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Non-compete clauses in employment contracts are subject to a wide variety of state laws that limit their effectiveness, but often leave room for reasonable restrictions when an employee leaves. A proposed new rule from the U.S. Federal Trade Commission (FTC) would bring uniformity to the law – by banning employers from entering into non-compete clauses with their workers, including independent contractors.

This massive sea change would go even further than simply banning non-compete clauses in future contracts.  As proposed, the new rule would require employers to rescind existing non-compete clauses and actively inform employees and independent contractors that their agreement is no longer in effect.

According to the FTC, non-compete clauses bind around one in five American workers. At a time when labor costs have been rising, the FTC estimates the proposed rule would increase workers’ earnings across industries and job levels by $250 billion to $296 billion per year.

The rule is currently subject to a public comment period, with the FTC seeking input regarding issues such as whether franchisees, senior executive, and high-wage workers should be covered by, or treated differently, under the rule. 

Employers who currently rely on non-compete provisions will want to monitor this proposed rule and be prepared to respond to whatever final form it might take. Navigating the proposed disclosure requirements, potential exceptions to the rule, and its impact on hiring and retention of employees will require careful consideration and counsel. 

Other measures to protect trade secrets and proprietary information may also become of even greater importance if non-compete clauses are banned. The FTC has indicated that other types of restrictive employment covenants, such as non-disclosure agreements and client or customer non-solicitation agreements, will generally not be covered by the proposed rule. 

Whether the proposed rule becomes final, as currently written, or revised, the FTC’s action suggests that now is a good time to review your options for protecting your business’s critical information and resources – and perhaps taking advantage of a potential increase in labor mobility.

If you have questions or need assistance, our construction team is here to help. Jeffrey Yeager can be reached at jyeager@hahnlaw.com.

By most accounts 2022 was supposed to be a year of growth for the construction industry.  Many forecasted that the Infrastructure Investment and Jobs Act would be the primary source of that growth across health care, public safety, and generally in the public infrastructure arena. High inflation, increased energy costs, and material shortages, however, have turned what were originally forecasted to be mild headwinds into a full-scale weather event likely to extend well into 2023. Those issues, combined with an economy teetering on the brink of recession and an unprecedented shortage of skilled labor, have made managing project risk critical to project success and profitability.  

Proactive and cost-conscious contractors are managing risk by:

Supply Chain.  Maintaining good relationships with suppliers, prioritizing orders, and utilizing sound contract negotiation and enforcement practices. 

Material Escalation.  Modifying designs to utilize available materials and locking in raw material prices by ordering materials early and storing them until needed.

Skilled Labor.  Broadening recruitment efforts, endeavoring to better engage workers, and developing new policies to attract and retain employees.  Indeed, the skilled labor shortage has been particularly tricky for employers to navigate in virtually all sectors.  The cornerstone of any organization is its talent, and the market for and retention of skilled labor has changed dramatically since the pandemic.  Companies must think differently about how they go about attracting, managing, and retaining their workforce.  Gone are the days when there was a surplus of skilled labor, and an employer could project an attitude of “you are just lucky to have a job here.”  In today’s world, in addition to expanding talent searches beyond traditionally targeted groups, construction employers are implementing innovative policies and practices for maintaining and developing their employees.  For example, some companies are offering career development programs designed to chart a path for professional growth, providing childcare, and offering regular family visits to project sites to better engage both employees and their families.

But despite the broader economic challenges facing all sectors of the industry, the single most effective way to manage project risk remains proactive and diligent contract negotiation and enforcement.  The contract remains the greatest tool for containing risk and maximizing profit in the face of uncertainty.  Negotiated improperly, however, or simply thrown in the project file and ignored, the contract can also present a hindrance to project success and profitability. 

Although there is no one-size-fits-all approach to mitigating risk on a construction project, contractors should pay close attention to the following critical provisions:

  • Cost Escalation Clauses:  Specific cost escalation clauses increasingly are becoming the go-to mechanism for a contractor to pass through to the owner – at least partially – increases in material costs in lump-sum or GMP contracts.  Although such clauses are not found in many “form” agreements, ConsensusDocs publishes an amendment to the standard lump-sum contract that allows owners and contractors to agree up front on permissible cost adjustments to specific baseline cost and schedule elements, and similar cost-escalation clauses can be crafted to meet the particular needs of any given project.
  • Allowances:  In a lump sum or GMP contract where the parties are required to determine a set price at the time of contracting, allowances enable the parties to address the “known-unknowns.”  Allowances may be used to permit flexibility in material selection or where a scope of work is anticipated, but the associated cost is unknown at the time of contracting.  Allowance clauses can also be tailored to address specific supply disruptions.  But allowances are not escalation clauses in the strictest sense and do not provide nearly the same flexibility to address mid-stream material and labor cost market fluctuations.
  • Contingencies:  Contractor contingency clauses specify an amount in a contractor’s anticipated price for the “unknown unknowns” that cannot otherwise be accounted for in a schedule of values.  Similar to a force majeure clause, a contingency provision can cover any number of unknown risks (strikes, accidents, weather, interest rate increases, etc.), but likely does not provide the same measure of flexibility as a cost-escalation clause.
  • Substitution Provisions:  Substitution provisions allow contracting parties to agree up front on acceptable substitutions in the event of material scarcity, cost increases, or newly available products, and can forestall significant disputes down the line.
  • Force Majeure Clauses:  The pandemic brought force majeure closes to the fore.  In general, this clause is designed to protect contracting parties if they are delayed or prevented from performing because of causes outside the parties’ control.  But force majeure provisions come in all shapes and sizes, and Ohio courts typically construe them narrowly, so they must be drafted with care.  And beware: Typically, these clauses only provide additional time to perform and do not allow for the recovery of additional costs.

Final point:  None of these contract provisions, standing alone, represent a cure-all for the nearly limitless set of circumstances that could give rise to project risk or cost escalation.  But when taken together, and thoughtfully negotiated and managed across the contract as a whole, these provisions provide critical tools to limit risk and maximize profit in uncertain times.

Read in Properties Magazine

The concept of collateral for real estate. The word LIEN on toy cubes, a house made of wooden blocks and a woman's hand with dollar bills in the palm of her hand

The Ohio General Assembly is considering a revision to Ohio private lien law to make it clearer when projects start and end and enable title to be clear on lien rights. Under 1311.04, a Notice of Commencement (NOC) is to be recorded before a project commences and remains in place for six years (1311.04(S)). That long time period made it more difficult for buyers and lenders, who purchased or refinanced property less than six years following the recording of an NOC, from knowing the impact of the NOC.

Proposed revisions to 1311.04 will:

  • Add to the NOC a “default” statement that it remains pending for three years (and not six)
  • Permit the NOC time statement to be modified, shorter or longer depending on the anticipated length of the project
  • Permit the owner to record an affidavit at the conclusion of the project, noting the project is over and notice of commencement is terminated

These potential changes will permit a title company to record a project-ending affidavit and require that the chain of title shows the Notice of Commencement is terminated. It will provide certainty where before there was a lingering issue, solved in different ways by different buyers, lenders, and title companies, and sometimes rejected by local recorders.

There is, however, the potential for abuse if an Owner records the termination affidavit before all lien time frames have run, for example before 75 days from last work. In that instance, if the notice of commencement was terminated, under the existing statute lien claimants work would relate back to first visible work rather than the Notice of Commencement recording. Contractors would also need to consider filing amended NOCs to keep the project protected in the event the work remains active past the time frame stated in the original NOC.

Contract square

In Ohio, the sale of taxable tangible personal property or services are subject to the Ohio sales tax.

Similarly, the use of taxable tangible personal property or services for which the vendor did not charge sales tax is subject to the Ohio use tax.

Ohio law requires a contractor making retail sales of tangible personal property or taxable services to register for sales tax by obtaining a vendor’s license. This can be done at, Register for a Vendor’s License or Seller’s Use Tax Account | Department of Taxation (ohio.gov). Separate sales and use tax returns and registrations are required.

The party to a construction contract—who is legally responsible for paying the Ohio sales or use tax due—will depend on the specifics of each construction contract.

What kind of construction contracts do you have?

For Ohio sales and use tax purposes, contractors are taxed on materials they purchase and incorporate into real property (“real property construction contracts”). This may include material used for repairs, construction, or additions to real property.

In contrast, consumers are subject to the Ohio sales and use tax on the materials and labor used in a contractor’s installation of personal property or business fixtures (“personal property contracts”). Items purchased or leased for use on a temporary basis during the installation or construction are subject to the same. The contractor should charge and collect Ohio sales tax on its invoice to the customer, calculated on an amount that includes the cost of materials, labor, installation, profit, mark-up and overhead.

See Ohio Revised Code, 5739.01(B)(defining “sale” for sales tax purposes).

Is it a personal property contract? Some examples include:

  • Warehouse security cameras
  • Parking lot lighting at car dealerships
  • HVAC and special purpose flooring for computer rooms
  • Certain computer cabling
  • Window treatments
  • Specialty cabinetry
  • Sale and installation of carpeting
  • Sale of landscaping services – including tree plantings and shrubs
  • Signage
  • Indoor pool

Is it a real property contract? Some examples include:

  • General parking lot lighting
  • Tile, wood, and laminate flooring
  • Refinished flooring
  • Outdoor pool
  • Dock doors/levelers
  • Permanent Fencing
  • Alarm systems to prevent entry from exterior
  • Card reader on exterior door
  • Security cameras on exterior
  • Elevators

Is it an item used on a temporary basis to complete the contract? Some examples include:

  • Electricity, lighting, or water service
  • Protective fencing
  • Construction elevators
  • Shoring lumber
  • Concrete forms
  • Scaffolding
  • Certain Signage

Many construction contracts may include real property, personal property, leased property, or temporarily used property. And it may not be clear how many items you purchased for use in a contract should be taxed. If you have a question, we can help.

Connect with the team and keep that timeline on track

It seems that almost every construction contract contains a clause proclaiming that “time is of the essence.”  But what exactly does that clause mean? And why is it important?  Or is it?

The phrase “time is of the essence” means that timely performance is an essential obligation under a contract, and thus failure to perform in a timely manner amounts to a material breach of contract giving rise to the other party’s right to exercise its remedies for breach. Under Ohio law, these remedies for material breach of contract may include being relieved from performance of one’s contractual obligations, terminating the contract, and seeking damages for completion of the breaching party’s obligations.

So why is it important to specify that time is “of the essence?” Because under Ohio law, unless a contract specifies this, the time of performance specified in a contract is generally not of the essence. Rather, a project schedule in a construction contract is a sort of guideline, and a party’s failure to perform in accordance with the schedule does not deprive the other party of an essential element of the contractual bargain. Thus, unless a contract specifies that “time is of the essence,” Ohio courts typically find that the failure to perform in strict accordance with a project schedule specified in a contract does not amount to a material breach and does not allow the other party to exercise remedies for breach.

There are exceptions to this, however.

Some Ohio courts have found that, even in the absence of a “time is of the essence” clause, an unreasonable delay still constitutes a material breach that entitles the other party to relief.

Additionally, even if a contract does not contain a “time is of the essence” clause, the nature of the contract or the circumstances under which it is negotiated might show that the parties intended for time to be of the essence. As such, even if a contract does not contain a “time is of the essence” clause, a party might still be entitled to relief if the other party fails to perform in accordance with a construction schedule. Unfortunately, Ohio courts have not yet provided guidance about what sorts of circumstances or what types of contracts might give rise to this inference that the parties intended for time to be of the essence.

What does this all mean?

For owners, the best practice is to include a “time is of the essence” clause in your construction contracts. Having this clause in the contract will ensure that you can exercise all contractual remedies available for a material breach, which might include recovery of breach-related damages and termination of the contract.

For contractors and subcontractors, be aware that the absence of a “time is of the essence” clause does not necessarily provide relief from an owner’s remedies for breach of contract. If a delay in performance is “unreasonable,” or if other circumstances suggest that the parties intended for time to be of the essence, the owner (or prime contractor) might nonetheless be able to exercise its contractual right to terminate the contract or exercise its other remedies for a material breach of the contract.

Bottom line:  time might be of the essence even if a contract doesn’t say so, but if you want to be certain, just say it.

Energy_home_car

The recently enacted Inflation Reduction Act of 2022 contains several new environment-related tax credits that are of interest to individuals and small businesses. The Act also extends and modifies some preexisting credits.

Extension, Increase, and Modifications of Nonbusiness Energy Property Credit

Before the enactment, homeowners and business owners were allowed a personal credit for specified nonbusiness energy property expenditures. The credit applied only to property placed in service before January 1, 2022. Now homeowners and business owners may take the credit for energy-efficient property placed in service before January 1, 2033.

Increased credit – The Act increases the credit for a tax year to an amount equal to 30% of the sum of (a) the amount paid or incurred for qualified energy efficiency improvements installed during that year, and (b) the amount of the residential energy property expenditures paid or incurred during that year. The credit is further increased for amounts spent for a home energy audit. The amount of the increase due to a home energy audit can’t exceed $150.

Annual limitation in lieu of lifetime limitation. The Act also repeals the lifetime credit limitation, and instead limits the allowable credit to $1,200 per taxpayer per year. In addition, there are annual limits of $600 for credits with respect to residential energy property expenditures, windows, and skylights, and $250 for any exterior door ($500 total for all exterior doors). Notwithstanding these limitations, a $2,000 annual limit applies with respect to amounts paid or incurred for specified heat pumps, heat pump water heaters, and biomass stoves and boilers.

Extension and Modification of The Residential Clean Energy Credit

Prior to the enactment, residents were allowed a personal tax credit, known as the residential energy efficient property (REEP) credit, for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property installed in homes in years before 2024. The Act makes the credit available for property installed in years before 2035. The Act also makes the credit available for qualified battery storage technology expenditures.

Extension, Increase, and Modifications of the New Energy Efficient Home Credit

Before the enactment, a New Energy Efficient Home Credit (NEEHC) was available to eligible contractors for qualified new energy efficient homes acquired by a homeowner before Jan. 1, 2022. A home had to satisfy specified energy saving requirements to qualify for the credit. The credit was either $1,000 or $2,000, depending on which energy efficiency requirements the home satisfied.

The Act makes the credit available for qualified new energy efficient homes acquired before January 1, 2033. The amount of the credit is increased, and can be $500, $1,000, $2,500, or $5,000, depending on which energy efficiency requirements the home satisfies and whether the construction of the home meets prevailing wage requirements.

New Clean Vehicle Credit

Prior to the enactment, vehicle owners could claim a credit for each new qualified plug-in electric drive motor vehicle (NQPEDMV) placed in service during the tax year.

The Act, among other things, retitles the NQPEDMV credit as the Clean Vehicle Credit and eliminates the limitation on the number of vehicles eligible for the credit. Also, final assembly of the vehicle must take place in North America.

No credit is allowed if the lesser of a modified adjusted gross income for the year of purchase or the preceding year exceeds $300,000 for a joint return or surviving spouse, $225,000 for a head of household, or $150,000 for others. In addition, no credit is allowed if the manufacturer’s suggested retail price for the vehicle is more than $55,000 ($80,000 for pickups, vans, or SUVs).

Finally, the way the credit is calculated is changing. The rules are complicated, but they place more emphasis on where the battery components (and critical minerals used in the battery) are sourced.

Credit for Previously Owned Clean Vehicles

A qualified buyer who acquires and places in service a previously owned clean vehicle after 2022 is allowed an income tax credit equal to the lesser of $4,000 or 30% of the vehicle’s sale price. No credit is allowed if the lesser of a modified adjusted gross income for the year of purchase or the preceding year exceeds $150,000 for a joint return or surviving spouse, $112,500 for a head of household, or $75,000 for others. In addition, the maximum price per vehicle is $25,000.

New Credit for Qualified Commercial Clean Vehicles

There is a new qualified commercial clean-vehicle credit for qualified vehicles acquired and placed in service after December 31, 2022.

The credit per vehicle is the lesser of: 1) 15% of the vehicle’s basis (30% for vehicles not powered by a gasoline or diesel engine) or 2) the “incremental cost” of the vehicle over the cost of a comparable vehicle powered solely by a gasoline or diesel engine. The maximum credit per vehicle is $7,500 for vehicles with gross vehicle weight ratings of less than 14,000 pounds, or $40,000 for heavier vehicles.

Increase in Qualified Small Business Payroll Tax Credit for Increasing Research Activities

Under pre-Inflation Reduction Act law, a “qualified small business” (QSB) with qualifying research expenses could elect to claim up to $250,000 of its credit for increasing research activities as a payroll tax credit against the employer’s share of Social Security tax.

Due to concerns that some small businesses may not have a large enough income tax liability to take advantage of the research credit, for tax years beginning after December 31, 2022, QSBs may apply an additional $250,000 in qualifying research expenses as a payroll tax credit against the employer share of Medicare. The credit can’t exceed the tax imposed for any calendar quarter, with unused amounts of the credit carried forward.

Extension of Incentives for Biodiesel, Renewable Diesel and Alternative Fuels

Under pre-Act law, vehicle owners could claim a credit for sales and use of biodiesel and renewable diesel that is used in a trade or business or sold at retail and placed in the fuel tank of the buyer for such use and sales on or before December 31, 2022. Now vehicle owners are permitted to claim a credit for sales and use of biodiesel and renewable diesel fuel, biodiesel fuel mixtures, alternative fuel, and alternative fuel mixtures on or before December 31, 2024.

Vehicle owners are also now allowed to claim a refund of excise tax for use of 1) biodiesel fuel mixtures for a purpose other than for which they were sold or for resale of such mixtures on or before December 31, 2024, and 2) alternative fuel as that used in a motor vehicle or motorboat or as aviation fuel, for a purpose other than for which they were sold or for resale of such alternative fuel mixtures on or before December 31, 2024.

Copy of Awards Congratulations (1)

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.

Trench square

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.

Bridge square

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.

Untitled design (3)

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.