A construction project can be delayed for a multitude of reasons. Where the cause of the delay is not force majeure, or other excusable delay by a contractor, and where the contractor has some fault, what level of actions must a contractor take to satisfy the terms “best efforts” or “reasonable efforts” or “commercially reasonable
Another Risk Management Tool for Private Owners in a Volatile Construction Market
Traditionally, private owners of construction projects have not considered bonds — either payment or performance bonds by the general contractor — because of the additional cost and because they felt confident that the contractors and their subcontractors, suppliers and vendors on their projects would meet the obligations of the contract terms. However, in today’s volatile
Three Tips for Owners and Contractors to Improve Their Odds of Success in 2021
While all of us begin 2021 still confronting the challenge of COVID-19, construction project owners face particular pandemic-related issues in their industry, including the need to maintain strict best practices for projects and manage scheduling and labor challenges for existing and new projects. In my latest article for the Daily Journal of Commerce, I
Disgorgement Liability in CA for Unlicensed Contractors Runs One Year from Completion or Cessation
In a very recently published case dealing with issues of first impression in California, here, the Second Appellate District in Los Angeles determined that the disgorgement penalty under BPC 7031(b) triggers a one-year statute of limitations given that it is a penalty, and the cause of action accrues from either the completion or cessation
Construction-Related Activity Restrictions in Select States
State and local officials across the country have responded to COVID-19 with various executive orders and restrictions on businesses to help flatten the curve of the pandemic. Each state’s response opens the door for potential impacts on projects commencing or under construction, and on the parties involved with those projects.
To assist clients and friends,
Tips for Owners and Contractors with Projects in the “Grey Area” of California’s COVID-19 Orders
In response to COVID-19, construction projects in California are currently subject to a statewide Executive Order and potentially other similar (or dissimilar) “stay home” or “shelter in place” orders or directives issued by counties and cities. Under the California statewide order, only businesses needed to maintain continuity of operations of identified federal critical infrastructure sectors (click here for the list) may continue to operate. Construction is not identified as a separate “critical infrastructure sector,” but many construction projects fall under the umbrellas of other sectors, such as “critical manufacturing,” “energy,” “healthcare,” and “commercial facilities.” The California State Public Health Officer also designated the following “essential workforce” members of relevance to the construction industry (this is not an exhaustive list):
- “Construction Workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction)”
- “Workers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, construction material sources, and essential operation of construction sites and construction projects (including those that support such projects to ensure the availability of needed facilities, transportation, energy and communications; and support to ensure the effective removal, storage, and disposal of solid waste and hazardous waste)”
One challenge somewhat unique to owners and contractors is that the applicable orders are generally directed at identifying “essential businesses” or “critical businesses,” while owners and contractors may have a mix of projects—with some likely essential (such as construction of a hospital), others likely not (such as construction of a nightclub), and many falling in a grey area in between. When analyzing “grey area” projects it is recommended to focus on the traits of the particular project rather than attempt to understand whether your business—which may include a range of projects—can generally continue to operate.
Plan Ahead for Project Challenges in 2020
In the event of a near-term slowdown in the U.S. economy, analysts forecast that any resulting decline in construction starts will nevertheless leave the level of activity in that industry sector “close to recent highs.” As a result, project owners and general contractors already facing a strong demand for
Cyber Risk Update for Construction Companies
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.
Understanding This Pension Rule May Help Contractors Avoid Costly Liability Assessments
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.
Three “Basic Best Practices” New Year Resolution Tips for Construction Projects
Ultimately, improving our companies, like improving ourselves, is up to us and our own diligence and persistence in identifying and implementing improvements on an ongoing basis. A strong market as we start 2019 means a great opportunity to review for and ensure solid implementation of legal compliance and financial goals for your construction projects –