HPSS Construction Law News
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Managing Volatile Material Pricing |
Recent price volatility of construction materials, including steel, copper, lumber, and PVC, has left contractors faced with another challenge in completing their work at the price they quoted. This is especially true for contractors that have already entered into a fixed-price contract. Absent a contract provision to the contrary, the general rule is that the contractor bears the risk of increases in the price of materials in fixed-price construction contracts. So, what can contractors do to manage the risks of price volatility and escalation?
Jobs Not Yet Under Contract
Legal relief is not readily available to a contractor who is already bound to a fixed-price contract, but contractors can and should use contract provisions with customers and vendors to avoid getting themselves in an economic quagmire on jobs not yet under contract. The contractor should work to make sure that the commitments it has received downstream from a material supplier parallel the contractor’s upstream obligations to a prospective customer. The contractor needs both to lock-in the supplier’s quote for the designated period so that it is contractually entitled to rely on the supplier’s quote and make sure that whatever conditions and contingencies are part of the supplier’s quote are part of the contractor’s proposal and contract with its customer.
Additionally, given current market conditions, a contractor’s role as a middleman and coordinator between material suppliers and building owners becomes more demanding and critical. The successful contractor needs to be able to work with suppliers to obtain quotes and conditions that will be acceptable to the owner and work with owners so that they understand and accept conditions that will allow the job to proceed in a timely and cost-effective manner. For instance, in order to be able to obtain materials at a fixed-price without a huge contingency for potential future price increases and to be sure that material is available when needed, an owner may be best served by having the contractor purchase, take delivery of the materials much earlier than normal or needed, and arrange for suitable storage.
Contractors should also attempt to negotiate and include provisions in their contracts to deal with price escalation, particularly if the conditions of the supplier’s quote are not satisfied. The purpose of a price escalation clause is to shift the risk (or possibly the benefit) of price changes to the owner. Although at first blush the idea of including a price escalation clause in the contract might seem objectionable to an owner, the clause may be more appealing to the owner if it is written to provide a savings to the owner if costs decrease prior to the time the materials are needed. In today’s market, an owner might save money by basing the contract on current prices charged to the contractor and actual increases and decreases than if the owner received only fixed-price quotes that include speculative contingencies.
With regard to contracts with the federal government, there is a Federal Acquisition Regulation permitting inclusion of economic price adjustment clauses in fixed-price contracts in situations “when (i) there is serious doubt concerning the stability of market or labor conditions that will exist during an extended period of contract performance, and (ii) contingencies that would otherwise be included in the contract price can be identified and covered separately in the contract.” 48 C.F.R. § 16.203-2. The Contracting Officer has the discretion to include this clause in contracts. Contractors contemplating working on government projects should request that this provision be included in the contract documents.
Jobs Already Under Contract
If you have any questions about managing price volatility with respect to existing or upcoming contracts, please contact Leanne Prybylski or Stephen Phillips. You can email both of them by clicking here.
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Still Waiting for OSHA’s COVID-19 Emergency Temporary Standard
In our most recent e-blast, which can be accessed here, we informed you that President Biden issued an Executive Order directing the Occupational Safety and Health Administration to promulgate an emergency temporary standard to address COVID-19, and to do so no later than March 15, 2021. While we are weeks past March 15, OSHA has yet to publish an emergency standard addressing the COVID hazard. Word on the street is that OSHA did prepare a draft of its proposed emergency standard, and then the standard was submitted to the White House for review. The emergency standard is expected to be published any day now.
While we wait for publication of OSHA’s emergency standard, contractors can begin to prepare what might be included in the emergency standard by reviewing OSHA’s most recent guidance for the construction industry on how to address the hazard. That guidance can be accessed here.
It is especially important for construction employers to make efforts to comply with OSHA’s guidance. This is because the construction industry was identified as a target industry for OSHA’s National Emphasis Program, which is intended, “to significantly reduce or eliminate worker exposures to SARS-CoV-2 by targeting industries and worksites where employees may have a high frequency of close contact exposures and therefore, controlling the health hazards associated with such exposures.” Under the NEP, OSHA will direct additional resources toward inspecting companies who are the subject of a complaint, COVID-19 occurrence, outbreak, COVID-19 hospitalization or fatality case investigation, or related referral. Construction companies can expect an increase in OSHA activity in general, and especially as it relates to the COVID-19 hazard.
As soon as OSHA publishes its emergency temporary standard, we will inform you of the same via our e-blast.
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American Rescue Plan Act of 2021 Extends COVID-19 Payroll Tax Credits through September 2021
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (“ARP”) into law, which the White House touts as providing immediate relief for American workers and critical assistance to businesses, including extending and modifying certain paid sick and family leave provisions and associated tax credits originally instituted through prior COVID-19 relief bills.
The Families First Coronavirus Relief Act (“FFRCA”) required covered employers[1] to provided paid sick and family leave and provided those employers refundable tax credits to reimburse the cost of providing paid leave for COVID-19 related reasons through December 31, 2020. The 2021 Consolidated Appropriations Act (“CAA”), passed on December 27, 2020, made providing paid sick and family leave for COVID-19 related reasons optional, but allowed covered employers who chose to continue providing such paid leave to continue to take the payroll tax credit for wages paid through March 31, 2021. The ARP extends the dollar-for-dollar payroll tax credit for paid leave wages paid by employers who voluntarily continue to provide COVID-19 related paid sick and family leave through September 30, 2021, with some important changes.
The ARP maintains the five original reasons under the FFRCA[2], but also provides three additional circumstances that qualify as a basis for COVID-19 related paid leave and the associated payroll tax credit. The added reasons are: (1) a covered employee is absent from work because the employee is seeking or awaiting the results of a diagnostic test, or a medical diagnosis of, COVID 19, provided that the employee has been exposed to COVID-19 or the employer has requested that the employee obtain such test or diagnosis, (2) an employee is obtaining immunization related to COVID-19, or, (3) an employee is recovering from any injury, disability, illness or condition related to an immunization for COVID-19. If any qualifying reason is the basis for sick leave, the employer must pay 100% of the employee’s daily wages up to $511 per day and the tax credit will be provided for the wages paid up to $511 per day. For family leave, the employee is paid 2/3 of their daily wages, up to $200 per day.
The ARP also provides for additional sick leave time by resetting the 80-hour (10 day) maximum for paid sick leave. If an employer is participating in the extended tax credits under the ARP, the employer must once again pay up to 80 hours (10 days) of sick going forward, without regard for how much has been paid previously. This effectively gives employees 10 additional days of emergency sick leave through September 30, 2021.
Further, the ARP eliminates the ten-day waiting period where employers were not required to pay for family leave under the FFRCA, meaning qualifying family leave is to be paid for all qualifying time taken. Additionally, the ARP increases the cap on paid family leave wages the employer can claim as a tax credit from $10,000 per employee to $12,000 per employee paid over twelve weeks (which also increases the maximum paid family leave to 12 weeks for employees).
Finally, the ARP adds new nondiscrimination requirements as a condition of obtaining the tax credit in relation to leave availability in favor of highly compensated employees, full-time employees, or employees on the basis of employment tenure with the employer.
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[1] The FFRCA applied to all public employers and private employers with fewer than 500 employees.
[2] The original 5 reasons under the FFCRA were: 1) The employee being subject to a government quarantine or isolation order; 2) The employee being advised by a health care professional to self-quarantine; 3) the employee experiencing COVID-19 symptoms and seeking a medical diagnosis; 4) the employee caring for an individual who is subject to a government quarantine or isolation order, or who has been advised to self-quarantine by a health care professional; or 5) the employee caring for a son or daughter whose school or place of care has been closed or whose childcare provider is unavailable.
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Tax-Free COBRA Subsidy Under American Rescue Plan Act of 2021
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”). In addition to the much publicized $1400 payments to most Americans, ARPA also requires that employers provide a tax-free subsidy for all COBRA continuation premiums for certain eligible individuals for a specific period of time. Here are some of the highlights.
The law applies to all employers who are required to comply with COBRA notices (20 employees or more) as well as to an employer subject to a similar state law health insurance continuation law. Affected employers are required to provide the subsidy for up to six months, beginning April 1 and running through September 30, 2021. The subsidies are tax-free to the recipients. The subsidies are paid by the federal government through credits to the employer’s Medicare tax obligations.
The COBRA subsidy is available to “assistance eligible individuals” (“AEI”), defined as any qualifying plan participant who loses or has lost health insurance coverage due to an involuntary termination (other than for gross misconduct) or a reduction in hours worked, provided the person elects continuation coverage. An AEI will lose eligibility for the subsidized COBRA coverage upon becoming eligible for other group health insurance coverage or Medicare, as is the case with typical COBRA coverage.
The new subsidized coverage must be included in notices which employers are required to provide. Special notice rules apply to AEI’s who were terminated prior to April 1 but declined to exercise the option to receive COBRA coverage. These individuals can become eligible to receive the subsidized COBRA benefits beginning April 1 through the remainder of the applicable COBRA period, without having to pay for premiums to cover the insurance.
The Department of Labor is expected to issue updated model COBRA notices addressing the availability of the subsidy and related matters in the next several weeks. IRS and other agencies are also expected to provide guidance in the coming weeks.
Further Questions? Because we are waiting for further guidance and the release of form notices, there are a number of questions that remain unanswered relating to these subsidies in operation. We will continue to monitor the situation for updates, but if you have questions, please contact Scott Calhoun who can be e-mailed by clicking here.
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Biden Department of Labor Moves to Rescind Trump Independent Contractor Rule
In our last e-blast, we informed you of the Department of Labor’s announcement that its final rule intended to address and clarify what is commonly referred to as the misclassification issue under the Fair Labor Standards Act. The rule was supposed to go into effect on March 8, but has since been formally delayed until May 7, 2021. You can access the rule here. While the rule is scheduled to become effective on May 7, on March 11, the Biden Department of Labor announced a proposal to rescind the rule, believing the rule significantly weakens protections afforded to American workers under the FLSA.
The DOL’s proposal came in the form of a notice of proposed rulemaking, which can be accessed here. The Biden DOL argues that the previous administration’s independent contractor rule adopted a new “economic reality” test to determine whether a worker is an employee or an independent contractor under the FLSA, that courts and the DOL have not used the new economic reality test, and the FLSA text or longstanding case law does not support the test. Lastly, the Biden DOL argues that the rule would narrow or minimize other factors considered by courts traditionally; making the economic test less likely to establish that a worker is an employee under the FLSA.
Comments on the proposal to rescind the final rule on independent contractor status were accepted through April 12. We will be sure to inform you when the DOL publishes a final rule. In the meantime, if you have any questions concerning the misclassification issue, please do not hesitate to contact either Philip Siegel or Scott Calhoun. You can e-mail both by clicking here.
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The PRO Act – A Bill Employers Need to Watch
On March 9, 2021, the U.S. House of Representatives passed the Protecting the Right to Organize Act, or the PRO Act. The bill is now with the U.S. Senate and has been referred to the Senate’s Committee on Health, Education, Labor, and Pensions for review. With all the focus on the COVID relief and the Biden Administration’s infrastructure bill, the PRO Act has not been getting too much attention. However, if passed, the PRO Act would greatly expand labor protections related to employees’ rights to organize and collectively bargain in the workplace. It would be the biggest change in labor law in decades. The current text of the PRO Act can be found here.
Moreover, as currently written, the PRO Act opens the door to corporate officer liability for companies and executives that violate workers’ rights under the National Labor Relations Act (“NLRA”), Section 7, 29 U.S.C. § 157 (workers’ rights to form, join, or assist unions and “engage in other concerted activities for the purpose of collective bargaining or other mutual aid and protection”). The corporate officer liability is particularly concerning because it opens “director or officers” of employers to the same civil penalties of up to $50,000 for first time violations and up to $100,000 for repeat violations if it is found that “any director or officer of the employer who directed or committed the violation, had established a policy that led to such a violation, or had actual or constructive knowledge of and the authority to prevent the violation and failed to prevent the violation.”
Some other changes the PRO Act would bring to existing labor law include:
· Expand the definition of “employee” and narrow workers currently classified as independent contractors.
· Eliminate various right-to-work protections currently established in 27 states, such as prohibiting employees from being compelled to pay union dues or fees as a condition of their employment.
· Allow for more employee picketing and strikes by allowing secondary picketing of neutral employers to dissuade those employers from doing business with primary employers.
· Dissuade employers from obtaining legal advice on employee rights under the NLRA by requiring employers to report any arrangement, including an engagement with a law firm, that directly or indirectly attempts to persuade employees not to organize.
In its current form, the PRO Act includes several other sweeping changes to current labor law. With the current focus on infrastructure, it is not expected that the PRO Act will be voted on and pass the U.S. Senate. However, it is a bill that we will be keeping an eye on since it will impact construction contractors across the country.
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Pitfalls of Unlicensed Contracting
Unlicensed contractors beware! Georgia law may prevent you from getting paid if your work required a license to perform.
In 2004, the Georgia legislature enacted O.C.G.A. § 43-41-17, which provides that “as a matter of public policy, any contract entered into on or after July 1, 2008, for the performance of work for which a residential contractor or general contractor license is required … and which is between an owner and a contractor who does not have a valid and current license required for such work … shall be unenforceable in law or in equity by the unlicensed contractor.” Further, if a contract is rendered unenforceable under O.C.G.A. § 43-41-17, no lien or bond claim exists in favor of the unlicensed contractor for any labor, services, or materials provided under the contract. This means that if an unlicensed contractor does work in Georgia that requires a license, he is barred from seeking any remedies to secure payment for that work. The owner can just walk away without paying a cent for the contractor’s services.
But what about unlicensed contractors that perform minimal work requiring licensure? Georgia case law indicates that even a “Specialty Contractor”[1] can have a contract voided if he performs unlicensed work or services for which a license is required. In Restor-It, Inc. v. Beck, 352 Ga. App. 613, 835 S.E.2d 398 (2019), a company that provided cleaning, painting, maintenance, and renovation services entered into a contract to renovate a bathroom. Restor-It, who was neither a general nor residential contractor, did not possess a license to perform plumbing or electrical work and did not engage a licensed professional to perform that work on its behalf because only 2.5% of the total job was dedicated to electrical work and 14% was dedicated to plumbing work. When Beck refused to pay Restor-It’s final invoice, Restor-It filed a lawsuit for breach of contract. Beck moved for summary judgment arguing that Restore-It did not possess the required license for the work it performed, so the contract was void and unenforceable under Georgia law. Restor-It, on the other hand, argued that it acted merely as a specialty contractor (not as a residential or general contractor) and was, therefore, not subject to O.C.G.A. § 43-41-17.
Upholding the trial court’s grant of summary judgment, the Georgia Court of Appeals noted that “it is of no consequence whether Restor-It [was] a general contractor or a specialty contractor. The contract required substantial electrical and plumbing work, and neither a general contractor nor a specialty contractor can perform such work without an electrical or plumbing license.” The Court of Appeals of Georgia noted that “[w]here a statute provides that persons proposing to engage in a certain business shall procure a license before being authorized to do so, and where it appears from the terms of the statute that it was enacted not merely as a revenue measure but was intended as a regulation of such business in the interest of the public, contracts made in violation of such statute are void and unenforceable.”
Notably, States like California, New Mexico, Oregon, and New York, among others, have adopted similar statutes barring unlicensed contractors from seeking recovery for work that required a license to perform. Other states, such as Florida, preclude contract actions while maintaining an unlicensed contractor’s right to recover under certain equitable remedies (e.g., quantum meruit). Accordingly, it is of the utmost importance that any contractor, but especially unlicensed contractors, understand the scope of their work and the nuanced licensure requirements of each state where they offer their services.
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[1] O.C.G.A. § 43-41-2(12) defines Specialty Contractor as “a contractor whose scope of work and responsibility is of limited scope dealing with only a specific trade and directly related and ancillary work and whose performance is limited to such specialty construction work requiring special skill and requiring specialized building trades or crafts, including, but not limited to, such activities, work, or services requiring licensure under Chapter 14 of this title.”
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We are proud to announce that Juan M. Rodriguez became an associate with our firm during November, 2020. Juan brings great depth of experience in the field of construction litigation to the firm. You can read Juan’s bio by accessing his firm webpage here.
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Hendrick, Phillips, Salzman & Siegel recently received a Tier 1 ranking in the 2021 edition of U.S. News – Best Lawyers “Best Law Firms”. Tier 1 recognition is reserved for the highest scoring firms during the U.S. News annual review process.
Philip Siegel was recent guest on Dave Sullivan’s The Roofer Show podcast. Philip covered a host of legal topics during the one hour session. You can access the podcast by clicking here.
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