CONTRACTOR COMMUNITY

SLDF Update: Good News from Oklahoma

As an update to the SLDF case pending before the Oklahoma Supreme Court, H2K Technologies, Inc., v WSP USA, Inc. and Fidelity and Deposit Company of Maryland, involving the waiver of subcontractor lien rights, a decision was reached on November 16, 2021, reversing and remanding the matter to the trial court for further proceedings. The Oklahoma Supreme Court held that a subcontractor’s statutory right to waive its lien rights may not be exercised by anyone other than the subcontractor. Here, the subcontractor was ruled to not be bound by the waiver of lien rights by another party in the contractual lien which was done without the subcontractor’s knowledge or consent. This ruling represents a victory for subcontractors. However, the case presents us with a note of caution that it is very important for subcontractors to carefully review the language that pertains to liens and waivers of liens in their subcontract and the prime contract.

Thank you to David Walls, Esq. for providing us with the update on this case.

ASA Offers Comments to the FY22 NDAA

ASA, along with the Construction Industry Procurement Coalition (CIPC), offered comments to the House and Senate Armed Services’ Committee Leadership highlighting our views regarding the FY22 National Defense Authorization Act (NDAA). We support the Defense Department submitting a report on the Cybersecurity Maturity Model Certification (CMMC) on small businesses. CMMC is one of the most ambitious cybersecurity compliance requirements ever undertaken by the department. The program is designed to be a mandatory requirement on all defense contracts. The potential of excluding a significant portion of small business defense contractors and the ability for agencies and prime contractors to meet small business goals should be evaluated and reported to Congress and the public. Additionally we supported the exemption of the Miller Act from the periodic indexing required under Title 41.The Miller Act currently requires all general contractors on federal construction projects over $150,000 to furnish surety bonds to protect the government’s use of taxpayer funds and to ensure payments to subcontractors, and suppliers. Any increase in the contract price threshold through indexing exposes workers, suppliers, and taxpayer dollars to unnecessary risk.

We opposed the bill’s section regarding new and onerous requirements for military construction contractors which goes against decades of federal contracting policies and precedent, including requiring all contractors and subcontractors performing a military construction contract be licensed in the state where the work will be performed and issuing local hiring preferences. Per our comments, “this section will severely restrict military construction contractors to perform work, leading to an exodus from the industry and jeopardizing critical military infrastructure projects.” Additionally, we opposed the provision repealing section 829 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. 114-328), which states that a contracting officer shall first consider the use of fixed-price contracts in the determination of contract type. For architect/engineering services contracts, with well-defined scopes of work and clear deliverables identified, fair and reasonable costs of services can be negotiated. This makes

fixed-price contracts more efficient for all parties. When the contractor and agency know and agree on a bottomline cost and deliverables schedule for a well-defined scope of work, contract administration, accounting, and billing are simplified. This reduces associated overhead costs and time impacts. Agency flexibility to use the most effective and efficient contract type should be preserved. Tax Provisions in Build Back Better Act

On November 19th, the House passed the Build Back Better Act (the “BBB”) (HR. 5376) and in the tax area, many of the provisions which could have been very detrimental to small businesses and their owners were removed from the final House passed version of the BBB. More specifically, in the final House bill, this is what happened with the proposed tax provisions: • No change to income tax or capital gains rates. Only those with modified adjusted gross income (“MAGI”) of more than $10,000,000 will see an increase in income taxes through a new surtax; • No change to the estate and gift tax exemption amounts or rates for anyone; • No change to the step up in basis for assets going through an estate; • No change to the grantor trust rules; • No change to the valuation discounts used when transferring interests in most family-owned businesses from an older to a younger generation; • A new significant surtax for the super wealthy and non-grantor trusts; • Additional 5% surtax on MAGI in excess of $10,000,000 (single or married filing jointly) for individuals and in excess of $200,000 for nongrantor trusts; • Extra additional 3% surtax on MAGI in excess of $25,000,000 (single or married filing jointly) for individuals and in excess of $500,000 for nongrantor trusts; • No change to C corporation tax rates; • Expansion of the 3.8% net investment income tax (NIIT) to apply to active business income from pass-through entities (such as

S corporations and partnerships) for those taxpayers earning more than $400,000 (if single) and $500,000 (if married filing jointly).

Under current law the 3.8% net

investment income tax only applies to passive income. The effective date for this provision in the House bill is January 1, 2022; • No change to the 20% qualified business income deduction under 199A for pass-through entities.

Though the 199A deduction is still set to sunset at the end of 2025; • A change to the SALT (state and local taxes) deduction limit increased it up to $80,000 until 2031 at which point the deduction would go back permanently to the $10,000 limitation brought in by the 2017 tax bill. This is a revenue raiser since under the current law, the $10,000 limitation is set to sunset at the end of 2025 and would revert to prior law with an unlimited SALT deduction as of 2026; and • No required reporting of banking transactions to IRS.

It’s too soon to judge what the Senate version will look like or even when it will be brought up, however it seems unlikely that any other negative tax provisions will come in, particularly with Senator Manchin having the deciding vote.

FEATURE

Attorneys' Council and Task Force Update: 2021

Despite the ebb and flow of life in a pandemic, our Attorneys’ Council and ASA Task Forces stayed active in 2021 – and even got the opportunity to meet together in person for the first time since SUBExcel 2020!

Following a series of productive but remote Attorneys’ Council meetings through 2020 and 2021, we were able to meet in the hometown of our dedicated Council Chair, Bethany Beck, Esq., in San Antonio, Texas. Sanderford & Carroll Law Offices hosted our meetings and we were able to tackle a number of pressing issues in the subcontracting industry...and have a little fun catching up with each other in the process!

We were so pleased to welcome the participation of our amazing ASA San Antonio Chapter in the Subcontractor Legal Defense Fund’s (SLDF) historical tour and tasting fundraiser at Maverick Whiskey. Thank you to the Chapter and to Executive Director Jennifer Swinney for making us feel so welcome. We also nominated and welcomed Michael Lane of Riess LeMieux, LLC (Louisiana) as our Attorneys’ Council Vice Chair and incoming Chair for next year.

On the Contract Documents front, we began an effort to continue educating our community on the best practices in construction subcontract agreements, beginning with a joint webinar with ConsensusDocs in June entitled Subcontract Negotiations: When the Juice Ain’t Worth the Squeeze When You Really Want the Fruit. If you haven’t had the opportunity to read through our newly updated and published Retainage Law in 50 States resource, make sure to visit our Infohub and check it out. Our attorneys in every state worked hard to review and update these laws, so it is one of many resources available to our members that you will want to make use of.

The SLDF experienced a lighter but successful year in terms of cases brought to the Association and approved for support. Hopefully you have seen the recent news on a victory for subcontractors in the Oklahoma Supreme Court in the H2K Technologies, Inc. v. WSP USA, Inc. and Fidelity and Deposit Company of Maryland case. In that lien waiver case, the Court held that a subcontractor’s statutory right to waive its lien rights may not be exercised by anyone other than the subcontractor. You can read more on this and other SLDF cases at www.sldf.net. And if you will be at SUBExcel in March, please participate in our Saturday afternoon SLDF fundraiser following the conclusion of the conference. We hope you will be there for all of the education and fun at the conference next year!