

4) Do Not Sign a Contract Without a Provision Extending Time for Delays in Delivery

Contractors should make sure their contracts include a provision that entitles them to an extension of time for delays in delivery of materials. Language that provides for an extension of time only if the delay is “unusual” may not provide relief because delays are becoming more commonplace. Contractors should also carefully review their contracts for language that would prevent them from obtaining an extension of time. Unbelievably, we have recently seen contracts with provisions stating that the contractor will not be entitled to an extension of time for delays in delivery of materials. Some contracts also state that the contractor will be in default and subject to termination in the event of delays by the contractor’s suppliers. Contractors should delete such provisions from the contract to avoid conflicts.

5) Order Materials As Soon As Possible

Contractors should order materials as early as possible and make sure that their customers know what is needed before materials can be ordered. For example, if approved submittals are required to order materials, contractors should inform their customers that they need approved submittals as soon as possible due to long lead times and should furnish the submittals to their customers as soon as possible and in compliance with any required submittal schedules.

6) Timely Provide Notice and Claims

Contractors should also follow the contractual requirements for notice and submission of claims. Even if you have provisions in your contract to protect you from price escalation and delays in delivery of materials, you could inadvertently waive a claim if you fail to comply with the notice and claim submission requirements of your contract. Note that many contracts do not recognize notice given via email and although you may have arguments of constructive notice, it is best to comply with the requirements of your contract so that you do not have to fight for relief to which you are otherwise entitled under the contract.

If you have any questions, please contact Leanne Prybylski via e-mail by clicking here, or you can reach her via telephone at (404) 469-9187.

Be Careful with the Employee Retention Tax Credit

The Employee Retention Tax Credit (“ERTC”) was incorporated as a valuable feature in the Coronavirus Aid, Relief, and Economic Security Act in 2020 (“CARES Act”). Originally, employers had to choose between applying for the ERTC or applying for a PPP loan. Subsequent legislation modified the program so that employers who received a PPP loan could also apply for ERTC under certain circumstances and extended the availability period through the end of 2021.

The IRS has issued two Notices (Notice 2021-20 and 2021-23) which detail the requirements to qualify for the ERTC. One important rule is that for employers who obtained a PPP loan, the same wages cannot be used for the purposes of both calculating PPP loan forgiveness and serving as qualified wages for the ERTC. The Notices also detail many other requirements, including the maximum amount of credit available, the requirements for making a claim for the credit, and how to substantiate a claim. The IRS Notices can be found here and here.

Because these rules are complex, companies who may be promoting their ability to assist in obtaining the credits may not be offering reliable advice. The best sources for information are the IRS Notices, and the best source for advice is an experienced tax advisor. Getting proper advice is important because Congress has extended the IRS’s ability to assess the propriety of these tax credits to five years. The IRS has also been granted enhanced ability to recover refunds erroneously granted, and the potential penalties and interest can be substantial.

Employers still have time to carefully assess whether they should apply for and receive any ERTC credits. Amended tax returns can be filed up to three years from the date of the original return. Consequently, employers should take their time to determine how much they might be able to recover as a result of these tax credits.

Further Questions? Two years later, the CARES Act continues to present opportunities and challenges. If you have further questions about the ERTC or the best available resources, or other aspects of benefits available under the CARES Act, please contact Scott Calhoun. You can e-mail Scott by clicking here, or you can call him directly at (404) 469-9195.

OSHA Proposes Employers Electronically Submit Workplace Injury Forms

On March 28, 2022, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) announced its proposal to amend its recordkeeping regulations to require certain employers to electronically submit information about work related injuries and illnesses to OSHA. Employers are already required to keep occupational injury and illness information under OSHA’s recordkeeping regulation—the proposed amendment would impose a new reporting requirement on certain employers.

Currently, establishments that have 250 or more employees are required to electronically submit their Annual Form 300A in March of every year via OSHA’s Injury Tracing Application. The proposed amendment would require certain establishments in various high-hazard industries to electronically submit additional information from their Log of Work-Related Injuries and Illnesses, as well as their Injury and Illness Incident Report. Additionally, the proposed rule would:

§ Require establishments with 100 or more employees in certain high-hazard industries to electronically submit information from their OSHA Forms 300, 301 and 300A to OSHA once a year.

§ Update the classification system used to determine the list of industries covered by the electronic submission requirement.

§ Require establishments to include their company name when making electronic submissions to OSHA.

OSHA would continue to require employers with 20 or more employees in some high-hazard industries, including the construction industry, to electronically submit information from their OSHA Annual Form 300A summary. However, the proposed rule would eliminate such a requirement for establishments with 250 or more employees, not in a designated high-hazard industry. OSHA intends to post the data from the proposed electronic submissions on a public website after identifying and removing information that could directly identify individuals, such as names and contact information. Finally, OSHA is proposing to require establishments to include their company name when making electronic submissions.

The Notice of Proposed Rulemaking was published in the Federal Register March 30, 2022. Comments regarding the proposed changes are due 60 days after publication. If you have any questions regarding OSHA rules and regulations, please contact any of our attorneys.

Pre-Dispute Arbitration Agreements for Sexual Harassment Claims Voided

On March 3, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. Many employers require their new hires and existing employees to enter into arbitration agreements at the commencement of employment or as condition of continued employment. These arbitration agreements, which are entered into before a dispute or claim arises, seek to require employees to bring any employment related claim against the employer in arbitration, rather than in a court of law. Arbitration is preferable to most employers for a number of reasons, including the fact that the dispute is kept out of a public forum. Arbitration is also preferable for most employers because the fact finder is generally a professional or expert on the issue which is the subject of the dispute, rather than a jury of random people selected from the jury pool. This new federal law allows victims of sexual assault or sexual harassment to elect out any pre-dispute arbitration agreement they may have executed during their employment. In other words, under the new law, pre-dispute arbitration agreements are void and unenforceable against persons alleging conduct constituting sexual harassment or sexual assault.

The law also makes clear that if there is an issue concerning the validity and enforceability of the agreement to which the law applies, the issue is to be determined by a court of law, rather than in arbitration.

Also deemed invalid and unenforceable under the new law are pre-dispute class action waivers as they pertain to sexual harassment and sexual assault claims. A pre-dispute class action waiver prohibits, or waives the right, of one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum.

Despite the law, claimants bringing a sexual harassment or sexual assault claim may elect to bring their claim in arbitration, after the claim arises. Nothing in the law prevents the claiming from choosing to abide by the pre-dispute arbitration agreement.

In light of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, employers would be wise to revisit their employment agreements or other documents which contain arbitration agreements with their employees and make any necessary revisions.

Department of Labor Announces Updates to Davis-Bacon and Related Acts

On March 11, 2022, the U.S. Department of Labor (“DOL”) announced the publication of a Notice of Proposed Rule Making wherein DOL proposes to amend regulations issued under the Davis-Bacon and Related Acts (“DBRA”). In the announcement, DOL stated that it seeks to amend and update the rules for the administration and enforcement of the DBRA. The DBRA sets the prevailing wages that contractors must pay workers on federal projects for federal contracts in excess of $2,000. The proposed rulemaking represents the most comprehensive review of the DBRA in the last 40 years and proposes wide changes that will no doubt reshape compliance practices for contractors working on public projects. The proposed rulemaking announcing significant changes to the DBRA follows the bipartisan infrastructure law and predicted increased federal funding for construction projects across the country.

Among the most substantial changes in the proposed rulemaking are changes to the definition of “prevailing wage,” the frequency of when DOL updates wage rates in between surveys, and increased enforcement of DBRA violations.

Notably, DOL proposes to return to the definition of “prevailing wage” to the three-step process used from 1935 to 1983. In 1983, DOL set the process of determining “prevailing wage” as: 1) any wage rate paid to a majority of workers and 2) the weighted average rate. Now, DOL proposes to use the former method of determining wage rates (also known as the 30-percent rule), where in the absence of a wage rate paid to a majority of workers in a particular classification, a wage rate will be considered prevailing if it is paid to at least 30 percent of such workers.

The proposed changes as highlighted by DOL include:

· Creating several efficiencies in the prevailing wage update system and ensuring prevailing wage rates keep up with actual wages, which over time would mean higher wages for workers.

· Returning to the definition of “prevailing wage” used from 1935 to 1983 to ensure prevailing wages reflect actual wages paid to workers in the local community.

· Periodically updating prevailing wage rates to address out-of-date wage determinations.

· Providing broader authority to adopt state or local wage determinations when certain criteria is met.

· Issuing supplemental rates for key job classifications when no survey data exists.

· Updating the regulatory language to better reflect modern construction practices.

· Strengthening worker protections and enforcement, including debarment and anti-retaliation.

DOL believes that these reforms will lead to higher wages for construction workers through faster wage updates, safeguards to ensure the prevailing wages keep up with actual wagers, and greater enforcement of DBRA violations. However, contractors may question whether these proposed changes are necessary and whether the changes will potentially lead to inflated prevailing wage rates and unnecessary enforcement of alleged DBRA violations. Regardless, it will be important to track any and all changes and amendments to regulations under the DBRA.

Contractors and interested parties are able to comment on the proposed rulemaking, which was published in full in the Federal Register on March 18, 2022. Interested parties have until May 17, 2022 to submit comments. DOL’s full Notice of Proposed Rulemaking is available here.

Comments can be submitted through the Federal Register announcement, which is available here.

If you have any questions regarding the Notice of Proposed Rulemaking and proposed changes to the Davis-Bacon Act and/or related employment questions, please call or email either Philip Siegel or Ben Lowenthal. You can e-mail Philip by clicking here, or you can reach him directly at (404) 469-9197. You can e-mail Ben by clicking here, or you can reach him directly at (404) 469-9177.

President Biden Issues Executive Order on Use of Project Labor Agreements for Federal Construction Projects

On Friday, February 4, 2022 President Biden issued an Executive Order requiring a project labor agreement (“PLA”) before awarding any Federal Government construction contract of $35 million or more. Notably, the Executive Order does not require construction companies to unionize, but instead it binds a federal contractor’s employees to the terms of a PLA through the inclusion of appropriate specifications in the relevant solicitation provisions and contract documents. In fact, the Executive Order specifically states that the PLA must allow for contractors and subcontractors on the project to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements.

In general, a PLA is used to establish the terms of employment for all workers on a project. Under the Executive Order, the PLA must: (1) contain guarantees against strikes, lockouts, and similar job disruptions; (2) set forth effective, prompt, and mutually binding procedures for resolving labor disputes; (3) provide for other mechanisms for labor-management cooperation on matters of mutual interest and concern, including productivity, quality of work, safety, and health; and (4) fully conform to all statutes, regulations, Executive Orders, and Presidential Memoranda.

However, there are exceptions contemplated within the Executive Order. The Executive Order allows a senior official within an agency to grant an exception to the PLA requirement if:

· requiring a PLA would not advance the Federal Government’s interests in achieving economy and efficiency in procurement based on the five factors enumerated in the executive order;

· based on an inclusive market analysis, requiring a PLA would substantially reduce the number of potential bidders so as to frustrate full and open competition; or,

· requiring a PLA would otherwise be inconsistent with statutes, regulations, Executive Orders, or Presidential Memoranda.

The Executive Order requires that the FAR Council propose regulations implementing the executive order by June 4, 2022. Accordingly, although the Executive Order is effective immediately, implementation of the Executive Order through regulation is expected to be delayed.

Notably, Associated Builders and Contractors (“ABC”) has expressed vehement opposition to the Executive Order, asserting that PLA’s increase construction costs and exclude the 87% of the construction workforce that does not belong to a union at a time when labor shortages are already plaguing the industry. In addition, 43 Republican senators have signed on to a letter that condemns the Executive Order and asserts that PLA’s obstruct competition, deny construction jobs to local workers and small businesses, and increase construction costs.

Firm News!

We are very proud to announce that Martin Salzman and Philip Siegel have been named Super Lawyers and Benjamin Lowenthal was named a Rising Star in the 2022 edition of Georgia Super Lawyers. Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area. The result is a credible, comprehensive, and diverse listing of exceptional attorneys.

Philip Siegel will be speaking at the National Electrical Contractors Association's Safety Professionals Conference in Scottsdale, Arizona on May 16 and May 17. Philip has also been invited to speak at this year's annual conference of the Insulation Contractors Association of America in Phoenix in September, and he received an invitation to speak at this year's annual Western Roofing Expo of the Western States Roofing Contractors Association. Both conferences take place in September.

Benjamin Lowenthal will be presenting at the annual conference of the Conditioned Air Association of Georgia in Savannah on April 2. Ben will also be presenting to the National Tile Contractors Association's Coverings Conference in Las Vegas on April 7.

Leanne Prybylski will be speaking on key contract provisions to the Firestop Contractors International Association at its annual conference in Nashville on May 19.