Construction industry association groups applaud the June 11, 2020 U.S. Court of Appeals for the District of Columbia’s decision, which denied the AFL-CIO’s (American Federation of Labor and Congress of Industrial Organizations) emergency petition for a writ of mandamus against OSHA (Occupational Safety and Health Administration).1 In what some may call a surprising turn of events, the construction industry is celebrating deference to OSHA. The administrative petition, filed on May 18, 2020 by the AFL-CIO, together with 23 national unions, was intended to compel OSHA to issue an emergency temporary standard (“ETS”) to protect U.S. workers against COVID-19. OSHA is authorized to issue an ETS upon its determination that an ETS is “necessary” because “employees are exposed to grave danger” in the workplace. 29 U.S.C. §655(c); see In re AFL-CIO, USCA Case #20-1158, (D.C. Cir. 2020). The court stated that OSHA is owed “considerable deference,” especially in these unprecedented times, and found that it acted reasonably when it determined not to issue an ETS at this time. In re AFL-CIO, USCA Case #20-1158, (D.C. Cir. 2020). Construction industry association groups, such as the Associated Builders and Contractors and National Association of Home Builders, are happy with the decision because they considered an ETS to be an inappropriate measure in such turbulent times. Following the decision, OSHA will continue to develop guidance documents. Not only does this approach allow the agency to swiftly adapt to new COVID-19 information released by other government officials and scientists, it also allows OSHA to continue to rely on the Centers for Disease Control and Prevention. The problem with this approach, as alleged by AFL-CIO, is that these guidance documents are not mandatory. As follows, AFL-CIO and its supporters are disappointed with the decision, claiming that OSHA’s guidelines are too flexible in that they do not pose a threat of OSHA action for an employer’s noncompliance. Given that OSHA in-person checks of construction sites have fallen to about 16% of pre-COVID-19 inspection levels, the concern may not be unfounded.2 Construction workers, perhaps to a layperson’s surprise, were among the most universally essential workers during the pandemic. This fact can be concerning since, as mentioned by Gaetano Piccirilli and Patrick McKnight in an earlier Dispute Resolver blogpost, construction workers had one of the highest mortality rates during the 1918 Flu pandemic. The combination of higher risk and less frequent OSHA visits may be a reason complaints have increased nearly tenfold.3 In fact, the AFL-CIO’s petition set forth that thousands of workers have been infected on the job. Nonetheless, construction sites are certainly not going unwatched. Instead, the decrease of OSHA visits is most likely replaced with an increase of state and local inspections. States like Massachusetts, for example, have implemented their own Mandatory Workplace Safety Standards and sector-specific workplace protocols, including Safety Standards for Construction. And although nobody knows exactly how to proceed during COVID-19, after the U.S. Court of Appeal’s decision, at least some construction industry groups are comfortable leaving it up to the “experts.” Learn more about the scope of OSHA, the extent it preempts (and does not preempt) state and local government action, and what state and local governments are doing to ensure the safety of workers within their jurisdictions at an upcoming ABA webinar on June 29 at 1 pm ET. More details here: https://www.americanbar.org/events-cle/mtg/web/401521567/.
1 Court Rejects Bid for OSHA COVID-19 Emergency Standard, CONSTRUCTION DIVE (June 12, 2020).↩ 2 OSHA Construction Safety Inspections Plunge 84% in Pandemic, BLOOMBERG LAW (May 14, 2020).↩ 3 Id.↩
A Michigan federal court partially granted Consumers Energy Company’s (“CEC”) motion to dismiss P.A.L. Environmental Safety Corporation’s (“PAL”) complaint alleging numerous causes of action in connection with its suit against CEC and contractor North American Dismantling Corporation (“NADC”) for outstanding payment stemming from asbestos abatement work at a CEC-owned power plant in Essexville, Michigan (the “Power Plant”).
According to the decision, CEC, as owner, and NADC, as prime contractor, entered into a written contract whereby NADC agreed to abate, dismantle, and demolish the Power Plant. In turn, NADC subcontracted with PAL to perform abatement of all asbestos containing material at the Power Plant. While the subcontract price was $7,996,331, PAL alleged entitlement to an adjusted price of $23,841,833 in unpaid labor and materials for its asbestos abatement work. Specifically, PAL alleges that it performed additional work not accounted for in the subcontract including fly ash and coal dust removal, refractory brick abatement, and extra asbestos removal.
While PAL’s complaint included numerous counts against Defendants NADC, CEC, and labor and material payment bond surety North American Specialty Insurance Company (“NASIC”), the opinion is most notable for its treatment of CEC’s motion to dismiss several counts against it including: (i) quasi-contractual claims; (ii) a third-party breach of contract claim; and (iii) a negligent misrepresentation claim.
Unjust Enrichment & Promissory Estoppel
CEC’s Fed. R. Civ. P. 12(b)(6) motion argued that PAL’s quasi-contractual claims for both unjust enrichment and promissory estoppel were barred by the presence of a written contract as “[t]here cannot be an express and implied contract covering the same subject matter at the same time.” Campbell v. City of Troy, 42 Mich. App. 534, 537 (Mich. Ct. App. 1972). PAL countered that in order for an express contract to bar equitable claims, it cannot just cover the same subject matter, but must also be “between the same parties.” Morris Pumps v. Centerline Piping, Inc., 273 Mich. App. 187, 194-95 (Mich. Ct. App. 2006).
The Court reasoned that although two express contracts existed with respect to demolition of the Power Plant, there was no contractual privity between CEC and PAL. Accordingly, the Court declined to dismiss the unjust enrichment and promissory estoppel claims because PAL had no express contract with CEC and no other avenue to recover from CEC outside of equitable remedies.
Third-Party Breach of Contract
PAL also alleged that as a third-party beneficiary of the contract between owner CEC and prime contractor NADC it was entitled to bring a breach of contract claim against CEC despite a lack of privity. The Court first analyzed the contract to determine if a third-party beneficiary was intended, noting that “[a] third person cannot maintain an action on a simple contract merely because he or she would receive a benefit from its performance . . . ‘[t]hird party beneficiary status requires an express promise to act to the benefit of the third party; where no such promise exists, that third party cannot maintain an action for breach of the contract.’” Kisiel v. Holz, 272 Mich. App. 168 , 171-72 (Mich. Ct. App. 2006) (quoting Dynamic Constr. Co. v. Barton Malow Co., 214 Mich. App. 425 , 543 (Mich. Ct. App. 1995)).
The Court concluded that not only did the contract not include a direct promise to PAL, it explicitly stated that the contract did not create any third-party beneficiaries:
2.8 Third Party Beneficiaries. Unless and except as may be specifically stated herein, nothing contained in this Contract shall create any contractual relationship, including but not limited to any third party beneficiary status, between or establish any rights or benefits in favor of, anyone other than the Owner and the Contractor.
Accordingly, the Court dismissed PAL’s claim concluding that any benefit PAL received from the contract between the owner and prime contractor was incidental, leaving it with no third-party rights to enforce.
PAL’s final claim against CEC alleged negligent misrepresentation with respect to two key pieces of information surrounding its scope of work: (i) the amount of asbestos containing material PAL would be required to remove and (ii) fly ash/coal dust removal prior to PAL commencing work.
CEC moved to dismiss the claim as conclusory and barred by the parol evidence rule. While the Court quickly concluded that PAL’s allegations of oral misrepresentation met the pleading threshold under Twombly and Iqbal, it engaged in a more protracted analysis of CEC’s argument that the claim was barred by the parol evidence rule and the integration clause in the contract between CEC and prime contractor NADC. PAL argued that since it was not a party to the contract, the integration clause and the parol evidence rule did not apply to it. The Court ultimately agreed, finding that an agreement between the parties is a necessary condition of the parol evidence rule. Watkins & Son Pet Supplies v. Iams Co., 254 F.3d 607 , 612 (6th Cir. 2001); 70 A.L.R. 752 (2011) (“[w]hether the parol evidence rule applies depends upon whether there was an integration or a complete expression of the agreement of the parties.”). Given that neither PAL nor CEC alleged the existence of an express contract between them, the Court found that the parol evidence rule did not bar CEC’s alleged misrepresentations to PAL.
Blockchain technology claimed to have the potential to disrupt many aspects of how companies do business. And like other emerging technologies, I have been exploring its uses, benefits and assessing its potential opportunities in the construction industry. If like me, you have been wondering what it is and if its applications are limited to financial services and cryptocurrencies; you will be pleasantly surprised to discover that it has a lot more applications with exciting opportunities for our sector too.
Blockchain could have a significant impact on our industry. In writing this article I have discovered that the Australian government is full steam ahead, that many organisations are currently building their own blockchain networks and that it is something that businesses right across the built environment should be preparing for now. But more on that soon, first we need to define what blockchain is.
Blockchain is a nascent technology that can simplify and secure transactions among parties. It is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, a car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a “block” with its most significant benefits removing the need for a middle-man to “secure” the transaction, hence promising to remove/or reduce the cost of brokers, bankers, lawyers, retailers significantly. This is because “the system” acts as security, as it is decentralised and not stored in any single location. Participants in the network called “miners” confirm the transactions, or “blocks.” So there is no need for a trusted third-party intermediary. Blockchain can thus have powerful applications in all those transactions where we currently need an intermediary, such as payments, supply chains, voting and much more.
“Blockchain is the first native digital medium for value, just as the internet was the first native digital medium for information.”
Harvard Business Review
Blockchain is built on four main concepts:
It is a distributed ledger, so every user of the network has simultaneous access to a view and verify the information stored.
Cryptographic functions ensure the integrity and security of the information.
Participants confirm changes directly with one another. This replaces the need for a third party to authorise transactions.
It can run additional business logic “known as smart contracts” that allows the agreement on and automatic enforcement of the expected behaviour of a transaction or asset embedded in the blockchain.
It all sounds exciting, and I am sure like me you are immediately grasping the potential of removing intermediary in the construction lifecycle aiming at simplifying the landscape as well as reducing costs, increase efficiency and reducing time to value. But how do we identify the need for one? How do we put this into practice? How can this new technology be of any use for the construction sector?
Late last year I attended MelBIM in Melbourne, and I had the pleasure to finally meet in person another digital construction trailblazer like me Belinda Hodkinson. Belinda did an excellent presentation on the uses of Blockchain technology in construction and the superb work Australia is doing in embracing the potential of this new technology. I had the pleasure of interview Belinda for this article “strickly following social distancing rules”.
Q.What is Australia doing in terms of blockchain?
Belinda: “It is an exciting time, the Minister for Industry, Science and Technology (Hon Karen Andrews) and the Minister for Trade, Tourism, and Investment (Hon. Simon Birmingham) have jointly announced the development of a National Blockchain Roadmap for Australia. This was announced in early February 2020, with the release of the National Blockchain Roadmap. The detail of the roadmap has 12 signposts to reach from 2020 – 2025 based on forming the National Blockchain Steering Committee through to enabling digital trade infrastructure. This does not come without challenges, though, as we have noticed with our COVID-19 restrictions, a lot of Australian Law is not written to support technological advancements. The exciting part is the government agencies that have been clarifying and, in some instances, changing to enable the use of blockchain or more specifically crypto-currencies and DLT (Distributed Ledger Technology) which is helping to allow the growth within the country.”
Q.What does this mean for the construction industry?
Belinda: “There are many areas that this technology can assist in our industry; the easiest way to categorise them is by the type of blockchain;
Public – Open network and anyone can download the protocol and read, write or participate.
Private – Managed by one entity this is an invitation-only network where participants require permission to read, write or audit the blockchain.
Consortium/Federated – Generally the same as a private blockchain except it is managed by several entities. The general relationship can be that some aspects of the chain (root hash) may be open to the public.
I expect private and the consortium type networks will be the first forms of blockchain for the construction industry as it will be a change management process. As the industry becomes confident, we will start to graduate into more public solutions.”
Q.I can certainly see the potential, but you lost me at the “root hash”. Can you give some real example of applications without going into the technical details?
Belinda: “An excellent example in the use of the private blockchain is when Walmart used IBM Hyperledger fabric to track food from the source. If we looked at this in our industry, the Environment Protection Agency could track items like soil contamination to reduce incidents where new allotments may unexpectedly use contaminated soil. Another example could be to track raw materials through the lifecycle to ensure the finished product has been produced to our Australian Standards and not compromised with lower-performing compounds. The list is astronomical and would add fantastic value to the integrity of our final products. Not to mention the safety it adds, being able to track back through the material used on projects. An excellent example of the consortium type of blockchain would be for large public construction projects. They have multiple departments involved, and if it is a Public-Private Partnership or Alliance contract, the number of entities will expand to private partners too. Speaking to members of a state treasury a few months ago, they said there are many material deliveries, trades etc. that still suffer not getting paid for their work quickly enough. Creating this type of blockchain has the potential to verify delivered or completed works by multiple sources and have payments issued in a shorter timescale. This could be activated through the use of a Smart Contract.”
Q. Can you explain what a smart contract is?
Belinda: “Sure. A smart contract has three elements;
It is an agreement between two parties,
It is when the transaction can be processed digitally over the blockchain, and
The transaction is only to occur when the conditions of the agreement are met.
In construction, an example could be the agreement between the construction joint venture (CJV) and the service provider such as a plasterer. The plasterer may require payment by CJV with work completed as for agreed milestone. In simple terms, the contract may say: When the plastering is completed to a level and digitally confirmed by both parties “the plasterer and CJV on the blockchain” payment to the plasterer can be release. Noting that digital confirmation on the blockchain could be as easy as an app on a tablet or smartphone.”
Q.Many thanks for your insights! A final comment, the potential for both small and large construction projects is enormous, so how do we get to there?
Belinda: “Good question! Smart contracts are currently not legally binding. They are machine-readable and need to be executed by a human to make legal. It sounds a little familiar, doesn’t it?, particularly with the recent laws changed for COVID-19, now allowing virtual meetings for local councils and state parliament politicians to work remotely. OK, so it is a little far from that, but hopefully, you can see the parallels to digital uses. The in-between method to a smart contract is what is called a Ricardian contract. Which is generally the same as a smart contract, but the arrangement is both machine and human-readable. It defeats the purpose a little, but it does allow for an intermediate solution until we are comfortable that the machine-readable and executed contract is doing as we expect and that a human is responsible for it. In terms of how it will change what we do now, I think primarily, the biggest change will be the technology helping to establish transparency on the execution of a large project. At the moment with Ricardian contracts, the machine version will be running in parallel with the human-readable version. The change is in the way the contract is worded, verified, and executed.
Like much many new emerging technology, the implementation of blockchain in the construction industry brings a lot of potential use cases, benefits but also challenges that need to be weighted with the overall short-term and long-term costs of its implementation.
As one of the largest in the world economy, construction plays an important economic role. As we have seen during the current pandemic, it also plays an essential societal role – receiving high praise from politicians and officials for its contribution to increasing the capacity of hospitals and by building required temporary facilities. In many countries, public construction has been one of the few activities that have been maintained, highlighting its essential service vital role to our modern society. But with profit margin being at its historical low, this pandemic put even more pressure in the sector which was already struggling. Now more than ever; it is necessary to bring innovation into the industry. This crisis has fast-tracked digital transformation in many areas, and I am confident we will see this trend finding its forceful way into our industry too. It is now imperative to leverage its benefits through the means we procure, deliver and maintain our built assets. The need for accurate and reliable ‘digital’ information that stakeholders can “trust” to make key, faster and better decisions throughout the construction lifecycle has never been so critical, and blockchain has undoubtedly the potential to bring those much-needed productivity improvements our construction sector is seeking to compete on a global scale.
As previously reported, SB 20-138, “Concerning Increased Consumer Protection for Homeowners Seeking Relief for Construction Defects,” would have extended the Colorado statute of repose applicable to construction defect claims. Senate Bill 20-138, if enacted, would have:
Extended Colorado’s statute of repose for construction defects from 6+2 years to 10+2 years;
Required tolling of the statute of repose until the claimant discovers not only the physical manifestation of a construction defect, but also its cause; and
Permitted statutory and equitable tolling of the statute of repose.
Now that the legislature is back in session, it will be a shortened session because of Covid-19 and, other than dealing with budget shortfalls, it seems like any bills that are not free, fast, and easy to pass will likely die in this year’s session. Perhaps in line with this thinking, Senator Robert Rodriguez, opted to kill Senate Bill 20-138. On second reading in the Senate on May 28th, the bill was laid over until December 31st, effectively killing the bill. While the battle may be over for this year, rest assured it will be back in the future as plaintiffs’ attorneys seek to attach recent construction defect reforms.
As many homeowners have decided to conduct overdue home improvement projects while they are spending more time at home, consumers need to be aware of Florida’s lien law. As a mandatory disclosure required in all contracts greater than $2,500 states:
ACCORDING TO FLORIDA’S CONSTRUCTION LIEN LAW (SECTIONS 713.001-713.37, FLORIDA STATUTES), THOSE WHO WORK ON YOUR PROPERTY OR PROVIDE MATERIALS AND SERVICES AND ARE NOT PAID IN FULL HAVE A RIGHT TO ENFORCE THEIR CLAIM FOR PAYMENT AGAINST YOUR PROPERTY. THIS CLAIM IS KNOWN AS A CONSTRUCTION LIEN. IF YOUR CONTRACTOR OR A SUBCONTRACTOR FAILS TO PAY SUBCONTRACTORS, SUB-SUBCONTRACTORS, OR MATERIAL SUPPLIERS, THOSE PEOPLE WHO ARE OWED MONEY MAY LOOK TO YOUR PROPERTY FOR PAYMENT, EVEN IF YOU HAVE ALREADY PAID YOUR CONTRACTOR IN FULL. IF YOU FAIL TO PAY YOUR CONTRACTOR, YOUR CONTRACTOR MAY ALSO HAVE A LIEN ON YOUR PROPERTY. THIS MEANS IF A LIEN IS FILED YOUR PROPERTY COULD BE SOLD AGAINST YOUR WILL TO PAY FOR LABOR, MATERIALS, OR OTHER SERVICES THAT YOUR CONTRACTOR OR A SUBCONTRACTOR MAY HAVE FAILED TO PAY.
Fla. Stat. 713.015. What this means is, for example, if a lumber company delivers lumber to your home for your contractor to use in completing a project, then you are liable to the lumber company for the cost of the lumber. If your contract calls for the contractor to pay suppliers, then you need to ensure that each supplier (and subcontractor) has been paid before you issue your final payment to your contractor. If you fail to do is, then the contractor may receive full payment and abscond without paying subcontractors and suppliers. These suppliers will then look to you for payment and you may be compelled to pay these suppliers and subcontractors even though the contractor was supposed to pay them from your final payment. Fortunately, the warning also tells consumers how to avoid this revolting development:
TO PROTECT YOURSELF, YOU SHOULD STIPULATE IN THIS CONTRACT THAT BEFORE ANY PAYMENT IS MADE, YOUR CONTRACTOR IS REQUIRED TO PROVIDE YOU WITH A WRITTEN RELEASE OF LIEN FROM ANY PERSON OR COMPANY THAT HAS PROVIDED TO YOU A “NOTICE TO OWNER.”
Id. A consumer can protect themselves by inserting the following language into the contract:
Owner not obligated to pay contractor [final payment] until 7 days after the latest of (1) satisfactory completion of the project, (2) [any needed approval or passed inspection], and (3) receipt of written releases of lien from any party providing a notice to owner.
By using this language, the homeowner can protect himself and ensure that he does not need to pay his contractor until he is satisfied with the quality of the work performed and that the contractor has paid all of the suppliers and subcontractors. Although it goes without saying, the mandatory disclosure concludes:
FLORIDA’S CONSTRUCTION LIEN LAW IS COMPLEX, AND IT IS RECOMMENDED THAT YOU CONSULT AN ATTORNEY.