Cyber Risk Update for Construction Companies

By Tamara Boeck and Jon Washburn on November 11, 2019 Posted in Construction Contract Interpretation, Cybersecurity

Scammers are always seeking new ways to target victims for Business Email Compromise (BEC) scams, where they leverage email to try to convince you to give them credentials, send them confidential information like W2s, send them money by changing things like direct deposit instructions, or give any other data that can help them profit from committing fraud. They are getting more and more sophisticated in their deceptions, and targeting those areas they see as ‘weak links.’

Construction companies however face a particular threat, as there are a number of services and private and government web sites to which companies can subscribe to learn about construction projects that are open to bid. Often, the winning bidder ends up becoming public knowledge – either because that information is posted publicly, or because the contract company advertises they were awarded the project. And of course, these contracts always carry a price tag that is attractive to scammers.

Fraudsters can use information from these same web sites along with other research to learn which construction companies have applied for and ultimately won bids. The higher the price tag, the bigger the target. Once the scammers get their fake web site set up (they can use tools to copy the real contractor’s web site almost exactly), they’ll then send an email to the victim posing as the contractor, including a direct deposit form (likely doctored with the contractor’s logo) and instructions to change payment information to a new account controlled by the scammers. They might even try to play this trick on the construction company and pose as a vendor the construction company regularly pays. Once the money is transferred, it can be difficult – and often impossible – to recover. Even if the victim has cyber insurance, whether or not any losses are covered depends on the policy. Any access and information they obtain can also compromise the construction company’s information security, potentially increasing the likelihood of privacy breaches, ransomware attacks, or other serious security risks.

Your Contract Might Not Be Ironclad: A Primer on Waiver-by-Conduct

By Bart Reed on October 23, 2019 Posted in Commercial Construction Contracts, Construction Contracts

Parties involved in a construction project can expect to spend much energy and effort to finalize the terms and conditions of a contract. Although those terms usually carry great weight in any contract dispute, of equal or greater importance can be the parties’ actions and course of dealing during construction. A lack of strict adherence to the terms of the contract or the adoption of behaviors during construction not consistent with, or that in some way deviate from, the contract processes or procedures can cause a party to lose a right or duty afforded it in the contract through “waiver-by-conduct.” In my latest article for the Daily Journal of Commerce, I look at this concept in greater depth and provide a hypothetical situation that illustrates it with respect to a failure to properly execute written change orders. Read the full article here.

Originally published as “OP-ED: That contract might not be ironclad: a primer on waiver by conduct” by the Daily Journal of Commerce, Oct. 17, 2019.

Recession Warnings Pile Up: Harbinger of Liens?

By Mario Nicholas on October 17, 2019 Posted in Construction Contracts, Construction Liens, Contractor Licensing, Liens

Some economic indicators point to a recession in the not-too-distant future, and parties involved in construction projects should take steps to avoid (or perfect) liens and protect their rights if there is a downturn. The complexities of Oregon’s lien laws are best negotiated with the assistance of experienced counsel. In my inaugural article for the Daily Journal of Commerce, I provide five tips that will be helpful for project owners, developers or contractors to keep in mind as work continues in uncertain times. Read the full article here.

Originally published as “OP-ED: Recession warnings piling up: a harbinger of liens?” by the Daily Journal of Commerce, Sept. 19, 2019.

Commercial Lease Improvements

By Colm Nelson on October 15, 2019 Posted in Commercial Construction Contracts, Commercial Real Estate, Construction Contracts, Indemnity, Insurance, Mechanic's Liens and Stop Notices, Safety/Personal Injury, Warranty

On December 13, 2019, I will be giving a presentation on construction-related topics arising from commercial lease improvements. The presentation is part of a two-day seminar on Advanced Commercial Real Estate Leases, co-chaired by my colleague, John A. Fandel, and hosted by Law Seminars International. Topic will include insurance coverage, mechanic’s liens, scheduling, indemnity, safety, warranty, and contractor termination. Complete seminar information can be found here.

Understanding This Pension Rule May Help Contractors Avoid Costly Liability Assessments

By Tamara Boeck on September 10, 2019 Posted in Labor and Employment Issues, Union Issues

This post was guest authored by Stoel Rives employee benefits attorneys Bethany Bacci and Abbey Hendricks.

If you use union employees in your projects, you may contribute to a multiemployer pension plan—perhaps a few cents or few dollars per hour worked. However, some employers are surprised to learn they could be assessed with “withdrawal liability” that greatly exceeds their negotiated contribution rates in certain circumstances. Here’s what you need to know about a special exemption that may help avoid large payments to a multiemployer plan following the cessation of negotiated contribution obligations.

Under the Employee Retirement Income Security Act of 1974 (ERISA), when an employer ceases to contribute to a multiemployer plan, that employer must generally pay “withdrawal liability.” The withdrawal liability rules under ERISA are designed to spread the unfunded pension liability across all participating employers—so that the employers that continue to contribute to the plan are not stuck footing the bill for those that previously exited. A withdrawal liability assessment can be very expensive; some of our clients have received initial assessments in the multimillions.

An employer might cease to contribute to a multiemployer plan for a variety of reasons: a project ended and union employees are no longer needed, operations in a local union’s jurisdiction ended, or an employer phased out its construction business to focus on other types of work. In the building and construction industry, frequent initiation and cessation of projects is the norm. Fortunately, Congress recognized that withdrawals by individual employers in the building and construction industry actually have a minimal effect on the contribution bases of multiemployer plans. This is because, once a project ends, employees often resume work with a different employer in the same area that continues to contribute to the plan. Due to this unique aspect of the building and construction industry, Congress provided for a special statutory exemption to complete withdrawal liability.

Let’s break down the statutory requirements for the special exemption:

The employer must be a building and construction industry employer.

While there is no statutory definition of what it means to be a “building and construction industry” employer, courts and the Pension Benefit Guaranty Corporation (PBGC) generally look to the Labor Management Relations Act of 1947 (also known as the Taft-Hartley Act) for guidance. As interpreted under the Taft-Hartley Act, the term refers to work performed at the site of a building or other structure in connection with the erection or alteration of the building or other structure. Other activities fall outside that scope. For example, an employer that merely manufactures or transports construction materials that are then installed by other contractors on a worksite is likely not considered a building and construction industry employer.

While it is permitted for a building and construction industry employer to have employees who perform work in other industries, “substantially all” of the employees for whom the employer is obligated to contribute to the multiemployer plan must perform work in the building and construction industry. The PBGC has not defined “substantially all” for this purpose; however, court cases have found 85% to be “substantially all.”

The multiemployer plan must be a building and construction industry plan.

Another Washington Lien Law Resource From Practical Law

By Bart Reed on September 5, 2019 Posted in Construction Liens, Liens

Practical Law, a division of Thomson Reuters and an affiliate of Westlaw, now offers another lien law resource for Washington practitioners. With contributions from Stoel Rives LLP’s Seattle-based construction attorneys Karl Oles, Bart Reed, and Loni Hinton, this new lien resource includes a “flowchart” of important concepts and timelines associated with preserving, perfecting, enforcing, and releasing construction lien claims in Washington.

This resource provides a high-level overview of the significant steps that need to be followed to serve pre-claim notices and to prepare and file an actual construction lien claim in Washington. This latest offering from Practical Law is designed to give the legal practitioner a quick and convenient resource to general principles regarding Washington construction liens in a concise, user-friendly format.

A complimentary copy of the Washington construction lien flowchart published by Practical Law can be accessed here.

Landlords Take Notice – New Sacramento Rent Control To Take Effect September 12

By Sylvia Arostegui and Henry Chu on September 3, 2019 Posted in California, Residential Building Regulations

On August 13, 2019, the Sacramento City Council voted to adopt by a 7-1 margin a rent control and tenant protection measure known as the Sacramento Tenant Protection Act (the “Act”). Citing increasing rent statistics, an influx of in-migration and a shortage of rental units, the Act sets out to provide tenants with protections against rent gouging and unwarranted evictions by landlords, while providing landlords an opportunity to receive a fair and reasonable rate of return on their investment.

The Act, which goes into effect on September 12, 2019, affects all buildings or structures built on or before February 1, 1995 and offered for use or occupancy for residential purposes under a rental agreement of at least thirty (30) days, unless specifically exempted under the Act. Notable exemptions under the Act include single family dwellings, condominiums and stock cooperatives. Key provisions of the Act include the following:

In any given twelve (12)-month period, a landlord cannot increase the rent by more than six percent (6%) plus the percentage of the annual increase in the cost of living adjustment as promulgated by the U.S. Department of Labor, Bureau of Labor Statistics, which collectively cannot exceed ten percent (10%). For example, considering that the cost of living adjustment percentage increase from 2019 over 2018 is two and seven-tenths percent (2.7%), a landlord cannot increase the rent by more than eight and seven-tenths percent (8.7%) for this upcoming year. This limitation on rent cannot be waived by a tenant. However, a landlord can establish a new base rent when a new lease is executed, which new base rent will then be subject to the limitations on increases under the Act.
A landlord may petition to raise the rent in excess of the limitation described above if the landlord can demonstrate by a “preponderance of the evidence” (more likely than not) that the increase in the rent is necessary to provide the landlord with a fair rate of return. Such showing must be made by the landlord to a hearing examiner at a hearing. The hearing examiner is an official appointed by the city council, and all decisions made by the hearing examiner are final unless the landlord timely seeks judicial review. For a list of factors that the hearing examiner can or cannot consider in his/her determination, the list can be found here.
All landlords subject to the Act will be required to pay a new program fee, which amount is to be determined by the city council on an annual basis. Such collected fees will be used to implement and enforce the Act.
Once a tenant has resided in a rental unit for more than twelve (12) months, a landlord cannot terminate the rental agreement, evict a tenant or threaten to terminate the rental agreement, unless: (a) the tenant fails to pay rent (after receipt of a notice to quit or pay rent); (b) there is a breach of the rental agreement beyond a reasonable notice/cure period; (c) the tenant engages in criminal activity in violation of law; or (d) the tenant fails to give landlord access to the unit as required under applicable law.
However, upon one hundred twenty (120) days’ advance notice, a landlord may recover possession of a rental unit if: (a) necessary and substantial repairs are necessary to bring the rental unit into compliance with applicable law, and the tenant is given an opportunity to reoccupy the unit or occupy a comparable unit owned by the landlord; (b) the landlord or an immediate family member of the landlord moves into the unit as its primary residence for a period of at least twelve (12) months; or (c) the landlord withdraws the unit and all rental units in the building from the rental market for at least twelve (12) months. The landlord must also satisfy certain notice requirements.
A tenant may file a petition with the hearing examiner for a landlord’s violation of any provision of the Act. The landlord’s failure to comply with any provision of this Act is an affirmative defense in an unlawful detainer action or any other action brought by the landlord to recover possession of the rental unit. Any person who violates the Act may also be subject to criminal sanctions, civil actions and administrative penalties.

The Act has a sunset date of December 31, 2024. For the entire language of the Act, please click here.

Certifying Subcontractor Claims Under the Contract Disputes Act

By Ryan Wood on August 29, 2019 Posted in Construction Claims

When a dispute arises over payment between a contractor and the agency overseeing a Federal government project, the contractor typically submits a request for a reasonable adjustment to the contract price. If the agency disagrees with the adjustment, the contractor may file a formal claim under the Contract Disputes Act (“CDA”), which requires the contractor to certify to the contracting officer all claims submitted in excess of $100,000. In my latest article for the Daily Journal of Commerce, I look at several considerations for a prime contractor in filing a claim when it is made on behalf of a subcontractor that is not willing to certify it. Read the full article here.

Originally published as “OP-ED: Certifying subcontractor claims under the Contract Disputes Act” by the Daily Journal of Commerce, July 18, 2019.

I’m a Developer and My Contractor Refuses to Perform Work Without a Change Order. What Are My Options?

By Colm Nelson on July 24, 2019 Posted in Construction Claims, General

Over the duration of a construction project, changes to its scope are inevitable, and the easiest way to address such changes, and their potential impacts on scheduling and contract price, is for the project owner and the contractor to mutually execute a change order prior to implementing a change. However, for a variety of reasons, disputes will arise over the need for a change order or a contractor will refuse to proceed with the changed work. In an article for the Daily Journal of Commerce, I look at options the owner has under different circumstances – when the parties agree that certain work is a change but dispute the associated cost or time or if the parties cannot come to an agreement that something is a change. Read the full article here.

Originally published as “OP-ED: When a contractor refuses to perform work without a change order” by the Daily Journal of Commerce, June 20, 2019.

Legal Insights for Canadian Product Manufacturers and Suppliers Involved in Cross-border Construction Projects

By Loni Hinton on June 20, 2019 Posted in Construction Industry, Risk Management

Seattle and Bellevue’s strong real estate markets present a plethora of lucrative business opportunities for Canadian product manufacturers and suppliers. Because Washington-based developers and contractors are perhaps more litigious than their Canadian counterparts, Canadian-based product manufacturers and suppliers should consider a full spectrum of risk management and mitigation strategies before engaging in cross-border business activities. In her latest article for the Journal of Commerce of Canada, Loni L. Hinton provides a high-level checklist of tools for such manufacturers and suppliers to consider before embarking on their first project in Washington. Read the full article here.

Originally published as “Industry Voices Op-Ed: What Canadian-based product manufacturers and suppliers in cross-border construction projects need to know” by Journal of Commerce (of Canada), June 7, 2019.