New FAR Provision Requiring Faster Payment to Subcontractors On Horizon

A proposed rule is scheduled for publication in the Federal Register today that would add a new FAR clause requiring accelerated payments to small business subcontractors. This would implement the temporary policy by the Office of Management and Budget, Policy Memo M-12-16, July 2012. Accelerated payments would be to the "maximum extent possible" and tied to the receipt of "proper invoice and all proper documentation" from the small business subcontractor. The proposed rule is not, however, expected to provide any new rights under the Prompt Payment Act. The proposed rule would seem to be impractical to implement without accelerated payments by the government to the prime contractor, but the effect upon payments remains to be seen, if implemented. Interested persons should provide their comments to the proposed rule within the timeline established upon publication in the Federal Register.

Safety Checklist Being Considered by OSHA Advisory Panel for Federal Projects

OSHA's Advisory Committee on Construction Safety and Health released information at its recent November 28 meeting that it is drafting a proposal that would require construction companies bidding on federal projects to provide details about their safety records and preventative programs, and that they are developing a checklist for that purpose.  The information requested was announced to include: 1) evidence of prior good safety performance such as recordable injury rates and information about citations; 2) attestations regarding OSHA 30 and 10-hour courses for foremen and supervisors; 3) site specific safety plans (past and for the projecting being solicited); 4) establishing a system for workers to report safety and health hazards "without fear of retaliation"; and 5) only hiring subcontractors who can show evidence of active implementation of safety plans. The announced intention is to finalize this and present to the president for his implementation by executive order.  The substance of the final proposal / checklist will remain to be seen, but appears intended for implementation next year. The minutes of the meeting have not yet been posted by ACCSH.

Virginia Supreme Court Adopts Supervisor Liability Cause of Action

In an extension of wrongful discharge liability, the Virginia Supreme Court recently concluded in the recent majority decision in VanBuren v. Grubb that supervisors could be sued in tort for their involvement in a wrongful discharge.  The majority court rejected the minority position that only an employer has the ability to hire or fire employees, and focused on the underlying motivations of the supervisor to determine actionability against him or her. Proponents argue the decision allows a plaintiff to make claim against the actual wrongdoer; opponents argue the decision provides an unfair club to plaintiffs open to potential abuse.  Regardless of one's views, it is an important decision for anyone in a supervisory capacity to consider in carrying out their supervisory duties.

General Contractor is Necessary Party to Suit on Bond Bonding Off Mechanic's Lien

Virginia's mechanic's lien code makes provision for a mechanic's lien to be bonded off by a surety, and for suit thereafter to brought against the sureties on the "bond off" bond per Virginia Code Sec. 43-71. The statute does not address whether the principal under the bond, typically the general contractor, is also a necessary party to an action under that statute against the surety; however, Judge McCahill of the Twentieth Judicial Circuit of Virginia recently ruled that the principal / general contract is a necessary party. The case is ADS Construction, Inc. v. Bacon Construction Co., CL-74720, Loudoun County, October 18, 2012, VLW 012-8-173.

In it, Bacon Construction bonded off ADS Construction's mechanic's lien, and the bond replacing the mechanic's lien was posted by Westfield, as surety, and Bacon Construction, as principal. ADS Construction subsequently brought suit against Westfield and Bacon Construction, but is bond action only asserted claim against Westfield, and not Bacon Construction.  Westfield demurred to the bond claim on the grounds that Bacon Construction was a necessary party to the claim against the bond. Although the statute does not  address naming the bond principal or general contractor as a party to such a bond action Judge McCahill agreed with Westfield, and sustained the demurrer; relying upon several Virginia Supreme Court cases, including principally Walt Robbins, Inc. v. Damon Corp., 232 Va. 43 (1986) and George W. Kane, Inc. v. NuScope, Inc., 243, 503 (1992). He also refused to allow ADS Construction to amend because more than the requisite six months had already expired under Virginia Code Sec. 43-17.

GAO Sets Notice Standard for Price Realism Evaluations

On October 18, 2012, the General Accountability Office (GAO) issued its decision in Emerigent Technologies, Inc., B-407006 addressing an agency's use of price realism evaluations.  While the GAO reaffirmed that agency's have that discretion, the GAO emphasized that before an agency can do so it must provide clear notice alerting offerors of that intention. The decision notes GAO's position that price realism evaluation involves assessment of offerors' low fixed prices to determine whether they reflect a lack of understanding of the contract requirements or risk inherent in the offerors' approach.  Noting in the solicitation that a price evaluation factor includes reasonableness generaly was deemed insufficient to meet the notice requirement, and instead the GAO concluded that the solicitation notice must contain express language alerting offerors to the possibility that a decision to submit low pricing might be considered as reflecting upon their understanding or ability to perform. A copy of the decision is currently located on the GAO's website, at the following link:
http://www.gao.gov/products/D03568

Vandeventer Black LLP Named Associate Member of 2012 by the Hampton Roads Utility and Heavy Contractors Association

Vandeventer Black LLP is proud to announce having been named Associate Member of 2012 of the Hampton Roads Utility and Heavy Contractors Association (HRUHCA).  We have been a proud member of HRUHCA for many years and are extremely proud of this honor.  For more information about this, and about other HRUHCA news and upcoming events, please see the below announcement by HRUHCA.  Congratulations as well to the other award winners and the new officers and board members, and best of luck to them.

 

 

 

HRUHCA announces 2012 Annual Association Award Winners The HRUHCA Executive Committee are very happy to announce the following winners of the annual association awards program. Contractor of the Year T.A. Sheets Mechanical, Inc. T.A. Sheets have registered large numbers of employees to attend many of the associations activities, events, and training classes. Their commitment and support have earned them the 2012 HRUHCA Contractor of the Year.  Associate of the Year Vandeventer Black, LLP The Vandeventer Black Law Firm are a long-time supporter of HRUHCA. Attorney John Lockard has nearly perfect attendance at all of the association monthly membership meetings and has participated as a special guest speaker for a meeting. Achievement Award Mr. Al Jimeson, Columbia Gas of Virginia Al worked in 2012 with HRUHCA to form the HRUHCA damage prevention committee, a group of contractors, utility operators, contract locators, and municipal public works departments who meet on a regular basis to improve damage prevention. The result of these meetings have improved relationships between industry partners and have helped contractors get their projects marked in a timely fashion. Special Recognition Award Mr. Jamie Fuqua, Towne Insurance Jamie has served the association for the past year as the Secretary/Treasurer of the association. He was instrumental in helping the HRUHCA staff remodel the new office and he was there when the staff needed help to move the office. Jamie has been a huge asset for the association and continues to provide support and personal help whenever help is needed. Commendation Award Mr. Jeff Boynton, Hertz Rental Equipment Jeff has served tirelessly as the HRUHCA Golf Chairman. He has improved the quality of the HRUHCA tournaments and has done a very effective job of motivating the committee to capture essential member sponsorships, raffle donations, and member registrations. Warren Spivey Memorial Spirit Award Mr. Shawn Howell, Spivey Rentals Shawn and his firm Spivey Rentals have been steadfast supporters of HRUHCA for many years. Shawn has volunteered his time as a member of the HRUHCA Golf Committee as well as the HRUHCA Memorial Scholarship Selection Committee. Shawn has also committed to serve as the incoming HRUHCA President-Elect for 2013. Shawn embodies the spirit of support and he is constantly promoting the association to any industry firm that he meets. Lifetime Achievement Award Preston Fussell, Precon Construction Company Preston and his company, Precon Construction Company have been integral in the development of HRUHCA since the firm was founded. Numerous Precon Construction employees have served in virtually every postion in the association. Preston has been a believer in HRUHCA and his financial support of the association has been unwavering and virtually unmatched throughout the history of the association. He is respected by his peers as a highly knowledgeable and competent businessman. He has helped many current HRUHCA members get their start in the industry. Preston is truly a pillar of the Heavy Construction industry in Hampton Roads and very deserving to be honored by HRUHCA as the 2012 Lifetime Achievement Award winner. These award winners will be honored at the upcoming November membership dinner meeting on Tuesday, November 13th, at the Chesapeake Marriott Hotel. Please register for this event as we honor these deserving member firms and individuals. To register for the upcoming November Membership Dinner meeting click HERE. HRUHCA Upcoming Events     Chili On The Chick Rocks!      Over 90 HRUHCA members, guests, and industry friends enjoyed picture perfect weather, oysters, shrimp, chili, chilled beverages, cornhole, and blue grass music at the annual "Chili on the Chick" social event at the "Brickyard" property in Lanexa, Virginia on the Chickahominy River.   Bluegrass music was the flavor of the day   Bridgette Witt, Kim Hicks, and Stephanie Fussell enjoy a beautiful day on the banks of the Chickahominy River   Danny Johnson of Branscome, Inc. shares a pose with Mark Bissette of Bissette Construction.   HRUHCA President Brad Fussell enjoys a picture perfect day.   Asa Lowe of Eure Site Solutions "takes dead aim" at the annual cornhole tourney.   Asa's secret high arc throw in the cornhole tournament was very effective in helping his team go far in the tournament.   HRUHCA Past-President's Rob Hicks and Billy Witt team up to compete in the annual cornhole tournament.                                                                    HRUHCA Announces the 2013 Slate of Officers and Members of the Board  The HRUHCA Executive Committee announce the following slate of Officers and members of the Board of Directors for 2013: Officers:  President: Steve Weagle, Branscome, Inc. Vice-President: Rob Hicks, Eure Site Solutions Secretary/Treasurer: Jamie Fuqua, Towne Insurance Past-President: Brad Fussell, Gaston Brothers Utilities President-Elect: Shawn Howell, Spivey Rentals Board Members: Billy Witt, WB&E Construction Dan Cook, Rutherfoord Insurance Mary Ann Clark, Luck Stone Danny Johnson, Branscome, Inc. The officers and the board members will be officially elected at the November membership dinner meeting which serves as the association annual business meeting. Congratulations are extended to the incoming leaders of the association.     Don't Miss a Great Wrap-up of the Upcoming State and Federal Elections Register for the HRUHCA November Membership Dinner Meeting "An Overview of the 2012 State and National Elections" Special Guest Speaker Jesse T. Richman, Phd Professor of Political Science Old Dominion University Tuesday, November 13, 2012 Chesapeake Marriott Hotel 6:00 PM Also!!!  Election of New Officers Annual Business Meeting Presentation of Association Awards Come join HRUHCA as we close out the 2012 meeting schedule with the annual HRUHCA business meeting and the presentation of the association's annual awards. Professor Jesse Richman of Old Dominion University will brief the membership on the results of the 2012 state and federal elections. To register for the HRUHCA November Membership Dinner Meeting please click HERE.   Please Note: The Table Diagram changes on a daily basis and does not have many of the tables that have already been reserved by member firms. Please check with HRUHCA Executive Assistant Janet Reed by calling her at the HRUHCA office ((757) 484-7500) to see if the table(s) that you want to reserve are still available.   Association Announces "Open House" Wednesday, December 5th HRUHCA is proud of its new office, and we welcome you to stop by the office and have a sandwich and some tea on the association!   Where & When 3105 Western Branch Boulevard Chesapeake, Virginia 23321 Wednesday, December 5, 2012 11:00AM-1:00PM Visit the HRUHCA Website for all of our upcoming events and activities: www.hruhca.com

Kickbacks Lead to 87 Months

One would think kickbacks were a sad thing of the past, but the U.S. District Court for the District of Columbia recently sentenced a contracting executive to 87 months in prison and to pay more than $9.4 million in restitution in U.S. v. Kahn, D.D.C., No. 1:11-cr-00276, sentencing 10/18/12). The executive pled guilty to one count of bribery of a public official and one count of paying unlawful kickbacks, admitting that he stole over $9 million by submitting invoices to the Army Corps for services that were not performed. The overall scheme was apparently much larger; involving more than $30 million in bribes and kickbacks, including steered contracts. Two other conspirators also received prison terms, and were ordered to almost $11 million in restitution, and the investigation is still ongoing (thus far 12 people have pled guilty and the government has seized over $7 million from them). It's a sad reminder that the federal government will not tolerate such illegal activities (nor certainly should it), and of the large and sharpe teeth available to the federal government to deal with potential government contracting lawbreakers.

Constructively Debarred Contractor Allowed to Proceed with Claims for De Facto Debarment and Contractual Interference

Ever think a government officially was unofficially blackballing you? Sebastian Phillips and his company, Marine Design Dynamics, felt so and filed suit in the U.S. District Court for the District of Columbia (Phillips v. Mabus, D.D.C. No. 11-2021) seeking money damages for de facto debarment and interference with contract after they felt the Navy systematically stopped giving them work. The government defendants moved to dismiss on various grounds, but the court overruled the motion to dismiss based on the complaints' allegations that: 1) Navy officials stated that Phillips and MDD would not receive future work; 2) the Navy's conduct amounted to a systematic effort to preclude MDD from future contracting; and 3) plaintiffs were de facto debarred because of fraudulent rumors of overbilling by plaintiffs started by key employees that left MDD to work for a competitor firm. Whether plaintiffs can prove their claims remains to be seen, but the claims have been allowed to proceed for now. Judge Sullivan's memorandum opinion (9/30/12) is an interesting read for anyone who feels in similar circumstances, and is a decision regarding which government officials should take heed.

E-Verify Program Extended to September 30, 2015

On September 28, 2012, President Obama signed into law, S.3245 reauthorizing and extending the E-Verify immigration program for more three years to September 30, 2015. The program was set to expire September 30. Initially a voluntary program, E-Verify is now mandatory for federal contractors and some employers in some states.  A link to the law follows:

http://op.bna.com/dlrcases.nsf/r?Open=dcan-8wtkps

Adjacent Land Owners Can Proceed with Trespass Claim Against Developer

Recently, on September 14, 2012 in the decision of Kurpiel v. Hicks, Record No. 112192, the Virginia Supreme Court reversed a Circuit Court's demurrer, and allowed two landowners' case of trespass to proceed against a neighboring developer. The development activities were alleged to have caused storm water overflow onto the claimant landowners' properly, and they sued in Stafford County. Judge Deneke had sustained the developer's demurrer, holding that the storm water intrusion, even if true, was not an actionable trespass. In reversing, the Virginia Supreme Court noted that Virginia follows the modified common law rule applicable to surface water, which provides that surface water is a common enemy that landowners may fight off as best they can, but they must do so reasonably and in good faith, and not wantonly, unnecessarily or carelessly. The court held that the plaintiffs had sufficiently pled that the developer had breached this modified common law rule, and so allowed the case to proceed. Whether the law of trespass will be expanded in a similar manner to other invasive results of development remains to be seen, but this case shows the importance, regardless, of developers' consideration of storm water impacts from their developments. Minimally, it would seem this same rationale could be used to hold land disturbing contractors responsible in tort to impacted neighboring property owners under applicable facts. The following is a link to the Virginia Supreme Court's webpage with a .pdf link for the Kurpiel opinion: http://www.courts.state.va.us/scndex.htm

7th Circuit Bars Payment Bond Claim Based on Paid if Paid Subcontract

Earlier this summer in BMD Contractors, Inc. v. Fidelity and Deposit Company of Maryland (679 F.3d 643) the 7th Circuit looked at the question of whether a subcontract's pay if paid clause bars its payment bond claim, concluding that it does. The case applies Indiana law, but that state's law does not appear significantly different from Virginia law on this issue. The case provides a good overview of the differences between pay when paid and pay if paid clauses, generally, and essentially follows the same rationale as the Virginia Supreme Court in the Galloway decision on that question. The case also provides a well reasoned rebuttal of the 4th Circuit's 2000 in Moore Bros. (207 F.3d 717) decision about pay if paid clauses as they relate to payment bonds, and provides good insight to anyone seeking to avoid, distinguish or try and overturn that decision.

Vandeventer Black Labor Law Review and Update Seminar set for October 17, 2012

Vandeventer Black's employment law team is putting on an employment law review and update seminar in Norfolk, VA on October 17, 2012 to review the latest issues regarding employment law for attendees.  This is always an informative seminar put on in an educational but fun way.  Registration information follow and more information can be obtained at the below weblink:

Labor & Employment Law Review and Update
Wednesday, October 17, 2012
8:30 a.m. – 4 p.m.
Sheraton Norfolk Waterside Hotel
777 Waterside Dr., Norfolk, Virginia
This is a program for CEOs, Managers, In-House Counsel, and Human Resource Professionals.
Please email: invite@vanblk.com to complete the registration process.

http://www.vanblk.com/event/labor-and-employment-law-review-and-update/

Sale of Condomimiums a Consumer Purchase Under the Virginia Consumer Protection Act

The Virginia Consumer Protection Act notes it purposing as the promotion of "fair and ethical standards of dealings between suppliers and the consuming public."  Among the constricts in that Act, it is unlawful for a supplier in a consumer transaction to misrepresent that goods or services are of a particular standard, quality, style or model. The Act defines a consumer transaction as "[t]he advertisement, lease, license or offering for sale, lease or license of goods or services to be used primarily for personal, family or household purposes."  The Act defines a supplier as "a seller, lessor or licensor who advertises, solicits or engages in consumer transactions."

In the case of ABi-Najm v. Concord Condominium, LLC, 280 Va. 350, 699 S.E.2d 483 (2010), the Virginia Supreme Court considered the question of whether the purchase of units in a condominium complex was a consumer transaction for purposes of the Virginia Consumer Protection Act, and concluded, yes, the purchase was a consumer transaction. The case therefore was allowed to proceed on the question of whether the seller made misrepresentations as part of the sales to the condominium purchasers.  The Virginia Supreme Court further held that the claims were not lost by the "doctrine of merger" because of the deeds for the purchases, and that nor were they barred by Virginia's "economic loss" rule because the claim under the act involved a legal duty separate from the duties arising from the contract of sale.

There is some thought that this case establishes a department from earlier law, but regardless it is a significant case of note to those selling or buying condominiums.

Subrogation Waivers: a quick primer

Below is an article about insurance subrogation for construction contracts prepared by one of VB's construction attorney partners, John Lockard:

WHAT IS A “WAIVER OF SUBROGATION”?

            The parties involved in a construction contract can purchase insurance as a way to allocate the risks involved in the project.  Typically, the specific responsibilities to provide insurance are spelled out in the insurance clause of the parties’ contracts.  If an insurance company does pay a claim associated with a construction project, then it “steps into the shoes” of its insured and has the right to pursue a claim against the individuals or company that actually caused the loss.  This is known as “subrogation.”  Often, however, the insurance clause in a construction contract contains a provision stating that the parties agree to waive any claims against each other to the extent those claims are covered by insurance.  This is a “waiver of subrogation.” 

            A waiver of subrogation makes sense in most cases.  For example, if the contractor and the owner agree that the contractor will provide builder’s risk insurance, then neither party wants its insurance carrier to attempt to collect from the other party for any loss paid for a claim made under the policy.  That would defeat the purpose of allocating the risk between the parties.  The parties must be careful, however, to review such insurance clauses with their insurance carrier.  In some cases, a waiver of subrogation can be contrary to the terms of the insurance policy and, possibly, invalidate the insurance.  This could leave one of the parties contractually responsible to pay a significant claim that would otherwise be covered by insurance.

            All contractors should be careful to review their insurance policies and contracts to make sure that they have covered the basic risks that can arise on a construction project.  As appropriate, they should also request that the other parties provide certificates of insurance to demonstrate that they actually have the required insurance in place.  The prudent contractor will periodically review its contracts with its insurance agent and an experienced construction attorney to make sure that they have these risks covered to the greatest extent possible by insurance.

Offsite "Subcontractor" Found a Claimant Under Virginia Little Miller Act Bond

In a recent decision, Judge Harris of Hanover County Circuit Court allowed a Little Miller Act claim to proceed by an offsite disposal yard as a payment bond claimant. The case is Yard Works, LLC v. GroundDown Constructors, LLC, and Safeco Insurance Company of America, Hanover Circuit Court Case No. CL11001781-00.

The plaintiff-claimant, Yard Works, LLC (Yard Works) received land-clearing debris from the project at an off-site facility. When Yard Works was not paid, it filed suit, including a Little Miller action claim against the prime contractor's surety, Safeco Insurance Company of America (Safeco).

Safeco filed a demurrer to Yard Works' complaint (roughly speaking, this is Virginia's version of a motion to dismiss a complaint for failing to state an actionable claim), arguing that the action should be dismissed because Yard Works had not supplied labor or materials. Judge Harris disagreed and dismissed the demurrer.

The main bases for his ruling dismissing the demurrer were: 1) that the Little Miller Act was remedial in nature, and so construed in favor of claimants and against sureties; and 2) that Yard Works' acceptance of debris, even though offsite, was part of the necessary obligations of the prime contractor in fulfilling the contract requirements.

He thus found Yard Works a claimant for purposes of overruling the demurrer. This ruling allows Yard Works to proceed against Safeco, and try and prove recoverability otherwise under the payment bond for the project. Whether Yard Works can ultimately prevail, or Safeco chooses to appeal this decision remains to be seen.

Doing Business in the United States: What Everyone Needs to Know

Doing business in the United States has the potential for great rewards, but also can be daunting with the many U.S. and state laws and regulations.  Vandeventer Black's International Group has prepared an easy to read informational booklet about commercial participation factors for companies interested in the U.S. market, a copy of which is linked below:

http://www.scribd.com/doc/105490673/Doing-Business-in-the-US-VB-Pamplet

This booklet is an excellent primer, and we hope you find it helpful.  For more information about related issues, please contact the Vandeventer Black International Group attorneys identified in the booklet, or me.

2012 Virginia Payment Bond Changes

Below is a summary of the Virginia payment bond changes that are effective this year prepared by my law partner and fellow VB Construction and Public Contracts Law Department member John Lockard.  The changes resulted from several compromises in the 2011 General Assembly, and the impacts remain to be seen. - neil

VIRGINIA PAYMENT BOND CHANGES 2012

            In 2011, the Virginia legislature increased the minimum contract amounts for which payment bonds are required.  As a result of the changes, no payment bonds are required for state or municipal contracts under $500,000 or for transportation related projects (i.e., VODT projects) under $250,000.  This means that subcontractors and vendors on projects under those threshold amounts may have no lien or bond rights to secure payment for the labor or materials provided to the projects.  This year the legislature increased the minimum threshold on VDOT projects to $350,000.

            Additionally, the General Assembly required that any general contractor for certain projects under the threshold amounts must be “pre-qualified.” This requirement likely arose as a means to provide some assurance for payment and to test the ability of general contractors to perform the contract.  “Pre-qualification” is required for any non-transportation project between $100,000 and $500,000 and for transportation projects between $250,000 and $350,000 (if no payment or performance bonds were otherwise required).  The statute did not specify the requirements for pre-qualification.   Despite this requirement, there is no guarantee that a “pre-qualified” general contractor will be able to pay for the labor and materials supplied for these contracts.

            Public entities are not prohibited from requiring payment bonds for projects under the threshold amounts, but prudent subcontractors and suppliers should assume that they have no security for labor and materials provided for contracts under $500,000 with state public entities or for VDOT contracts under $350,000.  At the beginning of the project, subcontractors and suppliers on these projects should ask if a payment bond was provided.  If not, subcontractors and suppliers should carefully monitor their accounts receivables and take prompt action to pursue their claims if the general contractor does not make payments in a timely manner.  Generally, the aggressive creditors are more likely to be paid.  If you have questions regarding this article or your options to collect amounts due on construction projects, we recommend that you contact an attorney experienced in pursuing construction claims.

Joint Check / Joint Payment Agreements

Increasingly, suppliers are requesting joint check or joint payment agreements from subcontractors and prime contractors. From the suppliers' viewpoint, they make a lot of sense because they give some assurance that payments will go directly to the supplier, even if only by a joint check. The problem, however, for higher tier subcontractors or prime contractors is that it creates a direct contractual relationship with a supplier where one would not otherwise exist. This then lead to potential liability that would not otherwise exist. While needs may dictate the use of a joint check or joint payment agreement, higher tier subcontractors / prime contractors will minimally want to incorporate terms that provide reasonable protections, including limitations of liabilities, the incorporation of lower tier contracts, including payment offset rights, and similar risk allocation provisions. One of the biggest risks to avoid is having an obligation to pay the supplier, even if there is not an obligation to pay the lower tiers, and in capping liability.  More discussions of these issues to follow.

AMEC Civil: The case that keeps on giving

AMEC Civil, LLC's contract with VDOT regarding a Route 58 project has been in ongoing litigation for many years. AMEC recovered a significant damages award from the Circuit Court, only to have much of it reversed on appeal.  Since the original judgment, the case has been going back and forth between the Virginia Court of Appeals, the Virginia Supreme Court, the Norfolk Circuit Court, and now most recently back to the Virginia Court of Appeal, which in an unpublished opinion reversed additional damages findings of the Norfolk Circuit Court, and remanded aspects of the decision back to the lower court for additional factual findings, and recalculations based on those findings ("AMEC CA2"). While the case seems destined for additional appeals, the current decision offers various insights regarding damage claims for VDOT projects. This blog will explore those in a series of posts, starting with the question of "what are actual costs?"

This question was one of the main focuses of AMEC CA2 because the VDOT specification in question expressly provides that only "actual costs" will be considered for adjustments. This was a key issue in the case because the lower court had measured damages, in part, by averaging estimated costs using varied means testified to at trial. In the earlier appeal, the Virginia Supreme Court had held that "actual costs" was a term of art, and included direct costs, like materials and wages, and indirect costs, like overhead, but did not include profit. Apply this, the Court of Appeals concluded that, other than the Blue Book, which the Virginia Supreme Court had expressly approved for calculating actual costs for the use of owned equipment, estimates were not a permissible means of establishing actual costs, and that averaging of monthly costs would not reflect actual costs, which must be proven by actual cost records, absent expert testimony otherwise.

This decision makes clear the obligation for keeping accurate records of actual costs for force account work.  More to follow in discussion about the continuing AMEC CA2 ramifications.

"Best Value" Procurement? - Not for Virginia Public Sealed Bidding

With increasing regularity, various procuring agencies had been swimming in the "best value" pool for their procurements. Following the well established federal procurement practice, their solicitations included language along the lines that the procuring agency reserved the right to select "the most advantageous offer" considering such factors as experience, schedule and/or price. Such was the case for a Spotsylvania School Board procurement for janitorial services, respecting which the School Board did not make award to the lowest bidder, but instead made award to the bidder it deemed the most advantageous overall. The low bidder protested, and its protest basis was recently sustained by the Virginia Supreme Court in Professional Building Maintenance Corp. v. School Board of the County of Spotsylvania, in the court's April 20, 2012 decision.

In doing so the court noted that Virginia's public procurement act required award to the lowest responsive and responsible bidder for competitive sealed bidding. While the act does allow for competitive negotiation for certain procurements, the court noted this procurement did not qualify. The court rejected the School Board's contention that best value concepts could be utilized for competitive bids, noting that while the act does permit public bodies to "consider best value concepts when procuring goods and nonprofessional services" in Code Section 2.2-4300, the act does not provide a method of procurement in lieu of competitive sealed bidding. Therefore the court concluded that to accept the School Board's argument it would need to add language to the competitive sealed bidding code provisions as an alternative to the lowest responsive and responsible bidder, which the court concluded it was not allowed to do under prior case precedent.

The court noted other concerns with the School Board's procurement too, including whether the School Board actually followed the stated terms and conditions of the invitation in process or actual evaluation; all of which resulted in the appeal being allowed to proceed to trial. There are not many procurement cases decided by the Virginia Supreme Court, and this decision is insightful on many fronts to both those soliciting and those responding to Virginia procurements. Interestingly, the court did not address any potential tie-in between "best value" and "responsibility" and whether that becomes the next battleground on this issue, or whether public bodies abandon "best value" evaluations for competitive bids remains to be seen.

Virginia Bid Protests: A quick overview

So you lost an award relating to a Virginia public procurement, and want to protest. What are the basic requirements? They are actually fairly simple, but do require prompt action. A protest must be filed with the awarding authority within ten (10) days of the award or the decision to award, whichever is earlier. There is a potential additional ten (10) day time clock if procurement related documents have been requested under the procurement code (Section 2.2-4303), if the basis or an additional basis of protest is based on that document production. The written protest must include the basis for the protest and the relief sought. The procuring agency's response is due within ten (10) days, and the protestor then has ten (10) days from receipt to appeal, or the procuring agency's decision is final. We'll look at protest bases and potential relief in other blogs.

Mechanic's Lien / Payment Bond Reforms Pending in NC

Since many Virginia contractors also perform work in North Carolina, I thought those that do might be interested in pending reforms to NC's mechanic's lien and payment bond statute that were filed today in the state's General Assembly. Some of these changes are very substantial. A link to the NC General Assembly web page with the proposed legislative changes follows: S864, Mechanics Liens/Payment Bond Reforms.

COFC Bid Protect Authority: DOD proposal to make force protestor forum choice

The DOD is requesting Congress to amend COFC bid protest jurisdiction to adopt the same timelines as are applicable to a GAO bid protest.  The result is that protestors would then have to choose forums initially. There are certainly pros and cons to this approach, but it is regardless an important develop those with potential interests should follow, and as deemed appropriate enter into the political fray. The DOD proposal can be found at the following link:
http://www.dod.mil/dodgc/olc/docs/25April2012Proposals.pdf

COFC held to have exclusive jurisdiction for trade secret misappropriation claim

In a recent, odd decision, the U.S. Court of Appeals for the Fifth Circuit recently ruled that the Court of Federal Claims had exclusive jurisdiction over claims that the Navy had misappropriated trade secrets of a contractor.  The decision is United States Marine Inc. v. United States, 5th Cir., No. 11-30177, 5/11/12. While issued as a nonprecedential decision, the holding is of note because of its potential applicability to other claims. The claimant contractor claimed that the Navy misappropriated its trade secrets by providing them to other prospective contractors, and was awarded $1.5M by the district court. The Fifth Circuit reversed though, holding that the disclosure was in the form of a contractual breach, and so jurisdiction lay exclusively with the COFC. This is despite the fact that one of the claimant contractors did not have a contract with the Navy, and as the dissent therefore noted likely had no ability to assert claim against the Navy for breach of contract. How this decision may get expanded will be interesting to see, but it clearly creates a bit of a quagmire for prospective plaintiffs seeking recovery for government misappropriation.

Maintaining and Producing Evidence: It really is that important

Most construction projects involve thousands of documents; not only in hard copy, but also as electronically stored information. Once a case is in litigation, or even anticipated to go that route, it is incumbent upon parties to maintain claim related documentation. But what happens if the information is not maintained? Many things could result. At the least, it is likely that the court will construe the inability to produce the document as being a document that, if produced, would be detrimental to the party that cannot produce it. But a more recent case in Fairfax went even further, and through the defendant's defensive case out entirely. Originally the defendant claimed the evidence had been destroyed as part of an office renovation, but it was later determined that this was not true. Once this came before the court, the presiding judge concluded there had been "spoliation" of the evidence, and as a penalty to the defendant precluded the defendant's entire liability defense case. While intentional spoliation is uncommon, this case illustrates the increasing duties courts are placing on parties to maintain evidence so it can later be produced in discovery, and is a cautionary tale for all.

Am I Really Responsible for That?

Landowners hire contractors to perform work for the landowner.  Contractors then typically hire multiple subcontractors to perform various portions of that work.  And, subcontractors then hire sub-subcontractors to perform various portions of their work.  And, so on depending upon the nature of the particular project.  Often the work being performed is dangerous, and this can result in personal injury or property damage.  Who is responsible when that happens?

There is a general rule in Virginia that one is not liable for the acts of an independent contractor.  But as with many things in the law there are exceptions to that rule. One of those exceptions is liability for inherently dangerous work done by someone one hires.  So what is inherently dangerous?  Unfortunately, there is no simple or single answer to that, and obviously much of what is done in for a typical construction project could qualify.

Some guideline conditions to something being inherently dangerous include the following: 1) work must be dangerous in and of itself and not just dangerous because it might be negligently performed; 2) the inherent danger must be naturally apprehended or reasonable recognizable by the parties when they contract; and 3) the inherently dangerous activity must be one in which injury to others will definitely occur unless special precautions are taken. 

An easy example is blasting activities. But the fact that most things in construction are dangerous make creating a definitive list very difficult, and so ultimately this is decided on a case by case basis by the courts.  One recent construction activity example that was determined as inherently dangerous is the digging and laying of a waterline under a road, which a Roanoke judge ruled last year met each of these guideline conditions.

Duties owed to third parties affected by inherently dangerous activities are not delegable to independent contractors.  Therefore, where inherently dangerous activities are concerned, the delegating party remains liable for the negligence of independent contractors doing those activities.  But that liability is not without limits.  For example, this liability doctrine is intended to protect third parties and not the independent contractor or its employees.  Similarly other defenses to liability would apply as in any other claim, including for Virginia negligence suits such things as contributory negligence.

In later blogs I will discuss potential protective measures to try and avoid or limit such liability exposure.  To learn more about this before then or to discuss the concepts in this blog, please contact me at nlowenstein@vanblk.com or (757) 446-8600, or one of the other construction professionals in Vandeventer Black’s Construction and Public Contracts Department.

Subcontractor Not Third Party Beneficiary to Prime Contract

In Environmental Staffing Corp. v. B & R Construction Mgmt., 283 Va. ___ 111067, ___ S.E.2d ___ (2012), just recently decided by the Virginia Supreme Court on April 20, 2012, the court held that a subcontractor was not a third party beneficiary to its contractor's prime contract with the owner. The court noted that the prime contract expressly noted that it was intended for the benefit of project developer, and reasoned that this express inclusion therefore necessarily permitted an intended third party beneficiary conclusion on the part of the subcontractor. The court also rejected the subcontractor's argument that the project's bond requirements supported the third party beneficiary claim, reasoning that while the subcontractor was indeed a beneficiary under the bond itself, that did not extend to being a beneficiary under the prime contract itself. Although the surety was bankrupt, the court noted that the subcontractor still could have pursued its bond remedy against the surety's principal, but chose to not do so. 

Mediation: Is if for you?

I recently had a client question why he should participate in mediation. The short answer is mediation allows parties to create their own solution to a construction dispute. Otherwise, the dispute is resolve by arbitrators, a judge, or a jury, depending upon how the construction contract is written. Mediation is not mandatory, unless set as a condition precedent in a contract; as typically done with AIA contracts. And even when mandatory, there is no requirement to settle the case. But often mediation can be the earliest, least expensive means of resolving a dispute between parties, including by getting the input from a neutral evaluator who typically would have a strong construction background. I'll talk further about mediation in later blogs. I'm interested in whatever views participants in the mediation process have; good or bad - so please send your thoughts.

Certified Claim Not Necessary to Appeal LD Assessment

The Civilian Board of Contract Appeals recently ruled that it had jurisdiction over a Department of Agriculture contractor's challenge to a liquidated damages assessment even though the contractor failed to submit a certified claim (National Fruit Product Co. Inc. v. Department of Agriculture, CBCA, No. 2445, 3/26/12).  The Government had argued that the Board lacked jurisdiction because NFPC had not "certified" a claim for the LD challenge amount, apparently trying to take advantage of newer precedent respecting board jurisdiction.  The Board rejected that argument, noting that the Contracting Officer had issued the LD assessment as part of a final decision that NFPC timely appealed.  On the merits, though, the Board rejected NFPC's appeal, finding that the Government had cause to assess the LDs because NFPC failed to mitigate.  But the Board did modify the LD amount, and made award to NFPC for that reduction.

Mechanic's Lien Law Changes: Updated

Updating my earlier blog about pending HB 1265, those changes will not be adopted, at least this year. Sen. Purkey had made some "accommodation" changes to try and make it more palatable to the construction industry, such as limiting it to residential construction and changing the notice period to 30 days, but that was not enough to satisfy the State Senate, which passed on the bill for this year and referred it to the 2013 session of the Senate Courts of Justice Committee by a 15 to 0 vote. This now allows plenty of time for those with any interest in this draft bill to provide their input to their elected representatives. Even as changed it is not a good bill for contractors, in my opinion; so if you are involved in construction, and in particular residential construction, you should consider explaining your concerns and why they should vote no if it comes up for vote next year.

New FAR Rules Confirms No Priority Among Socio-Economic Programs

FAR Part 19.203 has been modified to confirm that there is no priority among socio-economic programs. This applies to the 8(a), HUBZone, SDVOSB, and WOSB programs. This was adopted, in part, to contravene prior GAO decision that the HUBZone program "trumped" the other SE programs. The new regulation is effective as of April 2, 2012. Also addressed in this new rule as intended clarifications of the existing programs are the following:

• for acquisitions above the SAT, contracting officers shall consider a SDVOSB sole-source award before considering a general small business set aside, but a competitive SDVOSB set aside should be considered before a SDVOSB sole-source award;

• contracting officers may award a general small business set aside or use the SDVOSB program when the acquisition is below the SAT;

• for acquisitions above the SAT, the contracting officer shall consider an award under the 8(a) program before considering a general small business set aside;

• contracting officers may award a general small business set aside or use the 8(a) program when the award is below the SAT;

• the CO shall consider 8(a) set asides or sole-source awards before considering a general small business set aside;

• for acquisitions above the SAT, the contracting officer shall consider a HUBZone sole-source award before considering a general small business set aside, but a competitive HUBZone set aside should be considered before a HUBZone sole-source award; and

• contracting officers may award a general small business set aside or a competitive HUBZone set aside when the acquisition is below the SAT, but HUBZone sole-source awards are not permitted at or below the SAT.

Full text of the new rule is at the following link:

It is available at: http://www.gpo.gov/fdsys/pkg/FR-2012-03-02/pdf/2012-4488.pdf.

HB1265: Significant VA Mechanic's Lien Change Bill Pending

Del. Purkey has advanced HB1265 to require pre-notification of intention to file mechanic's liens by contractors at least 60 days in advance before filing the lien.  If passed, this bill would have a significant impact upon current Virginia mechanic's lien law, and have significant practical implications for not only contractors, but also owners and clerks of court too.  The bill and its current status can be seen in their entirety at the following General Assembly page link:
http://lis.virginia.gov/cgi-bin/legp604.exe?ses=121&typ=bil&val=hb1265&Submit2=Go

The key add to existing law is the following:
At least 60 days prior to filing a memorandum of lien pursuant to this section, a lien claimant shall send a copy of the memorandum and written notice of the lien claimant's intention to file the memorandum by certified mail, return receipt requested, to the owner of the property at the owner's last known address. After the expiration of this 60-day period, the lien claimant may file a memorandum of lien. The lien claimant shall also file with the clerk a copy of the written notice sent to the property owner and certify that such notice was sent. The clerk shall not accept or record any memorandum of lien filed prior to the expiration of this 60-day period or that is not accompanied by a copy of the notice sent to the property owner.

If adopted, there are numerous unresolved questions and complications, including:
- what if the payment status changes in the interim?
- how does one deal with payments that are not even yet due, such as jobs on a 30 day payment cycle, or retainage, among other questions?
- where will the clerk record the notices, and how will they affect the owner's title (will it be a cloud on title) and how might it affect owner obligations to others, such as loan agreements that often can trigger default by such notices?
- what if the "draft" lien has defects?  Can they be cured?  Will drafts be strictly construed like filed liens are currently?

There are many other questions and complications of course, and regardless of intention for this proposed legislation, the result is likely going to be confusion, and lead to a plethora of litigation if passed.  Every contractor should be opposed to this bill, as should government bodies, and clerks of court in particular, and owners.  If the intention is to address a particular concern with the current law, other options should be explored as the only persons that will benefit from the passage of this bill will be us construction lawyers.