Government Involvement Has Consequences (Part 2)
Here is list of laws that may apply to projects in which the federal government is involved.
These reflections about government involvement are prompted by recent changes to the Federal Acquisition Regulations that give federal contractors an affirmative duty to disclose any “credible evidence” that comes to their attention of (a) the violation of certain criminal laws (e.g., those involving fraud or bribery), (b) violations of the civil False Claims Act, and even (c) “substantial overpayments” from the government. Contractors are also required to train their employees to ensure that misconduct will be detected and reported. This regulation reminds us that working with the government can trigger serious legal issues. As public-private partnerships and other forms of government involvement become more common, it is important to find out whether the government is involved in your project and, if it is, what consequences that has for your company.
Government Involvement Has Consequences (Part 1)
In an effort to stimulate the economy, federal and state government agencies are seeking to promote new construction projects. This trend of government involvement in construction projects is likely to continue. When the government is involved, it is important to know whether this involvement causes public contracting laws to apply.
Governmental involvement in a construction project can range from outright ownership to a behind-the-scenes role in financing. Multiple governmental agencies may be involved in a single project. If you have a project in which a federal or state agency is involved, you risk substantial penalties for failing to follow applicable public contracting laws.
There are many federal and state laws that may apply if the government is involved in a project. In Part 2 of this post, I’ll link to a list of some of the federal laws.
New Standards for NPDES Permits
Owners, contractors and designers should be aware of new requirements for National Pollutant Discharge Elimination System (NPDES) permits for stormwater discharges associated with construction activity. The Environmental Protection Agency (EPA) issued final regulations establishing effluent limitations guidelines and new source performance standards for stormwater discharges from construction sites.
Although the final regulations were effective February 1st, EPA expects states like Oregon that have NPDES permitting authority to incorporate the new guidelines and standards into NPDES construction general permits as they are reissued. For construction activities on Indian reservations and other jurisdictions where EPA retains NPDES permitting authority, EPA will incorporate the new guidelines and standards into its NPDES construction general permit when it’s reissued in 2011 (EPA modified its 2008 NPDES construction general permit to extend the expiration date to June 30, 2011). Individual NPDES permits issued on or after February 1st are immediately subject to the new rule.
The new rule imposes non-numeric standards that apply to all construction sites disturbing one acre or more. The new rule also includes numeric limits for turbidity that will apply to construction disturbing 20 acres or more starting August 2, 2011 and construction disturbing 10 acres or more no later than February 2, 2014. (Note that the December 1, 2009 Federal Register notice incorrectly states that the August 2, 2011 compliance date is August 2, 2010.)
But I already paid for that! So you have a mechanic's lien; now what? (Part 2)
Four Practical Points for Avoiding and Responding to Construction Liens
Step 1: Who’s healthy in 2010?
Within the bounds of the Fair Credit and Reporting Act and any state obligations, it is imperative for both owners and general contractors to understand the financial fortitude of the parties doing the work. If you don’t obtain the bonds to protect the project, you need to be aware of what you can do to protect your rights. While you cannot request a complete financial audit, good due diligence will save you time, energy, money, and headaches in the future. Keep an eye out and an ear to the ground for any questionable items or rumblings related to the trades. Has anyone complained of “slow-pay” issues? Are there any “marks” against the contractor on any registration or licensing entity with the state? How timely is the contractor in meeting and agreeing to the terms you proposed (discussed below) that have active and proactive involvement for ensuring that the project remains clear of liens? Where is the contractor’s facility? Will it be condemned because it’s so rundown or has that “almost vacant” look, or is everything shiny and “new,” which in this economy could reflect an overleveraged or overextended trade contractor just waiting to fold if that next job doesn’t come through? While these items alone cannot “tell” you the contractor’s financial status, do not race past any yellow flags – the red ones are just behind it waving in the wind. These precautions are as true for the owner, who can get sideswiped by the general contractor or any of the lower-tier trades or suppliers.
Step 2: Is it time to update your contracts and specifically your right of inspection, payment, and mechanic’s lien provisions?
Do you know what your contract allows you to do at the beginning of the contract term or during the project to avoid liens? Do you have a list of the trades and suppliers (at least the major ones if not everyone) in the contract or within 30 days of its execution? Is your state a “preliminary notice” state such as California or Nevada, or a “surprise” state such as Idaho? Is your contract an “open-book” agreement? Can you communicate with lower-tier trades at any time? Do you have payment provisions relating to timing of payment for lower-tier trades or suppliers in your prime agreement? Do you require a sworn statement for the work performed for prior payment applications and a listing of the trades? Do you have joint pay or direct pay provisions if you have any concern whether those trades might be paid? Can you require waiver and lien releases with each payment (as permitted by law, of course)? Are you allowed to offset payments if you do discover there are some financial or payment concerns?
Step 3: Do you check in on the status of the work?
It is important to both monitor the work to keep up on the status and to communicate with the trades and suppliers on a regular basis to make sure they are being paid. While a few trades may promptly bring a slow pay or non-pay to the owner ’s or general contractor’s attention, many others in this economy will not until the very last minute out of pressure from the nonpaying party or fears of “not playing along” and not getting future work. The key is to allow the owner or general contractor to discover any issue early in the process – early enough so that any money can get to the right party and not the party that disappears with the dollars.
Step 4: Someone’s filing a claim; what do I do?!
There are times when something may slip past you despite the best-laid plans. Do you have a checklist action plan? Does everyone know what to do and what information and documents are required? Many times these claims arise at the most inopportune times and create a “fire drill” atmosphere. Avoid the confusion and rush, and know what you need to get done in your state to avoid a lien on the property or obtain the prompt removal of the lien if one has already been filed. The more information you have in advance, the better decisions you will make during the process and the less money it will cost you to address the issue.
But I already paid for that! So you have a mechanic's lien; now what? (Part 1)
Your project is coming along fine, despite the economy. You’ve weathered the squalls of bids, design changes, agency approval, and credit (mercifully), and now even construction completion is looking good. You can see the finish line through the haze on the horizon, and you’re fairly pleased with how you have pulled everything together with what has been a long haul through the system. You’re in the home stretch. You’re closing down the last items and payment obligations to ensure everything will get done. You didn’t even have to spend much money on legal fees in drafting the contract or during construction (that alone is reason to cheer for your department’s budget). You may just go on a “road show” to tout your expertise about how projects should be run. And then....
You receive a call from your project manager letting you know that a subcontractor says it wasn’t paid and will file a mechanic’s lien in five days if it doesn’t get a check. Well, how could that be? You have a record of payments to the general contractor, but you cannot find a release for those payments. You get two more calls from unpaid trades.... Yet, you feel somewhat confident; after all, the contract says the general contractor “is responsible” and you have that record showing you did pay him. It’s his responsibility to pay all the people he contracted with, right? Well, yes and no (of course!) is the legal answer your construction lawyer will likely give you.
Unfortunately, this scenario is becoming all too common in this lingering depressed construction environment. Tight bids, job or trade failures, and an ailing economy have trapped many owners and general contractors, causing them to potentially pay twice for work they thought was already “clear” and paid for.
Although each state’s laws on mechanic’s liens govern each party’s obligations and rights, in my next post I will provide you with some simple, general guidelines that owners and general contractors should keep in mind at the beginning of each project to help protect against the possibility of such a double payment.
