Contractors learned many lessons from 2020-2022 on material/labor availability, price escalation, and contractual allocations of risk.  Prudent contractors will consider this in contracts moving forward.

Show Me the Money

Long gone are the days of large projects that are simply private or public.  Large projects are multi-layered when it comes to funding.  Federal, state, and local funds may be part of the funding for the development, adjacent infrastructure, and nearby improvements.  Municipalities are using tax incentives, or forgivable grants, to spur development in their communities.

Contractors need to investigate the source of funds for both potential lien rights and to ensure they understand the project cash flow.  Is payment a combination of government funding, company funding, and bank financing?  Do upper tier contracts condition payment on release of funds by the lenders and/or government distributions?  This requires both contractors to evaluate how long they may be required to perform without payment.  Contractors should consider if a “right to stop work” exists relative to delayed payment.  If work is suspended or stopped due to payment delays, will the contractor be paid for the delay?  Contractors want to ensure such delays are both excusable and compensable.

Understanding the contract/ownership tree is also important to preserve lien rights.  Names on contracts may not match actual names of owners.  Conversely, owners may be single asset entities to shield the master entity from liability if the project fails.  To ensure lien/attested account rights are preserved, contractors’ tiers should evaluate the scope of required Notices of Furnishing and make sure they are served to everyone up the contract chain.

Evaluations must be made of funding sources, including a senior bank mortgage, that have priority over lien claimants.  Regardless, even when it appears project equity is limited, liens can still be powerful tools to ensure eventual payment – or at least a seat at the table when litigation or payment discussions ensue.  For example, contractors who placed liens on stopped projects, during the 2008-2009 Great Recession, found their phone ringing several years later when the economy improved, projects restarted, and liens needed to be resolved and released.

Keep Your Mouth Shut

Contractors involved with the significant projects may see confidentiality provisions in contracts.  Confidentiality provisions are becoming more commonplace.  Contractors signing contracts with confidentiality provisions must take steps to follow them.  It is not simply enough to tell your staff to keep things confidential; instead, the contractor must be proactive to protect information.

Protecting electronic information, including e-mails, in a password-protected database is a critical consideration.  Contractors must also investigate their obligations to secure physical copies of documents in a secure manner.  Contractors should strictly adhere to contract requirements and, at a minimum, treat confidential information as carefully it protects its most valuable secrets.  If contractors fail to do this and information leaks out, contractors may face litigation over the ensuing damages.

Contractors may have to ensure their lower tiers and suppliers follow similar restrictions.  Contractors who simply sign and take no action to protect confidential information or trade secrets, do so at their peril.

Do You Understand Me?

The construction labor shortage is well documented.  Ohio contractors are finding more diverse work forces from southern areas, including many native Spanish speakers.  Already clients are reporting the need to have Spanish-speaking HR and hiring staff to both attract workers, manage them, and retain them.  Non-local workers also incur additional housing and travel costs, and issues such as time for crews to visit their families are a consideration.

Contractor and specialty trades that master the use of available labor will find themselves ahead of those who resist it.  With many projects around the state there is risk of cannibalization of workforces from one city in favor of another.  Prudent contractors will start recruiting nationally now to ensure adequate workforces.

Material Delays and Price Escalation

The impact of delayed materials is evident in many industries, including construction and automotive.  The inability to obtain material (including replacement materials) is generally considered a “force majeure” delay, subject to the specific terms of the contract.  Owners, contractors, and specialty contractors are getting more sophisticated in allocating these risks in contracts.  Consideration must also be given to these delays on third parties.  Contract clauses that are clear and consistent are far more likely to be enforced.

For example, if a fundamental piece of material is unavailable due to a supply chain delay, how will it impact the various parties?  The responsible contractor will claim a force majeure delay; generally excusable but not compensable.  The general contractor will pass this delay up to the owner, also seeking time.  But what if the owner cannot tolerate a delay due to manufacturing schedules?  If a substitute product is available, who must pay for the additional cost of that material?  This should be evaluated and put into the contract.

Finally, there is the obvious risk of material cost escalation.  General contractors cannot always lock in the full supply of materials needed at the time of contract, especially where a project is large.  Certain contracts are clear – the contracting party owns all the risk of escalated pricing.  That forces the contracting party to include a contingency to account for and carry the risk, raising the price.  Other contracts include a contingency that is available to parties to account for some portion of the risk.  Still others split the cost of this risk along percentage lines.  This should be clearly negotiated in the contract.  Inadequate contingencies risk the inability (or unwillingness) to perform by lower tiers, forcing general contractors to supplement and then seek reimbursement; that situation is not ideal – better to negotiate and plan for the risk ahead of time.

It’s a Lot to Synthesize

Contractors and owners need to understand all contract obligations at all levels.  Lower tier subcontractors need to have copies of all upper tier contract documents to understand all notice time frames, risk allocations, and the flow of project proceeds.  Owners, in turn, want to ensure all upper tier contract requirements are incorporated down to lower tiers.

When we are asked to assist, we create binders with highlighted and tabbed provisions, summaries on key issues, and use that as the primary means to review requirements.  Prudent owners, contractors and subcontractors will master these requirements and use them to ensure smooth performance.

Hahn Loeser has Ohio offices in Cleveland and Columbus. Aaron Evenchik is a partner in the Cleveland and Columbus office. Jud Scheaf is a partner in the Columbus office. Andy Natale is a partner in the Cleveland office.  Hahn Loeser’s construction practice has been recognized by Chambers USA, Construction Executive (top 50 nationwide) and US News and World Report (National Tier 1).  Aaron can be reached at aevenchik@hahnlaw.com. Jud can be reach at jscheaf@hahnlaw.com. Andy can be reached at anatale@hahnlaw.com.

There have been 22 trenching and excavation fatalities in the first six months of 2022 compared to 15 in all of 2021. Given this alarming increase, OSHA announced the launch of an “enhanced enforcement initiative” to supplement its National Emphasis Program on trenching.

As a part of its enhanced enforcement initiative, OSHA intends to perform “more than 1,000 trench inspections nationwide.” The OSHA announcement notes that “[e]very one of th[e fatalities] could have been prevented.” Recent trends in OSHA enforcement of trenching violations have shown an increase in pursuit of criminal violations.

Historically, criminal charges were somewhat limited to extreme circumstances. Atlantic Drain Service Co., Harco Construction LLC / Sky Material Corp, and ContractOne Inc., are a few recent examples of when negligent homicide and felony manslaughter charges were pursued. In each of these cases, the employers knew of the dangers associated with trenching, but failed to take basic safety measures.

OSHA views criminal prosecution as an effective enforcement tool and believes that prosecuting criminal cases can change the industry. Under the “enhanced enforcement initiative” OSHA enforcement staff will consider every available tool at the agency’s disposal and will place additional emphasis on how agency officials evaluate penalties for trenching and excavation related incidents, including criminal referrals for federal or state prosecution to hold employers and others accountable when their actions or inactions kill workers or put lives at risk.

The “enhanced enforcement initiative” is OSHA’s self-titled notice to the industry. Violations of the OSHA trenching and excavation standard may result in criminal prosecution.

If you have any questions about trench/excavation safety, OSHA’s National Emphasis Program on Trenching/Excavation, or OSHA’s Trenching/Excavation Compliance Directive please call or email Hahn Loeser’s Construction and OSHA Team.

Supply chain interruptions are reaching critical levels and suspending work on projects. Shortages of bridge coating materials is the most recent area of concern and could be potentially catastrophic to unprepared contractors and owners. The inability to obtain materials may force painting contractors into a position where they cannot advance painting work, cannot retain painting crews, and may be asked to perform work in 2023 they had bid and scheduled for 2022.

What Can The Industry Do To Manage Risks?

Pre-bid, contractors must evaluate the availability of specified coatings and options for advance purchase and storage, confirm and lock-down material delivery timing, and account for any time and cost impacts associated with securing the materials.  Additionally, contractors may condition their performance obligations on the ability to obtain materials. Owners should consider breaking projects into small tranches, cooperating with contractors on advance purchase/storage, and be flexible and reasonable as additional disruptions and delays occur.  Owners should also take steps to ensure the bridge contractors are able to continue to operate, including providing change orders for increases in material, labor, and additional mobilization costs for work performed long after the initial schedule date. Ohio needs its skilled painting contractors in place and viable to mobilize and protect our bridge assets once materials are available.

For projects under contract, now more than ever it is imperative that contractors strictly follow the notification provisions in their contracts, including the ODOT C&MS, to preserve their entitlement to an extension of time. Under ODOT C&MS Section 108.06(B) Contractors are entitled to an excusable, non-compensable delay for: “Extraordinary delays in material deliveries the Contractor or its suppliers cannot foresee or avoid resulting from freight embargoes, government acts, or area-wide material shortages.” See ODOT C&MS 108.06(B)(3). However, the Contractor must notify the Engineer in compliance with ODOT C&MS Section 108.02(F). That means immediate oral notification and Written Early Notice within two days. Failure to follow these timelines can prejudice the contractor’s rights.

If you have questions or need assistance, our construction team is here to help.

In March of 2022, the U.S. Supreme Court was asked to consider revisiting an August 2021 decision made by the U.S. Court of Appeals for the Eighth Circuit (Designworks Homes, Inc. v. Columbia House of Brokers Realty, Inc., Case No. 19-3608 (8th Cir. 2021)). The Eighth Circuit decision is presented as upsetting a long held real estate industry practice of relying on reproductions of architectural floor plans in their marketing and sales materials. While architectural copyrights are seen as having the narrowest scope of protection of all copyrights, the implications of the Eighth Circuit decision may have far-reaching implications of expanding these protections across many industries such as, in real estate, construction, and building development.

In August 2021, the U.S. Court of Appeals for the Eighth Circuit issued its decision indicating pictorial floor plan reproductions, of an otherwise constructed building, may be found liable for copyright infringement as architectural copyrights. In the case in question, a builder created floor plans for homes that included architectural copyright protected features (i.e., triangular atrium design with stairs). Owners of the homes later hired real estate professionals to sell their homes. When listing the homes, multiple realtors created sketches reproducing the floor plans of the homes. These sketches were provided in marketing materials for the sale of the homes. The builder brought suit against the realtors for infringing the architectural copyrights by reproducing and publishing the floor plans without authorization. The 1990 statute, establishing architectural copyrights, provides an exception (which narrows the protection for architectural copyrights) that states “[t]he copyright in an architectural work that has been constructed does not include the right to prevent the making, distributing, or public display of pictures, paintings, photographs or other pictorial representations of the work, if the building in which the work is embodied is located in or ordinarily visible from a public place.” See 17 U.S.C. §§ 120(a). The realtors believed their reproductions of the floor plans were protected from suit for infringement by this exception – but the Eighth Circuit has decided otherwise.

From the real estate industry’s perspective, the Eighth Circuit incorrectly decided that the above-mentioned defense to infringement of an architectural copyright is much narrower than first believed. While the implications of this decision are rooted in realty practices the decision may have far reaching implications for related activities in the construction industry such as, for example, developers or contractors who may generate or rely on pictorial reproductions of floor plans for building improvements, marketing, and sales. It is still uncertain how far this decision will reach. The petitioners argued it will upset the use of floor plan reproductions in appraisals for mortgages, tax assessments, property evaluation documents, insurance documents, commercial leases, building improvements, etc.

The issue in dispute is based on the statutory interpretation of the above exception for architectural copyrights. The Eighth Circuit found that the words of the exception (e.g., pictures) possess a narrower meaning, under the statute, than an ordinary meaning that might otherwise be supported by a dictionary definition. The Eighth Circuit drew a distinction between granting this exception for “artistic” reproductions as opposed to “functional” reproductions. As the Eighth Circuit decided, functional reproductions appear to not be covered by the exception while artistic reproductions are. The Eighth Circuit does not necessarily draw a clear line as to what would be deemed functional over what would be deemed artistic, other than to indicate the floor plans in question were functional – letting this nuance remain subject to future litigation. The Eighth Circuit does leave the door open for other fair use exceptions as a mechanism to avoid liability. However, this has created an uproar and uncertainty surrounding the use of a floor plan as outlined in the context above.

At this moment in time, the Eighth Circuit decision stands. A lot of industries are watching whether the U.S. Supreme Court will take on this question. Alternatively, if the Supreme Court does not take on this question, a lot might also be told by the District Court who must revisit their prior decision in view of the Eighth Circuit’s decision. For the time being, it will be important to take these details into consideration before reproducing floor plans otherwise protected as architectural copyrights.

With OSHA’s Emergency Temporary Standard (ETS) hanging in the balance of a special January 7, 2022, U.S. Supreme Court session, your organization should nonetheless prepare to comply with a Vaccine-or-Test COVID-19 policy. As it stands, the current OSHA ETS requires private businesses with at least 100 employees to ensure that their employees are either vaccinated against COVID-19 or tested weekly. Compliance requires a well-developed, written policy monitoring vaccination status among employees and a dialog with employees regarding exemptions based on disability, religion, and other state-required reasons.

An employer who implements a weekly COVID-19 testing program for unvaccinated employees may fear compliance challenges beyond its control. Namely, the limited number of testing resources in the face of ever-increasing demand. To address this issue, OSHA has provided guidance to covered employers on how to remain compliant with the ETS in the event of testing shortages or delays.

OSHA expects that most screening testing will be antigen testing that is conducted at point-of-care locations due to the reduced cost and faster processing time when compared to NAAT testing in laboratories. Most NAATs need to be processed in a laboratory with variable time to results (approximately 1–2 days). In contrast, most antigen tests can be processed at the point of care with results available in about 15-30 minutes. Rapid point-of-care tests are administered in various settings, such as: physician offices, urgent care facilities, pharmacies, school health clinics, workplace health clinics, long-term care facilities and nursing homes, and at temporary locations, such as drive-through sites managed by local organizations.

Employers should be cautioned about self-administered COVID-19 tests. Tests that are both self-administered and self-read do not meet the definition of “COVID-19 test” in the ETS (unless observed by the employer or an authorized telehealth proctor) and do not satisfy the testing requirements. Importantly, because unobserved, self-administered COVID-19 test results are not acceptable under the ETS, the current shortage of at-home tests does not directly impact compliance.

Currently, it is OSHA’s position that there is a sufficient supply of COVID-19 tests available and adequate laboratory capacity to meet the anticipated increased testing demand related to compliance with the ETS. However, if an individual employer is unable to comply with the testing requirement of the ETS due to inadequate test supply or laboratory capacity, OSHA will look at efforts made by the employer to comply, as well as the pattern and practice of the employer’s testing program and consider refraining from enforcement where the facts show good faith in attempting to comply with the standard.

OSHA also recognizes that where the employee or employer uses an off-site laboratory for testing, there may be delays beyond the employee’s or employer’s control. If there is a delay in the laboratory reporting results and the employer permits the employee to continue working, OSHA may refrain from enforcement where the facts show a good faith attempt at complying. To determine whether a good faith attempt has been made, OSHA will look at the pattern and practice of the individual employee or employer’s testing verification process.

Tips to Help Achieve Good Faith ETS Compliance

  • Develop a written policy that outlines the testing protocol and procedures in great detail.
  • Strictly follow and enforce your policy.
  • Keep thorough records – including past test results, dates, times, and correspondence.
  • Document any issues with obtaining test supplies or timely results.
  • Confirm the factual accuracy of any test supply or result issues raised by an employee.
  • Remain in contact with OSHA and other local government agencies.
  • When in doubt, contact a member of HLP’s Labor & Employment group. We are here to help and can assist with documentation of testing and result issues beyond your organization’s control.

Vaccine-or-Testing Contractual Obligations

Regardless of how the U.S. Supreme Court may rule on the January 7, 2022, arguments, employers in the construction industry may still find themselves having to comply with similar vaccine-or-test COVID-19 policies as contractual requirements. A trend may develop where project owners and employers are incorporating such policies into their contracts and sub-contracts, likely citing the impact COVID-19 has on project delays and manpower.

However, uniform guidance on how to comply with such requirements in the event of a testing shortage is not likely to exist in private contracting like it does for employers covered by the ETS. Additionally, methods and levels of enforcement are also likely to vary from project to project. Such variables may present unique compliance challenges and can lead to a failure to perform as obligated. Failure to strictly comply with a vaccine-or-test contractual requirement could constitute a breach, and if not cured, may result in extensive costs and damages. If your contract contains one of these private vaccine-or-test provisions, you may consider suggesting that any testing supply or results issue beyond your organization’s control should be handled in accordance with the claims, delays, or dispute provisions contained in your contract.

Tips to Help Avoid Breaching Private Vaccine-or-Test Contractual Obligations

  • Develop a written policy that outlines the testing protocol and procedures in great detail.
  • Strictly follow and enforce your policy.
  • Keep thorough records – including past test results, dates, times, and correspondence.
  • Document any issues with obtaining test supplies or timely results.
  • Confirm the factual accuracy of any test supply or result issues raised by an employee.
  • Consult notice provisions contained in your contract and contract documents.
  • Provide notice of testing issues beyond your control pursuant to the requisite time and manner contained in your contract and contract documents.
  • Demand guidance and or resolution.
  • Remain in communication with the project owner, general contractor, or contracting party.

When in doubt, contact a member of HLP’s Labor and Employment Group. We are here to help and can assist with documentation of testing and result issues beyond your organizations control. Timely notice is vital.

Hahn Loeser & Parks LLP’s Construction Law Practice Group has been ranked as a National Tier 1 practice for Litigation – Construction in the 2022 “Best Law Firms” report, which was released today by U.S. News & World Report and Best Lawyers®.

“This national recognition is a testament of the hard work of every member of our growing construction team,” said Rob Remington, Hahn Loeser’s Construction Law Practice Group Chair. “We are proud to receive this high praise for our standout work and our deep commitment to providing the highest level of client service to our clients across the construction industry.  I am fortunate to work with this incredibly talented team of attorneys and construction professionals.”

In addition to this national ranking, Hahn Loeser is listed in Tier 1 in four construction-related categories in the report’s metropolitan rankings in the 2022 “Best Law Firms” report, including recognition in both Construction Law and Litigation – Construction for both the Cleveland and Columbus, Ohio markets.

The 2022 “Best Law Firms” rankings are based on a rigorous evaluation process, which includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. Receiving a tier designation reflects the high level of respect a firm has earned among other leading lawyers and clients in the same communities and the same practice areas based on its abilities, its professionalism, and its integrity.

In addition to this recent honor, Hahn Loeser’s Construction Law Practice Group was recognized earlier this year in the Top 50 Construction Law Firms by Construction Executive magazine for 2021 as the only Ohio-based firm to be included in the top 30 spots for the second straight year. Hahn Loeser is also recognized as having one of the leading Construction Law Practices in Ohio by Chambers USA in its 2021 edition.

New York Governor Kathy Hochul recently signed into law an amendment to New York Labor Law that holds prime and general construction contractors jointly and severally liable for unpaid wages, benefits, and wage supplements owed by a subcontractor at any tier to the subcontractor’s employees.

Read more about this new law in this legal alert from Hahn Loeser’s Labor & Employment Practice Group.

Over the past few months, the COVID-19 vaccine has dominated news coverage and is at the forefront of the current administration’s agenda. In this recent legal alert, our employment team considers several important vaccination questions for employers to consider as they navigate the rapidly evolving issues that COVID-19 presents to the workplace.

Read the full legal alert here.

Earlier today, the 11th District Court of Appeals for the State of Ohio upheld a judgment for $1.1 million in compensatory damages in favor of Hahn Loeser’s client — TRAX Construction Co. — against OHM Advisors, Inc., and Eugene Esser, the former Engineer for the Village of Reminderville, as well as an award of $375,000 in punitive damages and attorney fees and expert fees in the amount of $483,870.53.  The decision can be found here.

Please read more about this decision and its impact on the construction industry on our website.

 

Yesterday, June 14, 2021, Ohio Senate Bill 13 went into effect. This bill shortens the statute of limitations for breach of written contract actions from eight years to six and, for oral contracts, from six years to four.

As Greg Thompson and Alayna Bridgett shared earlier this year, while S.B. 13 amends the statute of limitations for contract claims in general, it is important for construction project stakeholders to consider provisions within their own contracts that limit contract claims periods. Nearly every construction contract will include provisions shortening the time frame in which a party may bring a claim (oftentimes to just days). These provisions provide a period much shorter than the enumerated statute of limitations. It is important to remember that, regardless of whatever appears in the Ohio Revised Code, parties must comply with the claims provisions provided in their contracts.