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In recent years, the Department of Industrial Relations (“DIR”), the Legislature and the California courts have expanded the application of the prevailing wage law to projects through the broad definition of a “public works,” beyond what most contractors, owners and even counsel would expect.  While most involved in construction anticipate that any work directly for, or direct payment of funds by, a public entity would trigger the prevailing wage laws, several decisions, determinations and recent legislation have significantly expanded the prevailing wage reach over the last several years.

Very recently, the DIR determined that both the shell construction of a Volkswagen auto dealership, and the separate tenant improvements in that shell, were public projects subject to prevailing wage law due to the land transfer by the City to the developer “because the Land is a transfer of an asset of value for less than fair market price”.

Similarly, in May 2012, the DIR determined that a contractor involved in the $95 million privately funded development and construction of a new agricultural facility was subject to prevailing wage law, but for the application of the de minimis doctrine, when the contractor accepted the City’s “in lieu of fees” for the City required infrastructure improvements.  The DIR determined that “[i]t does not matter that Company is performing infrastructure improvements itself or that Company could have elected to simply pay the fee and let the City perform the infrastructure improvement work. Company plans to accept the fee waiver. Therefore, it has received or will receive public funds within the meaning of subdivision (b)(4)”.  For additional applications and coverage determinations, see also the DIR’s most recent determination.  Previously in January 2012, the Legislature eliminated the applicability of the DIR’s 2010 determinations that solar photovoltaic power purchase agreements that include installation of leased equipment on public property were not public works through the passage of Labor Code section 1720.6.  This statute specifically defines a public project in part to be the “construction or maintenance of renewable energy generating capacity or energy efficiency improvements,” if certain elements are triggered.  See the DIR determinations from April 21, 2010, PW Case 2008-038 and 2009-005, for the prior analysis:  http://www.dir.ca.gov/OPRL/PWDecision.asp.  (See also Lab. Code, §§ 1720-1720.6.)

In my latest Daily Journal of Commerce Construction column, I discuss the case for construction claims reform. Construction industry participants all have one thing in common: they hate litigation. While avoiding claims is not always possible, the number of disputed issues can be reduced.

Some states have enacted statutes eliminating much of the uncertainty surrounding…

The California Labor Commission, also known as the Department of Labor Standards Enforcement, which is a division of the Department of Industrial Relations, is “reinvigorating” its enforcement actions against public contractors that try to dodge the state’s wage and labor laws. Recently, the Commission issued orders and hefty fines to nine contractors for violations totaling over…

 Yet another California court decision has been issued requiring a contractor to return over $750,000 received for work he performed on a casino while he was unlicensed. In rejecting the contractor’s arguments against disgorgement, the court found that (a) California Business and Professions Code § 7031’s penalties applied to work performed for tribal corporations and …

In my latest Daily Journal of Commerce Construction column, I discuss the recent rash of cases involving the question of whether subcontractors are bound by the terms of a project’s prime construction contract. In many of these situations, subcontractors contend that their subcontracts give them rights, remedies or defenses against the prime contractor that the…

A reminder from the Idaho Supreme Court for parties to a construction contract:  the plain language of the parties’ contract governs the obligations between them in the absence of ambiguity.  In City of Meridian v. Petra, Inc., No. 39006, 2013 WL 1286014 (Idaho Apr. 1, 2013), the Idaho Supreme Court reviewed a construction dispute between the City of Meridian and its construction manager, Petra.  Not atypically, unfortunately, a project ballooned from $12.2 million in 2006 to over $21 million by October 2008 for a variety of reasons.  As the project progressed, Petra, pursuant to its contract with the City, notified the City of the proposed increased costs of construction and the City approved them, or often the City directed the changes itself.  During this same time, Petra notified the City of Petra’s right to an equitable adjustment to Petra’s fee based on the changing nature of the project. At that time, Petra agreed to wait until the final project value was determined before submitting the fee request. Thereafter, Petra managed the project for the City through occupancy.  Approximately six months prior to occupancy, Petra issued a change order requesting an equitable adjustment in the amount of 4.7% of the excess of the original base contract, which was the same percentage used for the original fee and a significant change order previously. The City denied the request.

 

  When mediation didn’t resolve the dispute, the City filed suit against Petra for declaratory relief and alleged breach of contract, among other claims.  Although the case itself addresses a number of related and interesting topics regarding evidence at trial, evidentiary issues relating to the claimed breach by Petra, and attorney fees, the foundational issue addressed by the court is the clarity of the contract and the allowance of the equitable adjustment.  On that score, the trial court found against the City on all but the lesser claims, and awarded Petra $595,896.17 in costs and $1,275,416.50 in attorney fees, in addition to its requested (as adjusted) fee of almost $325,000.  

The Nevada Supreme Court has answered a question that developers and contractors have been asking for years:  can the statutory limitation period for a construction defect action be shortened?  The court answered in the affirmative but held that there must be no statute to the contrary and that the reduced limitation period must be reasonable …

A California appellate court recently held that the value of an original construction contract is admissible as evidence to limit a contractor’s right to recovery under Civil Code section 3123(a), even by a property buyer that was not a party to the construction contract. Appel v. Los Angeles Superior Court (CA No. B244590, Mar. 11, 2013). The net effect in this instance could be a reduction of the value of the contractor’s lien claim by at least $13.5 million. 

The underlying facts reflect an all-too-common scenario of a failed project. Here, a single-purpose entity developed a large condominium project, originally inked with a GMP of $65 million. Increases through construction by approved change orders moved the GMP to $81 million. Disputes arose, and the contractor thereafter claimed an additional $13.5 million above the $81 million GMP. Unfortunately here, several units of the project had been purchased by this point, and the buyers were then subject with the developer to the mechanic’s lien of the contractor. Prior to trial, the developer entity and its alter ego affiliates negotiated a pre-trial settlement with the contractor that included in part a restatement of the final contract GMP to $95.5 million, purportedly settling the issue of the “value” of the construction contract for the contractor to continue pursuing its lien claim against the unit buyers. During pre-trial motions, the trial court commented on the impact of the negotiated settlement and “expressed doubt as to whether the unit owners should be precluded from challenging the value of the GMP contract set forth in the settlement agreement:

 

COURT: Are you saying [the unit owners] don’t have a right to attack the . . . value of the contract which was agreed after the fact as part of the settlement?

[CONTRACTOR]: We don’t believe they have a right to attack that.

COURT: Well, that is just boggling to my mind. [¶] . . . [¶] [I]t totally boggles my mind, because you could agree to anything, anything [in the settlement].”

 

The trial court also stated that it saw “‘no purpose’ for the settling parties’ decision to raise the value of the GMP other than to hinder the unit owners’ lien foreclosure defense.” Although the trial court took the matter under submission, it later felt constrained to rely on an existing decision cited by neither party and ruled against the unit buyers, precluding them from challenging the post-lien GMP value set during the settlement between the developer and contractor.

As they say, timing is everything, and the success of a development project often hinges on when it will be complete. Whether it’s a new business, a new school, or some other project, delay can be disastrous for an owner. Here are five tips to reduce the risks of project delay.

Avoid terms that shift…