The Contractor's Compass September 2015

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ASA’s

THE OFFICIAL EDUCATIONAL JOURNAL OF THE AMERICAN SUBCONTRACTORS ASSOCIATION

WWW.ASAONLINE.COM

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Public Private Partnerships: Payment Security Concerns

SEPTEMBER 2015

The P3 Issue

ASA and ASA of Texas File Brief in Major Insurance Coverage Court Case Making the Most of a Formal Internship Program in the Construction Industry Anatomy of a Win-Win Internship Program Strippers, Contractors and Employee Misclassification The Ten Commandments of Mediation Legally Speaking: Case Study on P3s — Denver’s Fast Tracks Eagle P3 Partnership

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September 2015

Features

EDITORIAL PURPOSE The Contractor’s Compass is the monthly educational journal of the Foundation of the American Subcontractors Association, Inc. (FASA) and part of FASA’s Contractors’ Knowledge Network. The journal is designed to equip construction subcontractors with the ideas, tools and tactics they need to thrive.

Public-Private Partnerships: Payment Security Concerns ...... 8 by by E. Colette Nelson and Lenora Marema

ASA and ASA of Texas File Brief in Major Insurance Coverage Court Case ................................................ 12

The views expressed by contributors to The Contractor’s Compass do not necessarily represent the opinions of FASA or the American Subcontractors Association, Inc. (ASA).

by The American Subcontractors Association

EDITORIAL STAFF Editor-in-Chief, Marc Ramsey

Making the Most of a Formal Internship Program in the Construction Industry.......................................................... 14

MISSION FASA was established in 1987 as a 501(c)(3) taxexempt entity to support research, education and public awareness. Through its Contractors’ Knowledge Network, FASA is committed to forging and exploring the critical issues shaping subcontractors and specialty trade contractors in the construction industry. FASA provides subcontractors and specialty trade contractors with the tools, techniques, practices, attitude and confidence they need to thrive and excel in the construction industry.

by Stacey Ehring

Anatomy of a Win-Win Internship Program............................. 15

by Stacey Ehring

Strippers, Contractors and Employee Misclassification......... 16

by Michael W. Thal

FASA BOARD OF DIRECTORS Richard Wanner, President Letitia Haley Barker, Secretary-Treasurer Brian Johnson Robert Abney Anne Bigane Wilson, PE, CPC SUBSCRIPTIONS The Contractor’s Compass is a free monthly publication for ASA members and nonmembers. Subscribe online at www.contractorsknowledgedepot.com.

The Ten Commandments of Mediation...................................... 19

by Donald Gregory, Esq.

Departments

ADVERTISING Interested in advertising? Contact Tony Kozak at (716) 844-8174 or advertising@asa-hq.com.

CONTRACTOR COMMUNITY............................................................ 4

EDITORIAL SUBMISSIONS Contributing authors are encouraged to submit a brief abstract of their article idea before providing a fulllength feature article. Feature articles should be no longer than 1,500 words and comply with The Associated Press style guidelines. Article submissions become the property of ASA and FASA. The editor reserves the right to edit all accepted editorial submissions for length, style, clarity, spelling and punctuation. Send abstracts and submissions for The Contractor’s Compass to communications@asa-hq.com.

ABOUT ASA ASA is a nonprofit trade association of union and non-union subcontractors and suppliers. Through a nationwide network of local and state ASA associations, members receive information and education on relevant business issues and work together to protect their rights as an integral part of the construction team. For more information about becoming an ASA member, contact ASA at 1004 Duke St., Alexandria, VA 22314-3588, (703) 684-3450, membership@asa-hq.com, or visit the ASA Web site, www.asaonline.com.

LEGALLY SPEAKING.......................................................................... 20 Case Study on P3s—Denver’s Fast Tracks Eagle P3 Partnership

by Mark D. Gruskin and Charles Fuller

Quick Reference

LAYOUT Angela M Roe angelamroe@gmail.com

ASA/FASA CALENDAR..................................................................... 22 COMING UP....................................................................................... 22

© 2015 Foundation of the American Subcontractors Association, Inc.

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Contractor Community ASA Webinars Offer Education to Keep Subcontractors Competitive and Reduce Risks In today’s competitive construction marketplace, subcontractors need to learn and hone business strategies that keep them competitive and reduce their risks. Each year, ASA offers a series of webinars to help subcontractors improve their businesses through educational training on such topics as contract negotiation, risk management, retainage, cash management, productivity, employment regulations, technology, and much more! ASA’s 2015-16 webinars will take place from 12:00 p.m. to 1:30 p.m. Eastern time on the second Tuesday of the month.

The registration fee for each webinar is $99 for ASA members and $179 for nonmembers: • September 15, 2015 — “The Subcontractor’s Guide to a Fair Lien Waiver Process” presented by Scott Wolfe Jr., zlien, New Orleans, La. • October 13, 2015 — “Cash Management for Subcontractors” presented by Aaron Faulk and Justin Fisher, Moss Adams LLP, Everett, Wash.

• November 10, 2015 — “Implementing Technology for the Jobsite: Turning Refusers into Adopters” presented by Doug Chambers, FieldLens, New York, N.Y. • December 8, 2015 — “Employment Law Changes and How They Affect Screening and Hiring Practices” presented by Jamie Hasty, SESCO Management Consultants, Richmond, Va.

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• January 12, 2016 — “The War

for Talent Drives Construction Pay Higher: Pay Trends in the Construction Industry” presented

by Mike Rose, FMI, Phoenix, Ariz.

• February 9, 2016 — “Negotiating Retainage” presented by Eric Travers, Esq., Kegler, Brown, Hill & Ritter, Columbus, Ohio.

• April 12, 2016 — “The Payment Dance in the Construction Industry” presented by Scott Wolfe Jr., zlien, New Orleans, La. • May 10, 2016 — “Websites, Email, Social Media and Your Domain Name” presented by George Minardos, .BUILD, Santa Monica, Calif.

• June 14, 2016 — “Damages for Lost Labor Productivity” presented

by James Yand, Miller Nash Graham & Dunn, Seattle, Wash.

Learn more under “Register for an Event” on the ASA Web site.

Advertise in Book Commemorating 50TH Anniversary to Celebrate Milestone with ASA ASA will commemorate its 50TH anniversary during SUBExcel 2016, March 3-5, 2016, in Miami, Fla. In addition to hosting several special activities, ASA will publish a commemorative book documenting the many accomplishments and milestones that ASA has achieved over the past 50 years. ASA members, sponsors, ASAdvantage program participants, and others are invited to advertise in this book, which will be unveiled and distributed during SUBExcel 2016. Full-page, half-page, and “Friend of ASA” listings are available. Please see the advertising flier and insertion order for details.

ASA will also offer several event sponsorship opportunities that may

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interest your firm. Please save the dates March 3-5, 2016, in Miami and watch for online registration announcements this fall.

House Subcommittee Approves VA Construction Reform The Subcommittee on Health of the House Committee on Veterans’ Affairs, on July 22, approved H.R. 3106, the “Construction Reform Act of 2015.” The ASA-supported bill would shift the U.S. Department of Veterans’ Affairs major construction program to another government entity. If enacted, VA construction projects over $100 million would be managed on a cost-reimbursable basis by another agency of the federal government, most likely either the U.S. Army Corps of Engineers or the General Services Administration, depending on the nature of the project. In addition, the subcommittee adopted an amendment offered

by Rep. Mike Coffman (R-Colo.) that gives the VA and any agency managing its construction program unambiguous statutory standards for the timely processing of change order requests from contractors arising under contracts for the construction or alteration of VA facilities. In support of the Coffman amendment, ASA Chief Advocacy Officer E. Colette Nelson said, “Existing government-wide regulations, and the mandated contract clause, authorize the contracting officer to unilaterally direct the contractor to make changes to its performance under the contract. The same contract clause imposes upon the contractor specific deadlines during which the contractor must make a request to the contracting officer for a decision.

The contractor’s request must include the contractor’s estimate of the costs to effect the government-directed

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change, as well as any adjustment to the time of performance.

The contract clause imposes no deadlines on the contracting officer to render a decision regarding the contractor’s change order request.”

ASA has suggested that a substantial portion of the cost overruns and schedule slippage on many troubled VA major construction projects can be attributed to the failure of the VA to take timely action on requests for change orders from the contractor. Nelson added, “The Coffman amendment is an essential first step to addressing this fundamental problem at the VA. It may encourage similar improvement on a government-wide basis.” The full House Veterans’ Affairs Committee is expected to consider H.R. 3106 in September. The VA operates the nation’s largest integrated health care system with 150 medical centers, nearly 14,000 community-based outpatient clinics, community living centers, Vet Centers and Domiciliaries.

Nelson said, “ASA will continue to work with Congress to assure that the VA fully cooperates with the Army Corps, or other federal agency, at each stage of design and construction and both agencies have incentives to make timely decisions.”

Subcontractors Have to Price Risk on P3 Projects “Subcontractors cannot absorb the risk of nonpayment [on projects financed through public-private partnerships] without ascribing a cost,” ASA Chief Advocacy Officer E. Colette Nelson told participants at P3 Connect, a conference sponsored by the National Conference for PublicPrivate Partnerships. “Such cost ultimately is born by the taxpayer,” she said. Governments are turning to

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P3s to be able to tap private-sector equity to finance capital projects rather than raising funds through alternative methods of financing or trying to budget public funds raised through taxes. Typically, the public entity will authorize the private entity to design, build and frequently operate the resulting public work. Private capital is attracted to such projects through financing arrangements that will provide profits to the public partner’s investors. In trying to maximize the incentives for participation of private investors, state legislatures are being urged to minimize government red tape.

Among the areas frequently cited are requirements related to public procurement, including statutory requirements for surety bonding on the prime contractor under so-called “Little Miller Acts.” Deprived of the clear payment bond protections of the state’s “Little Miller Act,” a subcontractor or supplier working on a P3 project is unlikely to have any payment protections, unless they are specified in the authorizing statute relating to P3s or a provision in the solicitation and award documents relating to a specific P3 project.

Lien laws available for payment protection on private construction will be foreclosed, given that the public work being furnished by the P3 is for public use, if not ultimately public property. “The lack of payment protections shifts very substantial risks to subcontractors and suppliers working on a P3 project,” Nelson said. “If the risk is deemed too great, the most skilled and successful subcontractors and suppliers may even forgo participation, particularly if the business climate provides less risky business opportunities.”

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Senate Finance Committee Approves Tax Extenders Bill On July 21, the Senate Finance Committee voted 23 to 3 to approve a bill that would extend 52 of the 55 temporary tax provisions that expired at the end of 2014. Each of these so-called extenders would be extended for two years through the end of 2016. Among the approved extenders are several ASA-supported provisions, including Section 179 expensing, bonus depreciation, and the reduced recognition period for S Corporation built-in gains taxes.

Notably, the Finance Committee bill does more than simply extend some of these items. For example, the bill would amend the Section 179 expensing limits so that, for the first time, the maximum deduction will be indexed for inflation. ASA is an advocate for indexing the Section 179 limits. “All of these tax provisions are meant to be incentives — they are meant to encourage and promote certain activities,” said Senate Finance Committee Chairman Orrin Hatch (R-Utah). “If they are expired, they aren’t doing much good. That being the case, we need to move this package forward as soon as possible.”

Ranking Member Ron Wyden (D-Ore.) said a temporary extenders bill is “nobody’s idea of perfect economic policy … But the reality is, there are economic priorities in this bipartisan package that are vital to families, businesses and communities across the country.” In the House, the Ways and Means Committee has been taking a piecemeal approach to the tax extenders, passing a few at a time.

However, Committee Chair Paul Ryan (R-Wisc.) has indicated that he intends for the committee to consider a larger package of tax extenders in the fall.

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March 3-5, 2016 Hyatt Regency Miami, Florida

www.SUBExcel.com

DOL Issues Enforcement Guidance on Misclassification of Employees On July 15, the U.S. Department of Labor’s Wage and Hour Division issued guidance on the enforcement of the law prohibiting the misclassification of employees as independent contractors. The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors (Administrator’s Interpretation 2015-1) analyzes how the Fair Labor Standards Act’s definition of “employ” guides the determination of whether workers are employees or independent contractors under the law. The WHD guidance emphasizes that most workers are employees under the FLSA’s broad definitions. It discusses the breadth of the FLSA’s definition of “employ,” as well as provides guidance on the “economic realities” factors applied by courts in determining if a worker is indeed an employee. The document includes questions that an employer should consider in determining whether an individual is an employee rather than independent contractor, including: • Is the work an integral part of the employer’s business?

• Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?

• How does the worker’s relative investment compare to the employer’s investment?

• Does the work performed require special skill and initiative?

• Is the relationship between the worker and employer permanent or indefinite?

• What is the nature and degree of the employer’s control?

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WHD says the factors should not be analyzed mechanically or in a vacuum and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee).

The document also includes several short examples that are specific to the construction industry. Additional guidance on misclassification is available on the WHD’s Web page: Misclassification of Employees as Independent Contractors.

OSHA Provides Guidance on Enforcement of Revised HazCom Standard Last week, the Occupational Safety and Health Administration issued instructions to compliance safety and health officers on how to ensure consistent enforcement of the revised Hazard Communication standard. OSHA revised the Hazard Communication standard in March 2012 to align with the United Nations Globally Harmonized System of Classification and Labelling of Chemicals. The revised standard is intended to improve the quality, consistency and clarity of chemical hazard information that workers receive. Under the standard, employers were required to train workers on the new label elements and safety data sheets by Dec. 1, 2013. Chemical manufacturers, importers and distributors had to comply with revised safety data sheet requirements by June 1, 2015.

Distributors have until Dec. 1, 2015, to comply with labeling provisions as long as they are not relabeling materials or creating safety data sheets, in which case they must comply with the June 1 deadline.

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The new instruction outlines the revisions to the HCS, such as the revised hazard classification of chemicals, standardizing label elements for containers of hazardous chemicals, and specifying the format and required content for safety data sheets. It explains how the revised standard is to be enforced during its transition period and after the standard is fully implemented on June 1, 2016. Additional information on the revised Hazard Communication Standard may be found on OSHA’s Hazard Communication Safety and Health Topics page at http://www. osha.gov/dsg/hazcom/index.html.

DOL to Develop Rule to Allow States to Set up Pensions Plans As part of the White House Conference on Aging earlier this month, President Barack Obama issued a memorandum directing the Department of Labor to publish a proposed rule before the end of 2015 clarifying how states can establish state-based retirement savings initiatives. The proposed rule will include information with respect to state requirements to automatically enroll employees and for employers to offer coverage, for workers who don’t currently have access to a 401(k) at work. Similar proposals have been passed by a few states, most recently in Oregon. Other states are considering an approach that would encourage employers to create 401(k)type plans.

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Feature Public-Private Partnerships: Payment Security Concerns

by E. Colette Nelson and Lenora Marema

Could your company be working on a public construction project without the payment assurances you thought it had under state or federal law? With the increased use of publicprivate partnerships (P3s), this question is a real concern for construction subcontractors and suppliers that rely on statutory payment assurances such as payment bonds and mechanic’s liens.

P3 projects, historically used for traditional transportation infrastructure projects like turnpikes, are increasingly being used for social infrastructure such as college dorms and hospitals. P3s are long-term contractual agreements between a public entity and a private partner in which the private partner, in exchange for compensation, invests its own assets and delivers a public service or facility. Governments are turning to P3s because infrastructure needs far exceed the funding available in the budgets raised through taxes or that can be accessed with revenue bonds or borrowing. Typically, the public entity will authorize the private entity to design and build and, frequently, operate and maintain the resulting public work. P3 agreements attract the private capital for needed projects now, and the private party is paid back though some stream of public revenue that the public entity grants, such as the right to collect tolls, which in turn provides profits to the private partner’s investors.

For construction subcontractors and suppliers, one major concern with P3s is that established payment assurances under existing law may

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not apply. Mechanic’s lien laws generally do not apply to construction on public land, and federal, state or local governments most often own the land on which P3 projects are built. Statutory payment bonds are required in all states for contracts awarded by public owners based on a public design and with public funding. Under a P3, however, the private partner — frequently called a concessionaire — contracts with the public entity, and the private partner then retains the construction contractor to complete the construction phase of the P3.

Under normal circumstances, the concessionaire is required to follow all procurement laws, including providing payment and performance bonds, but legislation is being enacted specifically for these projects.

P3s are relatively new to the United States and 34 states currently have a variety of laws authorizing the use of P3s for various types of public projects. Some state laws are silent about payment assurances, assuming that all state procurement laws would be applicable to P3s. A few state

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laws specifically allow alternatives to payment bonds, such as parent company guarantees or equity partner guarantees, which could make it difficult, if not impossible, for subcontractors and suppliers to successfully pursue a claim. Other laws authorize the public entity to determine the amount and form of the payment assurance, meaning that the amount could be zero and the form could provide illusory protections. Still other states have enacted multiple laws, some of which provide payment assurances and some of which do not.

Subcontractors and suppliers bidding and working on P3 projects should carefully review and understand the contract’s payment assurances and not assume that state or federal law will provide them. Payment protections may not exist unless they are specified in the authorizing legislation relating to P3s or included as a provision in the solicitation and award documents relating to a specific P3 project.

A lack of payment protections shifts very substantial risks to

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ASA AND SURETY INDUSTRY PUBLISH PAYMENT PROTECTION LAWS IN THE 50 STATES Construction of projects for public use through public-private partnerships continues to increase at all levels of government, including at the state and local levels. Many of the P3 programs authorized by the states, however, provide no payment protections for subcontractors and suppliers on P3 projects, on which mechanic’s liens and the requirement for payment bonds most likely do not apply.

ASA, in collaboration with the National Association of Surety Bond Producers and The Surety & Fidelity Association of America, has reviewed the state laws authorizing construction projects to be financed by P3s and determined which programs provide payment protection for construction subcontractors and suppliers through payment bonds.

The guide published by ASA, NASBP and SFAA, “Public-Private Partnership Laws in the States, Including Surety Bond Requirements” (2014 Edition), will help subcontractors determine whether they have payment protections before they bid on a P3 project.

“Many people think that P3s are used only for expensive horizontal construction projects, such as major bridge and highway construction; but P3s are increasingly being used for vertical construction projects, too,” said ASA Chief Advocacy Officer E. Colette Nelson.

“They are being used to construct public housing, to renovate or construct educational facilities, and to build or renovate public buildings or public parking facilities.”

Nelson advised subcontractors on P3 projects to obtain a copy of the payment bond to determine the extent of its payment protections.

For more information or questions, contact Nelson at cnelson@asa-hq.com.

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subcontractors and suppliers.

Typically, subcontractors and suppliers extend large amounts of credit before submitting an invoice to the project’s prime contractor.

They may have paid workers and suppliers and estimated taxes before knowing if payment is forthcoming for completed work. Such substantially increased risk cannot be accepted without ascribing a cost by the prudent business. Such cost is ultimately borne by the taxpayer. If the risk is deemed too great, the most skilled and successful subcontractors and suppliers may have to forgo participation, particularly if the business climate provides less risky business opportunities.

Performance bonds also provide important benefits for subcontractors and suppliers on projects. Owners, subcontractors and suppliers all lose the benefit of the surety’s prequalification of the general contractor if a performance bond is not required. The surety’s underwriting of a bond is crucial to the success of construction projects.

The surety provides a bond only to contractors that, in the surety’s opinion, are capable of performing the work. The surety examines the contractor’s capacity to perform the work, character, ability to work in the region where the project is located, current work in progress and overall management as well as its capital and record of paying its obligations. By issuing a bond, the surety provides the owner, investors, taxpayers, subcontractors and suppliers with assurance from an independent third party, backed by the surety’s own funds, that the contractor is capable of performing the construction contract. While the surety’s underwriting of

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a bond aims to prevent default and nonpayment in the first place, if the contractor runs into trouble on the project or defaults, the surety provides the resources and funds to ensure contract completion and payment of subcontractors and suppliers.

Although federal and some state laws currently may be inadequate in providing payment security for subcontractors on P3s, their growing use may change that. Organizations representing construction subcontractors and suppliers, including the National Association of Credit Management (NACM) and the American Subcontractors Association (ASA), and the surety industry, including The Surety & Fidelity Association of America (SFAA), the American Insurance Association (AIA) and the National Association of Surety Bond Producers (NASBP) are collaborating to pursue federal and state legislation to extend the public policy

IN THIS ARTICLE . . .

• Could your firm be working on a public construction project without payment assurances?

• Payment assurances under existing law may not apply to P3s.

• Carefully review a contract’s payment assurances before bidding on a P3 project.

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COPY OF CONTRACTOR’S SURETY BOND: AN ASA SUBCONTRACTOR’S NEGOTIATING TIP SHEET Are you certain that the surety bond provided by your general contractor is underwritten by a surety with sufficient, or sufficiently liquid, assets to pay your claim and the claims of all of the others on the project? How could you be sure if you didn’t receive and review a copy of the surety bond? How comfortable are you that the GC will willingly provide you with a copy of the surety bond at the time you need to file a claim?

ASA’s “Subcontractor’s Negotiating Tip Sheet” on “Copy of Contractor’s Surety Bond” explains why subcontractors need to validate the surety and verify the bond before signing a general contractor’s proprietary subcontract.

Some sureties, particularly individual sureties, may not have sufficient liquid assets to pay claims, and some surety bonds may not cover the full amount of the contract.

Notice and claims procedures may also vary, so subcontractors should

review those procedures to determine whether they are attainable.

Furthermore, some onerous bond terms can change the entire contract relationship.

and representative of the project owner, evidence of adequate owner project financing, and a copy of Customer’s payment bond for the project, if any.”

Subcontractors need to review the bond for onerous language, such as terms allowing the general contractor to “declare” that the subcontractor is in default, limiting the payment bond to the amount payable by the owner to the GC or to the GC’s net worth, or including an expiration date that is prior to the likely completion of the project.

Many GC proprietary subcontracts are silent on whether the GC is obligated to provide a copy of its surety bond to the subcontractor.

This ASA tip sheet recommends that subcontractors include a provision stating:

General contractors may argue: “My customer required a bond. I shouldn’t have to provide a copy to you as well.” To such an argument, the subcontractor could respond: “The bond is part of the contract documents. Certainly, you can’t expect me or anyone to be bound by terms in a document which we’ve not seen.” If the general contractor says, “I don’t understand why you need a copy of the bond at all,” the subcontractor could explain, “The bond itself will contain all the information I need concerning notice and procedures that I’ll need to follow in the unlikely event that I need to file a claim.” If the general contractor says, “I’ll provide you with a copy of the bond at that time if you need it,” the subcontractor could reply, “Since we both agree that we

“The subcontract is subject to credit approval by Subcontractor, and Subcontractor shall be provided with the legal description of the property, the name, address

benefits of laws that require prime contractors on public construction contracts to provide payment and performance bonds.

The best way to provide payment assurances for construction subcontractors and suppliers on P3s is to require by statute that the P3 agreement will require the private partner to bond the construction phase of the P3 as would be required under the federal Miller Act and state Little Miller Acts. That is why it is not only important to forcefully advocate for such a provision when Congress or a state legislature is initially shaping its legislation to create authority for P3s generally, but also to get involved on the local level in the process of developing

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requirements for a specific P3 project.

It is also imperative to amend existing laws that lack payment protections for subcontractors and suppliers or afford inadequate payment protections.

In states where the current authorizing statutes for the conduct of a P3 project are silent regarding payment protections for subcontractors and suppliers, the collaborating national associations and local partners will seek a contractual provision to extend the payment protections of the state’s Little Miler Act by a provision that appears in the contract solicitation and the resulting contract.

The states continue to aggressively enact new and amend existing laws to

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don’t expect claims, I think it would be better to get this out of the way, instead of possibly interrupting our work down the road.” If the general contractor insists on signing the subcontract first and providing a copy of the bond later, the subcontractor could say, “Before I sign the subcontract, I’ll want to review the language in the bond to make sure that it doesn’t contain any provisions with which I can’t agree.”

ASA tip sheets are designed to provide the subcontractor with the information it needs to negotiate a particular subcontract clause, including ASA-recommended language, samples of what a subcontractor may see in a client’s proprietary subcontract, an explanation of the impact of poor language on a subcontractor, negotiating tips, and sources for more information. ASA tip sheets are available in the members-only section of the ASA Web site.

authorize P3s for both transportation and building construction. For example, so far in 2015, 10 states — Alabama, Arkansas, California, Georgia, Maryland, New Jersey, Ohio, Oregon, Virginia, Washington — enacted new or amended existing laws authorizing the use of P3s. Three of those new P3 laws, include payment assurances for subcontractors and suppliers.

As with all projects, subcontractors and suppliers on P3 projects should assess the source and quality of payment assurances. Before signing a contract, the subcontractors and suppliers should request a copy of all bonds and verify their authenticity.

SFAA’s Bond Obligee Guide’s list

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PODCAST: CHECKING PERFORMANCE BOND REQUIREMENTS Feature In the free contract podcast for ASA members, “Checking Performance Bond Requirements,” Eric Travers, Esq., of the Columbus, Ohio-based law firm of Kegler, Brown, Hill and Ritter, reviews the role of performance bonds in today’s construction marketplace, discusses how the ConsensusDocs and other industry form contracts treat performance bond requirements and explains how to check performance bond requirements to mitigate financial risks.

This 19-minute audio podcast, along with an accompanying white paper, is available in the Member Resources section of the ASA Web site.

A general contractor may ask a subcontractor to obtain a performance bond to guarantee that it will satisfactorily complete or perform its work. Unlike insurance, which is a two-party contract where, for a premium, the insurance company agrees to indemnify the subcontractor for any losses

sustained as a result of an event or occurrence, a performance bond is a three-party agreement among the subcontractor (principal), the general contractor (obligee) and the surety company (guarantor). If the bonded subcontractor fails to perform its obligations under the contract, the general contractor may ask the surety company to cure the problem or to make payments up to the penal sum of the bond.

“If there’s a default and the surety must step in and complete the work or pay for damages, it will expect its principal to repay any money that the surety is out to pay for those claims,” Travers says. “And generally, not only is the subcontractor on the hook to repay the surety, but the owners of the subcontractor are usually going to be required to sign a personal indemnity agreement, as well.”

Travers also explains the clause in a performance bond that deals with the surety’s obligation to take over and complete a subcontrac-

of surety companies and contact information (http://www.surety. org/?page=VerifyYourBond) can help. Subcontractors and suppliers can also determine if a surety is admitted in the jurisdiction of the project by checking with the state insurance department, which can be found on the National Association of Insurance Commissioners’ Web site (http://www.naic.org/state_web_map. htm). Finally, the Department of Treasury’s Circular 570 (https://www. fiscal.treasury.gov/fsreports/ref/ suretyBnd/c570_a-z.htm) contains a list of approved sureties for federal projects.

Government entities in the United States have understood the importance of surety bonds and

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tor’s work. He explains that there are two scenarios that the subcontractor must consider. The surety may be required to take over a subcontractor’s work immediately upon a “declaration” of default, or the surety may be required to take over the work after the principal’s “actual” default. Travers explains how the first scenario is riskier, because it requires the surety to take over regardless of whether the default was justified.

Travers discusses industry form contracts and how they treat performance bond requirements, noting that the ASA-endorsed ConsensusDocs 706 Performance Bond is available to use as a fair alternative to other industry form contracts.

Travers recommends that subcontractors verify performance bond requirements before bidding and condition their bids on use of a bond form that is acceptable to them. “You are the master of your own bid,” Travers says.

have required bonds for over a century to provide performance and payment assurance for the nation’s infrastructure projects. Although new procurement methods have evolved — including the increased use of P3s in the United States — construction risks remain the same, making surety bonds just as relevant and important today. Bonding is a tool that protects taxpayer and investor dollars and supports economic empowerment, sustainability, job creation and legacy wealth for contractors and subcontractors, and the surety industry remains ready to provide bonding for all types of construction delivery mechanisms, including P3 projects.

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Other options to mitigate risks include reviewing the proposed subcontract closely for any performance bond requirements and reviewing any bonds that may be specified. Travers says subcontractors should address or clarify any terms up front so they know how to price their bids. He also advises that bid documents be clear and specific and recommends using the ASA Subcontractor Bid Proposal.

By taking the time to check performance bond requirements up front and to ensure that subcontractors have given themselves the benefit of the most fair and reasonable bond terms they can expect, subcontractors can get a leg up on their competitors while better preserving the assets of their company and the company owners who are signing the personal indemnity agreements and protecting against exposure to a performance bond claim.

E. Colette Nelson is chief advocacy officer of the American Subcontractors Association, Inc. She can be reached at cnelson@ asa-hq.com. Lenore S. Marema is vice president of government affairs of The Surety & Fidelity Association of America. She can be reached at lmarema@surety.org. Reprinted with permission. This article originally appeared in the June 2014 issue of Business Credit, a publication of the National Association of Credit Management. The article also appeared in the August 2014 edition of The Contractor’s Compass and has been revised for publication in the September 2015 edition of The Contractor’s Compass.

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ASA and ASA of Texas File Brief in Major Insurance Coverage Court Case

by The American Subcontractors Association ASA, ASA of Texas, and other key construction industry organizations, on July 31 filed an amici curiae brief in another major construction insurance coverage case that has percolated through the court system.

The case involves the incorporation of a defective product into a refinery, but has widespread implications for contractors and subcontractors as to coverage for defective construction and installation of particular parts, products, and equipment into construction projects.

ASA, ASA of Texas, the Associated General Contractors of America, Texas Building Branch–AGC, and ABC of Texas filed the brief in support of appellant U.S. Metals, Inc., in U.S. Metals, Inc. v. Liberty Mutual Group, 2014 WL 465892 (5th Cir. September 19, 2014). “Whether AGC, TBB–AGC, ABC of Texas and ASA members

can depend on their commercial general liability insurance policies for coverage for the many risks they face is a matter of continuing and urgent interest to them,” Patrick J. Wielinski and René R. Pinson of Cokinos, Bosien & Young, Irving, Texas, wrote in the brief.

In the underlying case, U.S. Metals, the insured, contracted to manufacture and supply 350 weld neck flanges for installation in Exxon refineries. U.S. Metals, in turn, subcontracted the manufacture of the flanges to Maass. The flanges were installed and welded in place by a separate contractor to Exxon. One flange leaked during pressure testing and Exxon contended that all of them were improperly manufactured and removed and replaced them all. Exxon sought damages from U.S. Metals for the costs associated

with investigating the flange defect, requiring replacement flanges, removing and replacing the defective flanges, and the loss of use of its refineries, as well as incidental and consequential damages for a total of $20 million. U.S. Metals eventually settled with Exxon for $6.3 million, and sought coverage from Liberty Mutual under its CGL policy. Liberty Mutual denied coverage based on the Your Product Exclusion, as well as the Impaired Property Exclusion. The case was removed to the U.S. District Court for the Southern District of Texas, and the district court granted summary judgment in favor of Liberty Mutual.

On appeal, the Fifth Circuit Court of Appeals, applying Texas law, certified several questions to the Texas Supreme Court as to the applicability of the Impaired Property Exclusion,

even though certification was apparently not sought by either party: 1. In the “your product” and “impaired property” exclusions, are the terms “physical injury” and/ or “replacement” ambiguous?

2. If yes as to either, are the aforementioned interpretations offered by the insured reasonable and thus, must be applied pursuant to Texas law?

3. If the above question 1 is answered in the negative as to “physical injury,” does “physical injury” occur to the third party’s product that is irreversibly attached to the insured’s product at the moment of incorporation of the insured’s defective product or does “physical injury” only occur to the third party’s product when there is an alteration in the color, shape, or appearance of the third party’s product due to the insured’s defective product that is irreversibly attached?

4. If the above question 1 is answered in the negative as to “replacement,” does “replacement” of the insured’s defective product

irreversibly attached to a third party’s product include the removal or destruction of the third party’s product?

In the brief, the amici curiae urged the court to answer “yes” to the first certified question, and in response to the second question adopted the arguments made by U.S. Metals that the ambiguity as to these policy terms must be resolved in favor of U.S. Metals. Regarding the third certified question, the amici curiae responded: “Regardless of the resolution of Certified Question No. 2, amici curiae urge the Court to determine that physical injury can take place at the time of incorporation of the insured’s defective product or work into other property in that there is an alteration in the color, shape or appearance of the other property due to the irreversible attachment to, or incorporation of the insured’s product or work into it. The other property into which the defective product or work is incorporated is also physically injured when the defective work or product is repaired, removed or replaced and in the process the

other work is damaged.” Finally, they responded that the court should answer “no” to the fourth certified question, based on the plain language of the policy.

“The proposition that an insurer should not be obligated to pay claims that are outside the coverage of the policy it issued is not astounding,” the amici curiae wrote. “However, there is a tendency on the part of some insurers to deny claims that are more than arguably within the coverage of the policy. This is particularly true as to claims under commercial general liability (“CGL”) policies involving alleged defective products supplied by insured manufacturers and alleged defective workmanship performed by insured contractors. Despite the efforts of insureds to control the quality of their products or work, defects may occur, and insureds purchase CGL insurance policies to cover unintended property damage arising out of those circumstances.”

ASA’s Subcontractors Legal Defense Fund financed the brief. Contributions may be made to the SLDF via the ASA Web site.

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The laws regulating subcontractor mechanic’s lien and payment bond claims, however, are complicated and frequently change. Uncertainty about claims and notice requirements can be perilous for subcontractors. Learn how lien and bond claims offer lawful protection to subcontractors on private, state and local projects, and how ASA’s Lien & Bond Claims in the 50 States manual can help you understand these valuable rights with the FASA video-on-demand, “Liens and Bonds: Keeping Up with the Changes to Protect Your Rights to Collect Your Money” (Item #8063), presented by Eric Travers, Esq., Kegler, Brown, Hill & Ritter, Columbus, Ohio. $65 Members; $95 Nonmembers

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Feature Making the Most of a Formal Internship Program in the Construction Industry

by Stacey Ehring Formal internship programs can have powerful benefits both for construction contracting firms and participating high school or college students. On the one hand, students gain practical construction experience to supplement their education. This work experience allows them to expand their knowledge of the construction industry through hands-on project involvement. On the other hand, contractors can tap into a source of cheap labor to address pressing business needs including research and technology upgrades.

Today’s generation of interns is made up of digital natives who are eager to provide fresh, new ideas on how to solve tech-driven issues.

Plan to Succeed Strategic planning is a fundamental first step in setting up an internship program. This process should start with a meeting of company leaders to identify areas in the organization that need improvement. What weaknesses, opportunities and threats are currently facing the company? Are there areas that could benefit from additional research? Is it time to test new processes or procedures? Could the company benefit from hands-on use of a new software system or media marketing product?

Research projects, in particular, can have great win-win potential because they help the student learn and produce tangible findings that benefit the company.

Finding the Right Fit What knowledge, skills and abilities are needed in prospective interns?

First and foremost, intern candidates must be highly motivated and open to learning about new topics. When it comes to technology-related projects, since interns grew up in a digital world,

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the expectation should be that they will be able to move around in tech programs quickly.

Second, interns must be team players with a positive attitude. Day-to-day, they need to demonstrate dedication to the project or projects they will be working on for the company. Since they will be meeting and getting to know different people within the company, they need a sociable personality. In addition, interns should demonstrate how they live up to your company values, mission and vision. Finally, they should also have instinctively good ethics.

Finding Prospective Interns: A Relationship Business Construction contractors tend to find the best interns when they partner with a local school system or college and build relationships with high school teachers, guidance counselors and college instructors. Once they know what your firm is looking for, educators will refer you to the top students.

Your firm’s point person for intern recruitment needs to be prepared to volunteer his or her time to come in to speak to classes about what he or she does for a living. Although the contracting industry is dealing with a skilled labor gap, in large part because fewer high schools have curricula focused on the skilled trades, with some well-targeted outreach your company can become a “pied piper” for students who are interested in exploring career opportunities in the construction field.

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Keeping Interns Busy and Productive From the first day on the job, an intern needs to find specific projects and responsibilities assigned to him or her. Daily activities should be structured to enable the intern to experience construction processes and management methods first hand.

The key is for supervisors and project staff to structure interns’ work efforts to help them learn about construction management methods while the student contributes directly to the completion of a quality project.

Make sure the intern is involved in every step of your business process: business development, estimating, designing and planning, purchasing, prefabrication and field construction.

Have a weekly rotation between departments, with specific weekly tasks determined by the department supervisor. The weekly rotation can be tied to a specific theme, such as a technology issue or business process.

For example, your construction interns may focus on “lean” construction — finding better and more efficient ways to do things in the field.

Win-Win Potential By investigating and learning about specific business processes or issues, high school or college students have opportunities to become skilled on those processes and make recommendations that can change the course of a contracting business. For the organization at large, internships provide established employees with mentoring opportunities and help them develop useful teaching skills.

In addition, internship programs are a positive force for employee recognition and morale building.

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ANATOMY OF A WIN-WIN INTERNSHIP PROGRAM

by Stacey Ehring Internships should be a key investment for any construction contracting firm that is looking to improve. While students seek construction companies that will provide them with some experience and an opportunity to gain some valuable skills needed to pursue a professional career, they also have the opportunity to build valuable connections with industry leaders.

This relationship is never onesided. Companies who have vibrant internship programs also reap rewards. They are provided access to short-term talent with specific knowledge and skills that can help with a particular project or need.

Technology, education and trends are constantly changing and interns can provide new ideas and fresh insight based on their area of study or different perspective. It’s a great way for the construction industry, which is often left out of the spotlight to other career paths, to connect with schools and develop a business-school partnership and also increase the visibility of your company on campus.

Employees gain personal satisfaction in helping interns grow and can add “mentorship experience” to their skill set and resume.

Here are some examples of how the employee-intern partnership works at Shapiro & Duncan, Inc., a mechanical contracting company: Job Shadowing — Job shadowing is just one of many ways contractors can keep internships attractive, unique and rewarding for interns and employees. At Shapiro & Duncan, we assign an intern to a particular employee so that the intern can explore opportunities in the construction field such as learning what a day, week or month in the life of an HVAC technical is like. We allow

the intern to spend the allotted time with the employee learning, recording and reporting on the experience. To complete the experience and provide added value, our interns report on their findings to the company’s leadership team, as well as to the rest of the company. The latter gives other employees a more exclusive look into how a particular department or craftsman operates. While every intern may not have video editing skills, they can report their findings through PowerPoint, Prezi or whatever presentation medium they are most comfortable with. Showing initiative to learn a new presentation program is highly encouraged.

Intern Rotation — At Shapiro & Duncan, we have found that establishing a scheduled intern rotation between various departments of an organization or between various roles within a single department allows the intern to experience the different dynamics between departments as well as those between the field and office.

This provides the intern with a “big picture” experience which allows them a greater vision in choosing a career path. At the same time, the company as a whole benefits because the positive intern impact is spread across all departments.

Assign a Research Project — In addition to an intern’s regular daily tasks, at Shapiro & Duncan we also assign a major project such as identifying and reporting all possible safety concerns on a particular site. Another example would be to have them learn about a particular process such as supply chain management and report on their findings and recommendations for improvement.

Evaluation and Rewards At Shapiro & Duncan, we clearly establish the expectation from Day 1 that the intern will present, at the end of the semester (our internships coincide with the student’s academic calendar), a detailed report or presentation that captures their research. Company staff is invited to attend this presentation and are encouraged to ask questions and provide feedback to the intern.

Our intern reward system starts with the fact that they are paid an hourly wage that is better than the average retail job. We believe in paying interns because, in our experience, paid interns work harder and take the job more seriously.

Another reward for interns at Shapiro & Duncan is that we include them in networking events that give them opportunities to connect with people in our industry. In addition, every intern who successful completes his or her program is the subject of an article in the staff newsletter.

Potentially, the most significant reward we offer interns is the opportunity to leverage their internship into permanent, full-time employment with the company.

Several of our former interns have gone on to become long-term employees. A couple of them, in fact, have been with the company for seven to 10 years.

Stacey Ehring is a business development specialist at Shapiro and Duncan, Inc., a third generation, family-owned mechanical contracting business serving customers in the Washington, D.C., area since 1976.

background image: Drawing by Leonardo da Vinci for a glider with bat’s wings.

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Feature Strippers, Contractors and Employee Misclassification

by Michael W. Thal

In dodging federal labor laws, gentlemen’s clubs are just now learning lessons that too many contractors have ignored for years.

In July 2015, about 120 exotic dancers filed a lawsuit against Christie’s Cabaret, a Phoenix, Ariz., gentlemen’s club, alleging a variety of unfair labor practices. The suit came on the heels of a $6 million settlement achieved by 4,000 dancers in a similar lawsuit filed in Florida.

At the root of both suits — and other lawsuits filed in several states around the country — is the allegation that clubs illegally classified the dancers as independent contractors, rather than employees, in order to avoid expenses associated with overtime, minimum wage, FICA, unemployment compensation, health insurance, workers’ compensation, sick time, vacation time and other costs and benefits required under the Fair Labor Standards Act and other federal and state laws.

That may sound all too familiar to contractors. Since the FLSA’s passage before World War II, the construction industry — far more than the strip club industry — has consistently attracted U.S. Department of Labor scrutiny for dubious employment practices that include employee misclassification (i.e., treating as an independent contractor a worker who should be treated and paid as an employee), abuses of piece work payment, and other violations.

The Significance of Classification If a business classifies a worker as an employee, it must pay taxes for Social Security, Medicare, unemployment and payroll. The business must also comply with a whole slew of federal, state and local rules and regulations. And with every additional employee, the business increases its headcount for purposes of complying with the ACA, known

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as “Obamacare,” thereby potentially increasing health insurance costs and reporting requirements. The impact of all this is that each employee can cost a business a substantial amount of time and money every year.

However, if a worker is classified as an independent contractor, the business does not have to worry about complying with these burdensome and expensive rules and regulations.

Moreover, businesses do not have to provide independent contractors with health insurance, retirement plans, paid vacation and other costly fringe benefits. Thus, there is great incentive to classify workers as independent contractors. The biggest downside is that employers have less control over their day-to-day activities.

Employee v. Independent Contractor — Basic Distinctions To determine whether a worker is an employee or an independent contractor, over the years the DOL and Internal Revenue Service have generally relied on three categories of “control and independence” rules: • Behavioral—Does the company control or have the right to control what the worker does and how the worker does his or her job?

• Financial—Are the business aspects of the worker’s job controlled by the payer? How is the worker paid? Are expenses reimbursed? Who provides tools, supplies, vehicles, etc.?

• Type of Relationship—Are there written contracts or employee type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue? Is the work performed a key aspect of the business?

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However, as FLSA violations continued to mount, and employers became more creative in dodging the classification rules, the factors described above have proven to be inadequate in ensuring proper classification and payment of employees.

At the very least, an independent contractor relationship is substantiated by an independent contractor agreement between the contractor and the company using his or her services, along with the issuance of a W-9 form by the contractor to the company. However, as strip club operators are learning, the existence of an independent contractor agreement is not a cure-all.

The fact that the worker has signed an agreement stating that he or she is an independent contractor is not the final say, because the reality of the working relationship is far more important than the label given to the relationship in an agreement. In addition, the fact that the worker has incorporated a business or is licensed by a government agency has little bearing on determining the existence of an employment relationship.

If you enter into an independent contractor agreement, include terminology and provisions that affirm the independence of the worker. For example, refer to the worker as a “contractor;” acknowledge that the contractor is free to perform services for other companies; avoid requiring full-time hours or daily presence at the company or job site; make payments due when a project (or a phase of the project) is completed; include a contract expiration date and renewal/extension provision; specify what expenses will be reimbursed and the terms of reimbursement.

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Economic Realities Test Even if you use an independent contractor agreement, the DOL Wage and Hour Division’s new guidance, in connection with an “economic realities test,” could have a big impact on differentiating between employees and independent contractors.

According to the DOL, “the goal of the economic realities test is to determine whether a worker is economically dependent on the employer (and is therefore an employee) or is really in business for him or herself (and is therefore an independent contractor).”

[Emphasis added.]

According to the DOL, the following factors are generally considered when determining whether, under the FLSA, a worker is an employee as opposed to an independent contractor: • Whether the work is an integral part of the employer’s business. If a worker’s work is integral to the employer’s business, he or she is more likely to be economically dependent on the employer and less likely to be in business for himself or herself. Work is probably integral to the employer’s business if it is a part of its production process or is a service that the employer is in business to provide.

• Whether the worker has a managerial role. This factor focuses on whether the worker has a managerial role, for example, of hiring and supervision of workers, whether the workers managerial skill affects his or her opportunity to advance in the company.

• The relative investments in facilities and equipment by the worker and the employer. To be classified as an independent contractor, the worker must make some investment compared to the employer’s investment (and bear some risk for a loss). That may include investment in tools and equipment, so long as a worker’s investment compares favorably enough to the employer’s that they appear to be sharing risk of loss.

• The worker’s independence and initiative. Both employees and independent contractors may be skilled workers. The DOL focuses

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on whether the worker’s skills demonstrate that he or she exercises independent business judgment, and whether he or she has personally invested in training, education or development of skills. The fact that a worker is in open market competition with others would also suggest independent contractor status.

• Whether the employer/worker relationship is permanent. A permanent relationship with the employer suggests that the worker is an employee. However, the lack of permanence does not necessarily mean independent contractor status, because the impermanent relationship may be due to industryspecific factors, or the fact that an employer uses staffing agencies.

• The employer’s level of control over the worker. This factor focuses on who sets compensation and hours, who determines how the work is performed, and whether the worker is free to work for others and hire helpers. This is a complex analysis that requires careful review, because the employer may have little control in certain situations involving both employees and independent contractors. In those instances, the DOL will look to who has meaningful, substantial control over various aspects of the working relationship. Thus, a worker can be found to be an employee even if the employer exercises less day-to-day control over the worker. Note that this factor does not hold any greater weight than the other factors.

The directive has not yet taken effect but would be implemented with the updated FLSA, announced by President Obama in early July, which would increase the number of white-collar workers eligible for overtime pay.

Beware Form SS-8 and the Disgruntled Former Worker The IRS allows both businesses and workers to file a Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” The filing of an SS-8 will trigger the IRS to issue

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its opinion on whether the worker is an employee or an independent contractor — and can alert the IRS to any classification problems your business may have. Not surprisingly, disgruntled former workers often file the form in conjunction with a claim that their employer improperly classified him or her as an independent contractor to avoid paying benefits and taxes.

If the IRS believes that your business has classification issues, it may initiate an official audit. Thus, if a former worker files a Form SS-8, it is best for businesses to contact their tax and legal advisors before responding to the IRS.

Conclusion According to the DOL, its Wage and Hour Division “continues to receive numerous complaints from workers alleging misclassification, and the Department continues to bring successful enforcement actions against employers who misclassify workers.”

Consequently, the DOL is cracking down on improper classification, especially as it tries to stamp out attempts to dodge insurance obligations under the ACA. If caught misclassifying employees, your company could wind up owing unpaid taxes and employee benefits and be assessed significant penalties.

Thus, it is best to keep in mind the DOL’s own economic realities test when deciding whether your workers are employees or independent contractors.

Doing so will go a long way to ensure that your company stays out of the DOL’s crosshairs.

Michael W. Thal is an attorney with Lang & Klain, P.C., Scottsdale, Ariz., where he represents Arizona owners, contractors, subcontractors, and construction suppliers in contract and other disputes. He is also a skilled and experienced advocate for contractors in Arizona Registrar of Contractors licensing and disciplinary matters.

He has represented more than 80 licensed contractors in ROC issues and has successfully handled dozens of hearings. Thal can be reached at (480) 947-1911 or mthal@lang-klain.com.

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Feature The Ten Commandments of Mediation

by Donald Gregory, Esq. “Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often the real loser — in fees, expenses, and waste of time.” —Abraham Lincoln As more lawyers and clients are dealing with mediation on a regular basis, these “Ten Commandments” might come in handy when dealing with a problem of biblical proportions:

4. Thou shall keep an open mind.

You need to listen to the other side’s concerns, and the mediator’s assessment, and leave preconceived notions behind.

1. Thou shall not wait too long to mediate. Many of the advantages of a negotiated resolution dissipate with the passage of time. The sooner you resolve, the sooner the parties can get back to their core business.

5. Thou shall not negotiate with the mediator. If you are not “shooting straight” with the mediator, you are only hurting the mediator’s chances of securing a resolution — which is why you are there.

2. Thou shall expect to avoid legal fees and uncertainty if a settlement is reached.

All serious disputes involve a lot of legal fees, time, and worry, all of which can be terminated when the dispute is resolved.

6. Thou shall be a problem solver.

Anyone can take a position and argue why it is right. Real value is provided when one brings experience and judgment together to solve a problem.

3. Thou shall not forget your people skills.

A mediation is no time for “table pounding” and offending the other side.

You need their respect, and likeability never hurts.

7. Thou shall not expect to win.

If either — or both sides — expect to win though capitulation of the other side, there will be no reason to settle.

8. Thou shall strive to be creative.

Some of the best settlements involve some creativity. Thinking about what the

other side needs that is not too tough for your side to swallow is a good place to start.

9. Thou shall not bring a firm bottom line to the mediation. You need to have flexibility and reflect the dynamics that occur in the mediation. Having the real decision-makers present throughout is the only way to go.

10. Thou shall expect a fair settlement “when both sides are equally displeased.”A settlement of a tough case typically only occurs when all involved have stretched their comfort zone as far as they can stand.

Donald Gregory, Esq., is a director and chair of the construction practice area for Kegler, Brown, Hill & Ritter, Columbus, Ohio, ASA’s legal counsel. Gregory can be reached at (614) 462-5400 or dgregory@keglerbrown.com.

ASA NATIONAL CONSTRUCTION BEST PRACTICES AWARDS 2015 ASA offers national recognition to prime contractors that are committed to superior business practices like prompt payment. ASA’s annual National Construction Best Practices Awards, developed by the Task Force on Ethics in the Construction Industry, recognize elite prime contractors that uphold best practices and refuse to do business according to the “lowest common denominator.”

The deadline for prime contractors to submit applications is Nov. 13, 2015. The application fee is $495. Each prime-contractor applicant must supply three sealed business-practices recommendations from specialty trade contractors that have worked for it in the past year, along with a copy of its standard subcontract, with its application.

ASA will honor recipients during an awards ceremony at the ASA annual convention, SUBExcel 2016, March 3-5, 2016, in Miami, Florida.

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HELPFUL LINKS Watch the National Construction Best Practices Award Video Prime contractors: Download the 2015 National Construction Best Practices Award Application Form Specialty trade contractors: Download the 2015 National Construction Best Practices Award Form for Evaluating the Applicant’s Business Practices ASA Chapters: Download the ASA Chapter Guideline for Processing the 2015 National Construction Best Practices Award and other materials under “Industry Relations” in the ASA Chapter Toolbox.

APPLICATION DEADLINE:

NOVEMBER 13, 2015

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Legally Speaking

Case Study on P3s — Denver’s Fast Tracks Eagle P3 Partnership

by Mark D. Gruskin and Charles Fuller Although there is no strict definition of a public-private partnership, it is a method of project delivery for construction projects, mainly infrastructure, that is based on a contractual agreement between a public entity and a private partner in which the private partner invests its own assets and delivers public services or facilities in exchange for compensation from the public entity.

Depending on the scope of a project, the private partner may be responsible for the design, building, financing, operations, and maintenance of the project, or any one or more such discrete tasks. Such partnerships were first utilized, with some success, in the United Kingdom and are now becoming more common in other common law countries such as Canada, Australia, and the United States, and also in some civil law countries. Although the results have been mixed, the use of P3s as a model for financing and developing public infrastructure will likely only increase in the future.

Part of the reason is the urgent need for infrastructure repairs and improvements. According to the World Economic Forum’s Global Competitiveness Report for 201213, U.S. infrastructure — quality and availability of roads, railroads, ports, air transport, electricity, and telephones — is lacking compared with most advanced countries and even some developing ones. The United States ranks 25th, behind

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nations such as Bahrain, Oman, and Barbados.

The unfortunate reality is that state and municipal governments have been, and will continue to be, strapped for cash, and the federal government seems politically unwilling or unable to pass legislation to fund and manage much of the needed infrastructure repairs and development. Federal and state road transportation spending has relied on revenue from motor fuel taxes. Those taxes are no longer adequate given that Americans are consuming less fuel, and fuel tax rates have not increased in over two decades (as confirmed by New York Times columnist Thomas L. Friedman in an Aug. 5, 2015 column, “[t]he gasoline tax is currently 18.4 cents a gallon, and was last hiked by Bill Clinton in 1993 after a raise by George Bush in 1990.”).

According to a June 2014 report from the Congressional Office, “The federal government spends more than $50 billion per year on surface transportation programs … [but in] the past 10 years, outlays from the Highway Trust Fund have exceeded revenues by more than $52 billion, and outlays will exceed revenues by an estimated $167 billion over the 20152024 period.”

Such shortfalls and lack of funding help explain why governments are exploring and turning more frequently to P3s. At the federal level, the House Transportation Infrastructure Committee produced a report on Sept. 17, 2014, encouraging the use

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of P3s, particularly for high-cost, technically complex projects that otherwise might not be executed for lack of funding. Similarly, in July 2014 President Obama launched a “Build America Investment Initiative” to encourage broader public and private sector collaboration and expand opportunities for P3s.

There has also been considerable support for P3s at the state level. One P3 project that has been cited as a success is Fast Tracks Eagle P3 Project in Colorado. The Eagle P3 project is worth examining not simply because of its success, but because Colorado is a good example of a state that has made P3 projects a priority.

The Eagle P3 project includes the construction of three new commuter rail lines and a commuter rail maintenance facility and is scheduled to open in 2016. One of the commuter rail lines will connect Denver International Airport directly to Union Station, which is located in the heart of lower downtown Denver and is a major transportation hub for the Denver metropolitan area and includes mixed use retail and dining and a hotel site. The Eagle P3 project is essential not just to travelers seeking quick and inexpensive transportation to and from DIA, but to help ease the flow of people to and from Denver and surrounding areas to get to and from downtown more easily.

The basis of the Eagle P3 project is a concession agreement between RTD, a regional transportation district, and

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a “concessionaire” selected through a competitive proposal process. The “concessionaire” for the project is Denver Transit Partners, a special purpose company owned by Fluor Enterprises, Uberior Investments, and Laing Investments. A number of equity, construction, and other firms are involved as well. The Eagle P3 project is a $2.2 billion capital project composed of federal funds, RTD sales tax bonds, and private equity DTP. The Eagle P3 project concession agreement requires DTP to design, build, finance, operate, and maintain the East Rail Line, Gold Line, Northwest Electrified Segment (segment 1 of the Northwest Rail Line), and Commuter Rail Maintenance Facility project under a single contract.

The agreement provides that RTD will retain all assets while shifting much of the risk of designing and building the project to DTP. DTP has arranged for approximately $400 million of private financing for the project through the issuance of bonds.

Such arrangement has the benefit of allowing RTD to spread out large upfront costs over approximately 30 years. In return, RTD will make service payments to DTP based on its performance, operation, and maintenance of the project. DTP will provide and maintain the rail vehicles for the three commuter rail corridors, and it will also operate and maintain everything it designs and builds.

The Eagle P3 project also incorporates 17 Alternative Technical Concepts into the project’s scope that saved RTD an estimated $300 million and further reduced overall operations and maintenance expenses.

The Eagle P3 project concessionaire agreement also contains some, but not necessarily full and adequate, protections for subcontractors and materials suppliers. Although Colorado requires a performance and payment bonds for public works projects, there is no specific legislation requiring performance and payment bonds for P3 projects and there remains an open issue in Colorado as to whether a P3

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project is a “public works” project per applicable Colorado statute. However, RTD and DTP negotiated and agreed that DTP would post bonds, or a letter of credit or other surety, in a penal amount equal to not less than the greater of (a) 50 percent of the total Earned Value of the Work Scheduled … to be performed under the design/ build contract and any other contracts entered into by [DTP] for construction, erection, repair, maintenance or improvement of any building, road, viaduct, tunnel, excavation or other public works in any calendar year in which such contract is performed and (b) 5 percent of the total Earned Value for all Work not yet performed under the design/build contract an any other contracts entered into by [DTP] for construction, erection repair, maintenance or improvement of any building, road, viaduct, tunnel, excavation or other public works in any calendar year … in compliance with [Colorado’s Little Miller Act].

The Eagle P3 project, which was commenced in 2010, came on the heels of the Colorado General Assembly’s creation of the High Performance Transportation Enterprise in the Funding Advancement for Surface Transportation and Economic Recover or “FASTER” Act in 2009.

The General Assembly found and declared that the relative decline of state and federal motor vehicle taxes, coupled with the effects of the economic recession and attendant rise in unemployment, and the urgent need for infrastructure improvements, supported the creation of HPTE and its charge to seek out opportunities for public partnerships and other innovative and efficient means of completing surface transportation infrastructure projects.

In addition to the Eagle P3 project, there are a number of other such P3 projects in Colorado that are set for completion in the near term or are in the design-build stages, including the expansion of US Highway 36 (known as the Boulder Turnpike).

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The Eagle P3 project provides a unique lens through which to view P3 projects as they become more common methods of funding and carrying out long-term infrastructure and capital improvements in times of budget deficits and political gridlock.

The Eagle P3 project also helps show, through a real world example, that P3s can effectively increase the funding available for public projects, allow for faster completion at lower cost and maximize the unique expertise of the private concessionaire — justifications frequently cited in support of P3s. The open issue for the Colorado legislature is to enact legislation for surety bond requirements that treats the P3 project delivery approach in like manner to a “public works” project. Most of all, Coloradans and the traveling public await the opportunity to have modern commuter rail service between DIA and downtown Denver.

Mark Gruskin is a shareholder and director of the Denver, Colo., law firm of Senn Visciano Canges P.C. His practice primarily focuses on construction law, alternative dispute resolution, and litigation (commercial and real estate). He is counsel for many construction industry clients, including owners (both public and private), developers, contractors, construction managers, specialty trade contractors, subcontractors, and suppliers. He has served as the chapter attorney for ASA of Colorado since 1991 and assisted in passing legislation of interest to the construction community, including drafting key portions of the Colorado statute limiting risk transfer/ indemnification in construction contracts. He is a frequent author and lecturer on construction law, mechanic’s liens, and other related topics. Charles Fuller is an associate attorney at Senn Visciano Canges P.C. and focuses his practice on litigation, including construction-related matters.

Messrs. Gruskin and Fuller can be reached at (303) 298-1122 or www.sennlaw.com.

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ASA/FASA Calendar September

February 2016

15 – Webinar: The Subcontractor’s Guide to a Fair Lien Waiver Process

9 – Webinar: Negotiating Retainage

17-19 – ASA Executive Committee and Board of Directors Meetings, Oklahoma City, Okla.

March 2016

October

April 2016

13 – Webinar: Cash Management for Subcontractors

12 – Webinar: The Payment Dance in the Construction Industry

16-18 – 2015 ASA Legal & Advocacy Meetings Austin, Texas

May 2016

November 10 – Webinar: Implementing Technology for the Jobsite: Turning Refusers into Adopters December

in the October 2015 Issue of ASA’s

10 – Webinar: Websites, Email, Social Media and Your Domain Name June 2016

12 – Webinar: The War for Talent Drives Construction Pay Higher: Pay Trends in the Construction Industry

THE

3-5 – SUBExcel 2016 Miami, Fla.

THEME: Ethics • Corporate Ethics • Warning: Why You Can’t

14 – Webinar: Damages For Lost Labor Productivity

Trust Your Bookkeeper

• Mr. Ethics’ Most Common

Subcontractor Questions

8 – Webinar: Employment Law Changes and How They Affect Screening and Hiring Practices January 2016

Coming Up

• Out of Sight …

Contact information for all ASA and FASA events/programs: www.asaonline.com education@asa-hq.com

Win. Win.

Out of Mind?

• The Moral Obligation • Legally Speaking—

The Why, When, and How: Preserving Construction Documents and Other Evidence

THE

Look for your issue in October.

Sell your products and services.

Advertising reaches industry leaders and decision-makers who spend $11+ billion annually on products and services.

PAST ISSUES: Access online at www.contractors knowledgedepot.com

Support ASA.

Advertising supports ASA, the industry voice of trade contractors.

That’s a win-win situation.

To advertise in The Contractor’s Compass, contact Tony Kozak at (716) 844-8174 or advertising@asa-hq.com

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JUNE 5TH , 11:0 8 A .M .

A STAGGERING STATISTIC INSPIRES A LIFE-SAVING RULE IN AN INS TANT,

C A LV IN B ERGER SAW THE VA LU E O F IN - C A B B EH AV I O R TR A ININ G FRO M CN A

When a recent safety webinar revealed that 280,000 drivers are involved in serious accidents every year, Calvin Berger of Calberg Contracting took CNA’s recommendation to heart, and posted placards restricting cell phone use in each of his company’s vehicles. Now Calberg Contracting is filing fewer claims, and Calvin’s enjoying a handsome bonus for worker safety and performance.

When you’re looking for risk control programs that keep workers dialed in to relevant industry trends … ® we can show you more.

To learn more about CNA’s coverages and programs for building contractors, contact your independent agent or visit www.cna.com/construction.

The examples provided in this material are for illustrative purposes only and any similarity to actual individuals, entities or places is coincidental. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation.

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