VB CGC Practice Group

VB CGC Practice Group
Vandeventer Black's Construction and Government Contracts Practice Group focuses on serving our business clients in the construction industry. We currently have offices in Norfolk and Richmond, VA, the OBX and Raleigh, NC, and Hamburg, Germany. For more information about Vandeventer Black, clink on the VB logo.

Wednesday, November 30, 2016

Vandeventer Attorney Jim Cosby Part of Arbitration Seminar Faculty

Vandeventer attorney Jim Cosby is one of a number of distinguished faculty members participating in a continuing legal education program for Virginia CLE regarding arbitration in today's environment. The program has live (December 12, 2016) and webcast availability or phone (January 19, 2017) availability. For more information, use the below link:


Friday, November 25, 2016

Virginia Supreme Court Rejects Contractor's Argument of Subcontractor Flow Down Liability

The Virginia Supreme Court recently rejected a contractor's flow down liability claim against its subcontractors for a state construction project and defect claims asserted by the state against the contractor after the passage of the five year statute of limitations, rejecting among other things contractor's indemnity arguments. Below is a summary of the decision prepared by Vandeventer Black Construction Team attorney Gretchen Ostroff.



Supreme Court of Virginia Rules on Prime Contractor’s Flow-Down of Statute of Limitations to Subcontractors and Reaffirms Prior Decision on Enforceability of Indemnity Agreements
by Gretchen M. Ostroff, Esq., Vandeventer Black LLP

WHAT YOU NEED TO KNOW:
In a recent decision, the Supreme Court of Virginia found that general clauses incorporating provisions from the prime contract were insufficient to flow down to subcontractors the open-ended statute of limitations applicable to most public contracts, which can create gaps between a prime contractor’s liability to the owner and what it is able to recover from subcontractors for damages they cause.  The Court also reaffirmed that agreements to indemnify a party for its own negligence are against public policy and therefore void in Virginia construction contracts.

On November 3, 2016, the Supreme Court of Virginia issued an important decision regarding subcontract flow down provisions.  Hensel Phelps Construction Co. v. Thompson Masonry Contractor, Inc., addresses a contractor’s ability to flow down to subcontractors the open-ended statute of limitations applicable to certain Virginia public contracts and reiterates the Court’s prior ruling on the enforceability of indemnity provisions in construction contracts.

The dispute in Hensel Phelps arose out of a contract for construction of a student health and wellness center at Virginia Tech.  As the prime contractor, Hensel Phelps hired several subcontractors to complete portions of the work.  Twelve years after final completion, Virginia Tech sued Hensel Phelps to recover costs of repairing defective work on the project.  Although Virginia’s statute of limitations on contract claims is five years, the statute of limitations does not apply to the Commonwealth, so claims against a contractor by a state agency—such as Virginia Tech—can be brought at any time.  

Hensel Phelps settled the claim and in turn sued the subcontractors and their sureties (referred to in this article collectively as “subcontractors”) for breach of contract and indemnity.  The subcontractors filed various motions, including to assert that Hensel Phelps’ claim was barred by the five-year statute of limitations.  The trial court granted the motions, dismissing the lawsuit.

On appeal in the Supreme Court of Virginia, Hensel Phelps argued that the subcontractors waived their right to raise the five-year statute of limitations via flow downs in their subcontracts.  Each subcontract contained a provision requiring the subcontractor “to assume any and all guarantee or warranty obligations owed by Hensel Phelps to [the owner] arising out of [performance of the subcontract].”  Hensel Phelps argued that because it was indefinitely obligated to guarantee and warranty the work, the subcontractors were correspondingly obligated to Hensel Phelps.  It also argued that a subcontract clause binding the subcontractors to Hensel Phelps “by the same terms and conditions which [Hensel Phelps] was bound to [the owner] under the Contract” flowed-down the unbounded statute of limitations to the subcontractors.

The Court disagreed, finding that neither of these general incorporation clauses waived the applicable limitations period, because they did not “expressly acknowledge the right to a limitations period or intent to waive that right.”  The Court found that the subcontractors were not bound to the statute of limitations waiver in Virginia Code Section 8.01-231 because the subcontracts did not themselves contain a waiver of the statute of limitations and failed to incorporate by reference the waiver in the prime contract.

In an alternate argument, Hensel Phelps argued that its claims against the subcontractors did not arise until it settled Virginia Tech’s indemnification claim (in 2014), and therefore it had sued them within the five-year limit.  The Court rejected this argument too.  Relying on its prior decision in Uniwest v. Amtech Elevator Services, Inc., the Court found that the indemnification clause in the subcontracts was unenforceable because it required the subcontractors to indemnify Hensel Phelps for its own negligence, which in Virginia is prohibited in construction contracts.  Consequently, the Court struck the entire indemnification provision from the subcontracts.  Without this provision, the subcontracts imposed no obligation on the subcontractors to indemnify Hensel Phelps with regard to Virginia Tech’s claim.  Importantly, the Court found that a properly drafted indemnity clause (compliant with Uniwest) would have preserved Hensel Phelps’ claim against the subcontractors.

The takeaways from Hensel Phelps are that:

1. Prime contractors cannot rely on general subcontract flow down clauses to extend the statute of limitations on claims against their subcontractors to mirror the statute of limitations (or lack thereof) applicable to claims by the owner.  Hensel Phelps makes this clear on public contracts—where the statute of limitations does not apply to the Commonwealth or its agencies—but the principle probably applies equally where private parties agree to extend the prime contractor’s liability to the owner past the applicable statute of limitations.  Contractors can solve this problem by including properly-drafted, specific indemnity provisions in their subcontracts acknowledging a subcontractor’s intentional waiver of its rights related to the statute of limitations and other issues the contractor wishes to flow down from the prime contract.

2. Contractors should review their indemnity clauses to ensure compliance with Uniwest—specifically the prohibition against indemnifying a party for its own negligence in a construction contract.  An indemnity clause that violates this policy will not be reformed by the court to comply with the law—it will be entirely stricken, potentially leaving the prime contractor without recourse against subcontractors for losses they cause.  

Hensel Phelps is a reminder to contractors to carefully review prime contracts and subcontracts and to consult with an attorney when negotiating these agreements to help minimize potential risks.

Wednesday, November 23, 2016

FLSA Salary Increase Halted

Below is a Legal Alert on a signficant FLSA issue from the Vandeventer Black Labor Law Team


LEGAL ALERT
FLSA Salary Increase Halted

A federal court has enjoined the Fair Labor Standards Act (FLSA) salary increase. The court’s order, entered on November 22, 2016, is a nationwide preliminary injunction. As a result, employers do not have to comply with the new FLSA salary threshold on December 1, 2016.  

The U.S. Department of Labor (DOL) issued a final rule on May 17, 2016, increasing the FLSA’s salary threshold. The final rule, which was to go into effect on December 1, 2016, would have increased the salary threshold for the FLSA white collar exemptions from $23,660 per year to $47,476 per year, and the annual compensation threshold for the “highly compensated” exemption from $100,000 per year to $134,004 per year. Had the new rule gone into effect, any employee paid less than $47,476 per year would have been eligible for overtime pay. The DOL’s final rule also provided for automatic adjustments to the salary and highly compensated threshold every three years. Employers who have been grappling with whether to give raises to employees paid less than $47,476, or budget for increased overtime costs, or hire additional personnel to reduce overtime hours, may now lay their concerns aside. The FLSA is not changing on December 1, 2016, after all.

Twenty-one states and over fifty business organizations filed suit to stop the DOL’s final rule. Their suits were consolidated in the United States District ­­Court for the Eastern District of Texas. In its preliminary injunction, that Court ruled that the DOL exceeded its authority by raising the salary threshold level so high that it supplanted the “duties tests” for the FLSA white collar exemptions. The court stated that the DOL “create[d] essentially a de facto salary-only test,” thus subverting the importance of the FLSA exemptions’ duties tests. The Court also found that the DOL did not have authority to create an automatic adjustment to the salary threshold.

The injunction is preliminary, but it signals that the Court is likely to issue a permanent injunction later. The Court’s decision is the second recent defeat for President Obama’s agenda: just last month, the same federal Court in Texas issued a preliminary injunction blocking the federal contractor “blacklisting” regulations. See Vandeventer Black’s Legal Alert on that topic here.

For assistance reviewing your business' FLSA compliance, or other labor or employment matters, please contact us to set up a meeting with our labor and employment law team.



Anne G. Bibeau
757-446-8517
Dean T. Buckius
757-446-8620
Arlene F. Klinedinst
757-446-8504

Wednesday, July 20, 2016

Not Registered with SAM? New Proposed Rule Would Preclude Offers

The System for Award Management (SAM) is a federal online portal providing contracting officers various informational access about companies doing business with the federal government. Under a new rule, DOD, GSA and NASA contractors must be registered in SAM prior to submitting offers or quotes. Additionally, the new rule will require contracting officers to use the name and physical address from contractor's SAM registration. More information about the proposed rule is available as of the posting of this blog at:

https://www.gpo.gov/fdsys/granule/FR-2016-05-20/2016-11977

Thursday, July 14, 2016

Be wary of of increasing claimed IRS Agent phone calls

Vandeventer Black law partner and tax law practitioner Geoff Hemphill recently relayed a personal experience that others are also increasing seeing involving scam phone calls from persons claiming to be an "IRS Agent" and claiming that the individual owes back taxes. The fake IRS Agent then says the call is the last chance to pay the back taxes before the IRS files a lawsuit.

Geoff notes that the IRS does not make such calls, and that legitimate IRS contact comes through official written correspondence, with accurate reference to the individual's mailing address, giving notice of the assessed liability, appeal rights, and warnings of impending enforcement. So, the chances are high that any phone call from anyone purporting to be an IRS agent is a scam.

If you receive legitimate correspondence from the IRS it is important to promptly address it, and to seek legal counsel in appropriate circumstances to help you evaluate the assessed liability, to understand your rights, and to develop responsive strategies. Geoff in the example of the type of experienced tax attorney that can provide that type of legal counsel. But there is no need to lose sleep respecting such phony "IRS Agent" phone scams and it is important to not succumb to providing personal information or monies to those types of scammers.

Monday, June 27, 2016

New Legislation Prohibiting Use of Experience Modification Factor For Contractor Eligibility

One of the new legislative changes that goes into effect in Virginia on July 1, 2016 is a prohibition against using any experience modification factor as a condition of any bidder's or offeror's eligibility to participate in a solicitation for construction. Interestingly, while the prohibition was added to the Virginia Public Procurement Act (VPPA), the language in the act expands application to both VPPA and non-VPPA offers to contract issued on or after July 1, 2016. As defined in the adopted bill, "experience modification factor" is defined as "a value assigned to an employer as determined by a rate service organization in accordance with its uniform experience rating plan required to be filed pursuant to subsection D of [Virginia Code Section] 38.2-1913."

Thursday, June 23, 2016

Virginia Supreme Court Confirms Employee Firings on the Spot

My law partner Anne Bibeau, who focuses her law practice on employment and labor law matters, provided this summary of the Virginia Supreme Court's recent decision in the case of Johnson v. William E. Wood & Associates, Inc.:




In a recent opinion involving a fired realtor, the Virginia Supreme Court confirmed that at-will employees can be fired on the spot, without any prior notice to the employee. The decision was unanimous, and noted that while the firing notice “must be reasonable,” advance notice was not required because, among other things, that would be contrary to the flexibility at the heart of the at-will employment doctrine and undermine the indefinite duration which is implicitly an element of at-will employment.

In Virginia, unless the employer and employee agree otherwise, employment is “at will,” meaning that either the employer or employee may end the employment relationship at any time and for any (legal) reason, upon “reasonable notice.” The plaintiff in that case, Johnston v. William E. Wood & Associates, Inc., argued that “reasonable notice” meant advanced notice. The Virginia Supreme Court shot down that argument, holding that to be “reasonable,” notice of the termination need only be effective notice. In other words, the employer only has to make clear to the employee that the employment relationship has ended, so that the employee knows to stop work. Advance notice of the termination is not required unless the employer has promised to give advance notice or the federal WARN Act, which addresses mass layoffs and plant closings, applies.

The court’s decision was not a change in the law, but blocked a determined effort by plaintiffs’ attorneys to chip away at the at-will employment doctrine, which is already circumscribed by other laws limiting the reasons for employment termination. As before, employers need to be mindful that their employee policies, handbooks, offer letters, and other communications with their employees—both written and oral—do not promise or imply that the employment relationship will last for a particular period, or that the employee will only be fired for cause or after advanced notice. Employers should consult with an employment attorney about whether to require employees give advance notice of resignation. The best practice is to emphasize that the employment is at-will and can end at any time and for any reason.