Month: October 2011

Acquisitions Savings Reform Act: Coming down the pipe

Recent legislation was introduced by two republican (Brown and Collins) and one independent (Lieberman) to “reform” acquisitions to “save” time and money. Among other things, the proposed legislation forces contractors to submit for final payment within 60 days of completion for firm fixed priced contracts, and allows contracting officer to unilaterally closeout contracts without final invoices.

The proposed legislation also mandates use of online reverse auctions for commercial item procurement above the simplified acquisition threshold when it could save money. While well intended, if passed in the proposed form, there are various traps and/or problems for contractors, including impacts upon dispute resolution that do not seem to have been thought through by the proposed legislation’s proponents.

Click Here to view the proposed legislation.

Statutory Employer Defense Found for Subcontractor Notwithstanding Lack of Workers’ Compensation Insurance

Last month the Virginia Supreme Court ruled in David White Crane Service v. Howell, 282 Va. ___ 1000981, ___ S.E.2d ___ (2011) that a subcontractor’s lack of workers’ compensation insurance did not affect the subcontractor’s ability to rely upon Virginia’s statutory employer defense as a bar to the claim of an employee of the general contractor who claimed he was injured by the subcontractor’s employee.

The lower court had held that the subcontractor’s failure to obtain workers’ compensation insurance precluded the subcontractor from relying upon the statutory employer defense, but the Supreme Court disagreed for a number of reasons as explained in the decision, holding that the subcontractor nevertheless came under the broad canopy of Virginia’s statutory employer act.

While a “good news” decision for subcontractors and their insurance carriers, subcontractors should not use it as a means of avoiding their statutory insurance obligations or the practical reasons of obtaining workers’ compensation insurance; all of which has separate adverse consequences.

Federal Prompt Payment Act Doesn’t Give Cause of Action to Subcontractors

In its recent decision in United States for the use and benefit of IES Commercial Inc. v. The Continental Insurance Co., D.D.C., No. 11-0985, 9/30/11, the U.S. District Court for the District of Columbia held that the Federal Prompt Payment Act (PPA) does not provide plaintiffs with a private right of action.

It therefore dismissed a subcontractor’s claim against a construction company made claiming this. This does not mean though that the PPA provides no remedy, in that it still entitles a claimant due money to interest, but it does mean that a PPA violation, of itself, does not give rise to an independent cause of action or damages.

Virginia has a similar PPA scheme in the Virginia Public Procurement Act, which similar does not expressly provide for a private cause of action, and so one would anticipate the same result. A holding like this is good news for prime contractors; but not so much for subcontractors.

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