Month: July 2015

New Laws Affecting Construction: Part II

Authored by James Harvey

Last time we reviewed recent new laws impacting the validity of mechanic’s lien and bond waivers for subcontractors and suppliers before work is performed. This week, we take a look at the new law intended to correct a court decision that would have prohibited any contractor on a public procurement from even submitting a claim that exceeded 25% of the original contract value. The Public Procurement Act requires that for any contract modification or series of modifications that exceed 25% of the amount of the contract, or $50,000, whichever is greater, that approval must be made by the public body or the governor’s designee. HB 1628 was passed to clarify that this statute does not limit the amount a party may claim or recover against the public body through the Virginia Public Procurement Act’s claims and disputes process. While this change is a positive development for contractors, all should be aware that the contracting officer, purchasing department or public works manager may not have the authority to enter into any change order that exceeds 25% of the contract value. If the contractor proceeds, it does so at its own risk that the modification can be declared invalid.

Should you find yourself in a contract with an excessive amount of change orders, contact Vandeventer Black LLP to protect your rights.


New Laws Affecting Construction: Part I

Authored by attorney James Harvey

The General Assembly was unusually busy this year in passing legislation that impacts construction and government contracts in Virginia.  This is part 1 of 3 on these new laws every contractor should know:

Mechanic’s Liens and Bond Waivers
Senate Bill 891 changes Virginia law and now prohibits any attempt to have a subcontractor or supplier waive or diminish its payment bond claim rights or right to assert contractual claims for demonstrated additional costs prior to providing any labor, services, or materials.  This makes agreements at the outset of the work that waive a subcontractor’s right to file mechanic’s liens or bond claims unenforceable.  Importantly, this same protection is NOT afforded to general contractors.  General contractors need to take precautions in their contracts with owners not to waive such rights when they cannot pass that waiver onto their subcontractors and suppliers. This also raises questions as to the enforceability of other common contractual limitations on subcontractor lien and claim rights such as “no damage for delay” clauses.

While the intent of the legislation was undoubtedly to level the playing field for subcontractors and suppliers, this new law will raise many new questions.  Consult with Vandeventer Black LLP before signing your next contract!


The Risks of Using Criminal Statutes to Collect Construction Debts

The failure to make payment on a construction contract may not only result in a claim for money damages in a civil lawsuit, but it may also result in a violation of a criminal statute.  For example, Code of Virginia Section 43-13 makes it a felony to use funds received for a particular construction project for any purpose other than paying contractors or suppliers who provided labor or materials for that project.  That code section expressly provides that the criminal charges may be brought against any officer, director or employee of a construction company that misuses funds meant for a contractor or supplier.

When a contractor has not been paid for work performed on a project, it can be tempting to contact the authorities and request that they bring criminal charges against the upper tier contractor who received funds, but failed to use them to make payment to subcontractors or suppliers.  However, this is not always an effective strategy and carries some risks.  The contractor may have a defense to payment if the work performed was not considered satisfactory.  The person filing the complaint may also be exposing themselves to a claim of malicious prosecution if the courts determine that the claim was brought for an improper purpose and without probable cause.  As a practical matter, many law enforcement agencies are reluctant to vigorously pursue criminal investigations of matters that they perceive to be “civil” in nature, like the failure to pay a debt.

Contractors should carefully consider the risks before contacting the authorities regarding the failure to pay a debt on a construction project.  Any such claims should be supported by documentation of the payment history for the project and not just by the word of the complaining party.  We strongly encourage all contractors to consult with an experienced construction attorney regarding the risks and benefits of pursuing criminal charges to collect a construction debt before contacting any law enforcement authorities.

False Claims Act: The Fourth Circuit’s Triple Canopy Decision

Authored by attorney Megan Caramore

The False Claims Act, 31 U.S.C. §§3729-3733, also known as the “Lincoln Law,” is a federal law that imposes liability on individuals and companies (often federal contractors) who defraud the government.  The Act prohibits contractors from presenting the government with a false or fraudulent claim for payment.

The Fourth Circuit recently examined the issue of what constitutes a false or fraudulent claim in the case ofU.S. v. Triple Canopy, Inc., 775 F.3d 626 (2015). Triple Canopy contracted with the government to provide security services at an airbase in Iraq. Triple Canopy was required to ensure that the guards provided satisfied certain U.S. Army marksmanship requirements; however, the contract did not specifically provide that payment was conditioned on compliance. To fulfill its contract, Triple Canopy hired hundreds of Ugandan guards to serve at the airbase. After the Ugandan guards arrived in Iraq, Triple Canopy supervisors became aware that the guards did not meet the marksmanship requirements. Despite this knowledge, Triple Canopy submitted invoices to the government for payment. After a failed training attempt, a Triple Canopy supervisor directed the creation of false scorecard sheets to be placed in the guards’ personnel files.

The government action against Triple Canopy alleged that it knowingly presented false claims because it knew that the guards did not satisfy the contract requirements but nonetheless billed the government the full price anyway and falsified documents in its own files to show that guards qualified as marksmen. Triple Canopy argued that the invoices it submitted to the government contained no false statements and that the government was improperly attempting to turn a breach of contract claim into a False Claim Act action.

The Fourth Circuit determined that claims can be false when a party impliedly certifies compliance with a material contract condition. The court found that the “straight shooting” requirement was a material term of the contract, given that the contract was for base security guards in a war zone. By submitting the bills, Triple Canopy impliedly certified that it was complying with the material terms of the contract. This amounted to a false statement due to Triple Canopy’s knowledge that it was not in compliance with contract requirements.

Call Miss Utility: Call Who & Why?

Authored by attorney George Nicholos

Prior to excavating on any construction site or most anywhere – Call Miss Utility first!  We have heard the line and seen the words countless times, but what or who exactly is Miss Utility?  And what is the big deal about giving her a call?

Miss Utility of Virginia is a free call center or information exchange for excavators, contractors and property owners planning any excavation or demolition work. Miss Utility doesn’t actually mark the utilities, but coordinates or notifies member utilities and institutions who in turn send out their respective crews to locate and identify various utilities using a standardized color coded marking system. However, once the markings are made care is still required to physically locate the marked utilities as the markings don’t identify the depth of utilities and can deviate as much as two feet horizontally from the actual location of the surface markings.

The name Miss Utility comes from the original advertising campaign in 1971 which rang – “To miss the utilities, call “Miss Utility,” before you dig.” The program was enacted by the Virginia General Assembly to benefit various stakeholders such as utility companies, contractors, excavators and the general public through the prevention of damage to underground utilities. The Underground Utility Damage Prevention Act, sometimes referred to as the “Miss Utility Law” can be found in Title 56 – Chapter 10.3 of the Code of Virginia. The Act also contains Rules which clarifies and further defines the standards. Both the Act and Rules are enforced by the State Corporation Commission and apply to all stakeholders.

To minimize damage to property and the loss of life, stakeholders should always call before digging. In fact, under section 56-265.17 of the Code of Virginia, no person shall make or begin any excavation or demolition without first notifying the notification center for the project area. In fact, failure to do so not only exposes the violator to heightened liabilities and possible catastrophic results, but may also be fined punitive damages in addition to actual damages in an amount up to $10,000 per single cause of action.

So before you dig – Call Miss Utility! Dial 811 in Virginia or Click Here.

Resurgence of Defense Base Act (DBA)

Authored by attorney Lisa L. Thatch

The Defense Base Act is a federal law that extends the Longshore and Harbor Workers’ Compensation Act (LHWCA) to apply to certain categories of employees working overseas. There are three general divisions of covered employees: (1) those working on military bases acquired from a foreign government after 1940, (2) employees of contractors and subcontractors engaged in public work projects for the U.S. government outside the continental United States, and (3) individuals employed outside the continental United States by a U.S. employer whose purpose it is to provide welfare or other such services to the Armed Forces as approved by the secretary of defense.

With much work continuing in war-torn places like Iraq and Afghanistan, the number of Defense Base Act (DBA) claims remains steady, and continues to grow. The DBA covers the following employment activities:

  • Work for private employers on U.S. military bases or on any lands used by the U.S. for military purposes outside of the United States, including those in U.S. Territories and possessions
  • Work on public work contracts with any U.S. government agency, including construction and service contracts in connection with national defense or with war activities outside the United States
  • Work on contracts approved and funded by the U.S. under the Foreign Assistance Act, which among other things provides for cash sale of military equipment, materials, and services to its allies, if the contract is performed outside of the United States
  • Work for American employers providing welfare or similar services outside the United States for the benefit of the Armed Services, e.g. the United Service Organizations (USO)

If any one of the these criteria is met, all employees engaged in such employment are covered under the DBA. As the Employer, you should ensure that you carry appropriate and adequate insurance coverage.

Additionally, please be sure that you understand and adhere to the procedural dictates of the DBA. For example, under the DBA, a company must report any injury or death to OWCP’s Division of Longshore and Harbor Workers’ Compensation within 10 days, and any knowing and willful failure to report subjects the employer to a civil penalty, just as The Sandi Group/Corporate Bank Financial Services discovered not too long ago when it was fined $75,000 by the US DOL for failure to report injuries and death subject to the provisions of the DBA.

You should also be aware of DBA Waivers. Upon the written request of the head of any department or other agency of the United States, the Secretary of Labor may waive the application of the Defense Base Act with respect to any contract, work location, or class of employees. The request for waiver must be made by the government agency to the Department of Labor (DOL), OWCP. It is Department of Labor policy that the waiver does not apply to citizens or legal residents of the U.S. or to employees hired in the U.S. Once granted, the waiver is only valid if alternative workers’ compensation benefits are provided to the waived employees pursuant to applicable local law.

New Minimum Wage Requirements under FAR 52.222-55

Below is a summary of the new minimum wage requirements of FAR Part 52.222-55 prepared by my law partner, Mike Sterling. The new requirements apply to all prime contractors and subcontractors working on new federal contracts after January 1, 2015.

Minimum Wages Under Executive Order 13658

You need to be aware of the new minimum wage requirements of FAR 52.222-55. This clause applies when it is included in a contract or modification by the agency as directed by FAR 22.1906. If the agency fails to include it there is a provision for retroactive application of the clause. FAR 22.1905(d)(4).

FAR 52.222-55 applies to almost all prime contractors and subcontractors working under “new” federal contracts after 1/1/15. The minimum wage is generally not retroactive to “old” contracts. However, it appears that the government views a bilateral modification extending a contract more than 6 months to be a new contact. Likewise, the government may also apply the clause to IDIQ contracts with more than 6 months of task or delivery orders remaining.

If you believe that the agency improperly included the clause you may ask the agency to remove it, but if included you must comply with it.

If FAR 52.222-55 is included you must flow it down to subcontractors at every tier, and if added after award by modification you should take steps to obtain an equitable adjustment for you and your subcontractors. You should not sign a modification that waives your right to an adjustment.

The minimum wage applies to all contractor employees that spend more than 20% of their weekly hours working in “connection” with a federal contract, and regardless of the contractual relationship. Therefore, it may apply to someone in general administration or a 1099 independent contractor.

The minimum wage takes precedence over lower rates in wage determinations, collective bargaining agreements or apprentice programs. You cannot make up short wages with fringe or other benefits.

You must notify all workers of the requirements of the clause.

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