Monthly Archives: June 2021

Compliance With Anti-Trafficking Terminology in Construction Contracts

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James T. Dixon | Brouse McDowell

When examining the boilerplate terms of a construction contract before signing, pay particular attention to whether it includes a clause like this:

Contractor warrants and represents that it is and will remain compliant with all applicable laws and regulations pertaining to human slavery and trafficking.

These terms are becoming more common on private projects, though contractors working on federal projects have likely become accustomed to them. 

The International Labour Organization, an agency of the United Nations, works to prevent forced labor, modern slavery and human trafficking. The global numbers are staggering, with 16 million estimated to be in forced labor, most of which are women and many of which are children.1 The U.S. Institute Against Human Trafficking, recognizing that the hidden nature of the crime makes it difficult to count victims, estimates that for sex trafficking the number of children involved exceeds 100,000.2  

While hard data defining the extent of the problem in the U.S. is hard to find, what is known for certain is that there is a problem in the construction industry. One non-profit studied data from the National Human Trafficking Hotline to identify 25 types of exploitation, with exploitation in construction identified among them.3 Trafficking in construction usually occurs in small companies, often with employers misclassifying workers as independent contractors. The majority are men from Mexico, El Salvador, Honduras and Guatemala, in the U.S. on H-2B visas or without documentation.4 

Cases in Minnesota and California illustrate the nature of the problem. In Minnesota, a subcontractor hired undocumented immigrants to work on projects throughout the Twin Cities, exploiting their fear of deportation in order to force them to work excessive hours, to accept low pay, to avoid seeking medical attention, and to work in unsafe conditions.5 A man who ran several construction companies in Hayward, California, used similar techniques while serving as a labor broker. In addition to his conviction, the government compelled the project developer to pay back wages. The developer denied wrongdoing but it, and its contractor, changed their subcontractor selection process.6  

Sex trafficking occurs when a commercial sex act is induced by fraud, force or coercion or involves a minor. Labor trafficking involves the use of force, fraud or coercion to subject someone to involuntary servitude or slavery.7 In 2015, an amendment to the Federal Acquisition Regulations increased compliance demands for contractors on federal projects. Primary among them was the requirement that contractors annually certify compliance plans that include investigation and remedial actions. Specifically prohibited acts include the destruction of identification documentation, the use of misleading recruiting, the charging of recruitment fees, the failure to provide return transportation and the use of substandard housing.8 Contract termination and contractor debarment and suspension are identified penalties.9 And of course there are criminal statutes in place that penalize individuals who are involved in trafficking.

The representation and warranty term cited above is a catch-all where a project owner has quite simply placed a compliance burden upon the contractor—though the law itself already imposes that burden. While the Trafficking Victims Protection Act is the primary law at issue, another act that impacts those within the construction supply chain prevents the importation of goods made using human trafficking or forced labor.10  

In general terms, all construction project participants should be well informed of the nature of their supply chains—for labor, materials and equipment. Construction companies on private projects, where the compliance terms are not spelled specifically in the contract, can be proactive and implement screening practices for subcontractors and suppliers. Labor brokers must be scrutinized carefully. Immigration documentation can be requested and checked. Many companies make their Anti-Human Trafficking Statements available on the internet. Construction executives can review those to familiarize themselves with the terms and start the process for creating and implementing their own policies. 

1. Global Estimates of Modern Slavery, International Labour Organization and Walk Free Foundation, p. 28 (2017). 
2.  https://usiaht.org/the-problem/
3. The Typology of Modern Slavery: Defining Sex and Labor Trafficking in the United States, Polaris (2017).
4. Id. 
5. “Man Charged with Labor Trafficking for Exploiting Undocumented Workers Sentenced,” KSTP (2020).
6. “Contractor Faces 20 Years in Prison for Forced Labor,” K. Slowey, CONSTRUCTIONDIVE (2019); “San Jose Contractor Pays $250k to Settle Labor Trafficking Suit,” K. Slowey, CONSTRUCTIONDIVE (2018).
7. Trafficking Victims Protection Act, 22 USC § 7102 (11).
8. FAR 52.222-50(b)(5).
9. 22 USC 7104(k)(1)(H). 
10. The Customs and Facilitations and Trade Enforcement Reauthorization Act of 2009.

Drones in the Construction Industry

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Michael C. Kelley | Shutts Construction Blog

In just a few short years, drones and the real-time data they collect have contributed to improvements across the construction industry, from overall project efficiency to visual progress reporting for clients and stakeholders. Many builders and owners are using drones to help document construction progress, particularly the turnover process, on projects that are often huge in scope and on sites that are often across a large swath of land. Engineers, design professionals and some subcontractors are using drones for planning and overall design or bid calculations, because they can see and analyze the project at a glance, in addition to being able to get close to otherwise hard to reach locations. The collection of real-time, visual and accurate data is collected immediately from a drone, as opposed to the slow and labor-intensive process of walking a site by foot. New innovations in software are making data collection by drone easier today than it has ever been in the past. 

Drones are great for data collection, surveillance, aerial photography, surveying, documentation of construction progress, agriculture, search and rescue, and for advertising and marketing. But drone usage raises a number of legal concerns including privacy, safety and proper insurance coverage, as well as a duty to maintain video and still photo records made by drones. There can also be civil and criminal penalties associated with using drones – whether contractors or construction companies are aware of such, or not. 

Construction companies using drones or individuals piloting unmanned aircrafts from a construction site, should consider whether the drone qualifies as an “aircraft” under their insurance policy, and if so, whether using, or even owning, the aircraft triggers an exclusion to coverage they otherwise believe they have. Having an established relationship with an attorney who understands the ins-and-outs of insurance coverage issues can be especially helpful. Construction attorneys are particularly adept at these issues, routinely resolving insurance coverage disputes and helping proactive businesses to avoid unanticipated liability issues by performing a review of existing operations. 

Another common legal issue with drones is trespass and invasion of privacy. Individuals should refrain from engaging in an activity with a drone that would be illegal if a person was to do it themselves. 

Finally, issues surrounding liability for relying on information procured by the use of drones (was it reasonable or negligent to so rely?), as well as a duty to maintain records (for how long?) created by drones, are still developing and will be litigated well into the future. 

As with many remedies, an ounce of prevention is typically worth (in the litigation context) tens, if not hundreds of thousands of dollars of cure. If construction entities have questions concerning their commercial use of drones – whether related to fulfillment of major contract obligations or just to market the latest success story – they should seek competent legal counsel.

Drafting or Negotiating a Subcontract – Questions to Consider

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David Adelstein | Florida Construction Legal Updates

When it comes to drafting and negotiating a subcontract, there are provisions that should be important to you from a risk assessment standpoint.   From the subcontractor’s standpoint, below are questions you should ask, or issues you should consider, as you go through the subcontract.  These are the same questions and issues that are also important to a contractor as the contractor will want to ensure these issues are included in the subcontract.  By asking yourself these questions, you can check to see how the subcontract addresses these issues, and how the risk should be negotiated.  Hopefully, you are working with counsel to make sure you understand what risk you are assuming and those provisions you want to try to push back on.  Asking yourself these questions, or considering these questions, will help you go through the subcontract with a purpose based on the risk profile of the project and certain risk you don’t want to assume.

  • Prime Contract –> Does the subcontract incorporate the prime contract?  Make sure to request the prime contract since the subcontract will identify the prime contract as part of the Subcontract Documents and will require you to assume towards the contractor the same obligations the contractor is required to assume towards the owner.
  • Scope of Work –> What is the scope of work? Is it clear.  Make sure the scope is clear and you understand the scope.
  • Drawings –> What are the drawings incorporated into the subcontract? Are these the most up-to-date drawings?  These are the drawings the subcontract amount will be predicated on so revisions to the drawings may result in change orders.
  • Schedule –> Is the contractor’s schedule attached? Regardless, what does the subcontract say regarding revisions and updates to the schedule? Does it require you to provide scheduling input?  Does it include a no-damage-for-delay provision that gives the contractor an argument to preclude paying any delay, acceleration, or lost productivity claim?
  • Claims Procedure –> What is the required claims procedure? How many days do you have to submit a claim after the occurrence of the event giving rise to the claim?
  • Change Order Procedure –> What is the change order procedure? What steps should be taken if a change order request is denied?
  • Construction Change Directives –> Can the contractor issue construction change directives if there is a dispute as to time or money with the construction change directive?
  • Insurance –> What are the insurance requirements?  Do you maintain this insurance or can you obtain the required coverages?
  • Design-Assist –> Are there any delegated-design or design-assist requirements? If so, do you have insurance to cover this risk (which goes with the insurance requirements)?
  • Indemnity –> What are the indemnity requirements? Do you have insurance to cover the indemnity obligation(s)?  Does it comply with the law if you are required to indemnify the contractor for the negligence of the contractor?
  • Substitutions –> What is the procedure for getting substitutions or deviations with the Subcontract Documents approved?
  • Dispute Resolution –> What is the dispute resolution procedure? Does it require arbitration or litigation?  Is mediation a condition precedent?  Are there other conditions precedent?
  • Conditions Precedent to Payment –> What are the conditions precedent to payment? Is there a release form attached to the subcontract?  Does it allow you to carve-out items for pending change orders or claims, i.e., items you are not prepared to release?
  • Delay Damages –> Does it include a liquidated damages provision or allow the contractor to flow-down liquidated damages? What about the contractor’s own delay damages?  How are delay damages handled?
  • Hazardous Substances –> Is there a provision dealing with hazardous substances?
  • Site/Unforeseeable Conditions –> Is there a provision discussing unforeseeable site conditions? Or, if it is an existing structure, is there a provision dealing with hidden conditions?
  • Attorney’s Fees –> Is there an attorney’s fees provision?
  • Consequential Damages –> Does it include a waiver of consequential damages and, if so, does it specify the type of waived damages?
  • Force Majeure –> Is there a force majeure clause and how is it worded? Does it address items like pandemics, hurricanes, etc., or is there another provision that addresses these items?
  • Escalations and Supply Chain Impacts –> How are material escalations and supply chain impacts addressed?
  • Fabricated or Modular Items –> How are prefabricated items addressed from a risk allocation standpoint including delivery, shipment, storage, and integration issues?
  • Building Information Modeling or Digital Drawings –> Is there a protocol regarding digital drawings or building information modeling?
  • Bonding Requirements –> What are the bonding requirements?  What does the bond form look like?  Make sure it is not an unfavorable form, particularly when it comes to the performance bond.
  • Default and Termination –> What is the default procedure?  Is there a reasonable cure period?  What forms the basis of a default and then a termination for default?  Is there a termination for convenience provision and, if so, is there a termination for convenience fee?
  • Warranty Period –> When does the warranty period begin? Is there a specific warranty procedure?
  • Retainage –> What is the percentage of withheld retainage and does the percentage reduce after 50% completion? When is retainage released?
  • Lien/Payment Bond Rights –> Do you have construction lien rights or rights against the contractor’s payment bond?  Do you need information, such as the notice of commencement, to make sure you timely preserve your rights?
  • Pay-When-Paid –> Does the subcontract include a pay-when-paid provision?  It probably does which reinforces why you need to know on the frontend whether you have construction lien or payment bond rights.

Building Materials Price Increase Clause for Contractors and Subcontractors – Three Options

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William L. Porter | Porter Law Group

With the arrival of inflation come concerns regarding increases in the price of building materials within the construction industry.  Contractors, subcontractors and others who contract to perform construction work can suffer significant losses when the prices they must pay for materials rises significantly between the time they sign the contract and actually purchase the materials.  The general rule is that, unless there exists a contract clause allowing contractors or subcontractors to pass significant price increases for materials on to others, contractors and subcontractors are stuck with the price stated in the contract or subcontract.  When prices rise, the contractor or subcontractor eats the difference.  Rising prices can thus turn a profitable project into a catastrophic failure. How are contractors and subcontractors to protect themselves?

Once a contract is executed, there is usually little that can be done to change the document to address rising prices. Effort must therefore turn to future protection.  The best technique for dealing with increasing future prices for building materials is by adding a price escalation clause to contracts and subcontracts.  While this will not help for past contracts or subcontracts, it can certainly offer significant protection going forward.

Contractors and subcontractors alike often sign contractual documents without a proper assessment of the risk of each clause. While it is never appropriate to try to hide clauses within a contract, it is also not the job of the drafter of the contract to explain each contract term to the opposing party.  One helpful technique to successful contract drafting and negotiation is to avoid having any single clause stand out from the others, either due to its length or complexity.  It is instead often best that each clause be appropriate for its context.

Set forth below are three options for contractors and subcontractors to consider in dealing with future increases in the price of materials. Adding a clause like one of these to a construction contract or subcontract before it is signed allows a contractor or subcontractor to pass a significant price increase for materials on to those with whom it contracts.  While neither of the three options may be appropriate for any particular circumstance, a review of them may be helpful to contractors and subcontractors hoping to add a little protection on an issue which seems to present a significant looming concern.  The main difference between the three options presented is the length and complexity of each.

Among the options, please note that there is a blank space in each for the percentage by which the price for materials must increase before the contractor’s customer may be required to compensate the contractor for those price increases.  In each case, the triggering percentage is subject to determination which will depend on the needs of the contractor.  The specific percentage may depend on how much the materials component of the contract compares to the labor component.  It is not uncommon for clauses like this to be as low as 5% and as high as 25%.  The percentage will depend on the situation and negotiation skill.

In using a contract term like those below, it is important to customize the language to the rest of the contract document.  The terms used in the example are “Contractor” and “Customer”.  It could just as well be “Subcontractor” and “Contractor” or “Contractor” and “Owner”.  The point is that it is necessary to use the terms that are consistent with the rest of the contract or subcontract document in which they are used.  Here are those options for consideration:

Long Version

Materials Price Increase:  In the event that there are significant increases in the prices that Contractor pays for materials and supplies for the work to be performed between the date the Agreement is signed and the date that materials are purchased for the work to be performed, Contractor shall be entitled to additional compensation from Customer as described herein.  A significant increase in price is defined herein as an increase as to any specific items of materials of _____ percent (__%) or more.  In such a case, Customer shall pay to Contractor, on request, all sums by which the cost to Contractor for any such items of materials has increased beyond __%.  This would apply, but not be limited to price increases in lumber, plywood, steel, sheet metal, roofing materials, fuel, manufactured products and equipment. Contractor is entitled to demonstrate this price increase through the use of quotes, supplier list prices, invoices or receipts, when requested.  Contractor shall not be responsible for increased prices of materials when caused by delays, shortages or unavailability of materials due to conditions not caused by Contractor.

Short Version

Materials Price Increase: Contractor shall be entitled to additional compensation from Customer when the price for any materials to be used on the Project increases _____ percent (__%) or more between the time the Contract is signed and materials for the project are purchased.  In such a case, Customer shall pay to Contractor, on request, all sums by which the cost to Contractor for any item of materials has increased beyond __%.  This would apply, but not be limited to price increases in lumber, plywood, steel, sheet metal, roofing materials, fuel, manufactured products and equipment. Contractor is entitled to demonstrate this price increase through the use of quotes, supplier list prices, invoices or receipts, when requested.

Shortest Version

Materials Price Increase: When the price for any item of materials to be used on the Project increases _____ percent (__%) or more between Contract signing and materials purchase, Customer shall pay to Contractor, on request, all sums by which the cost to Contractor for any materials item has increased beyond __%, as demonstrated by Contractor.  This includes but is not limited to price increases in lumber, plywood, steel, sheet metal, roofing materials, fuel, manufactured products and equipment.

Conclusion

When contractors and subcontractors encounter situations on a project that are not properly addressed by the terms of their contracts and subcontracts, it is time to revise the operative document.  With the recent threat of inflation and corresponding increases in the prices of building materials, contractors and subcontractors would do well to consider a clause to protect themselves from such events.  Even though inflation is beyond the control of contractors and subcontractors, the right contract language can at least help to weather the storm.  Those who actively protect themselves with protective contract language are more likely to survive difficult times when others do not.

JAMS Announces Updated Construction Rules

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JAMS

JAMS, the largest private provider of alternative dispute resolution (ADR) services worldwide, is pleased to announce it has revised and updated its Construction Arbitration Rules & Procedures and Expedited Construction Arbitration Rules & Procedures, effective June 1. These Rules were updated to reflect the latest developments and trends in construction arbitration.

In response to the transition to virtual and hybrid proceedings, Rule 22 makes explicit the arbitrator’s full authority to conduct the hearing in person, virtually or in a combined form, as well as with participants in more than one geographic location. To support access to case documents throughout the proceedings, Rule 8 aligns electronic filing and service with the functionality of JAMS Access, a centralized, secure online case management platform.

Additional rules were created or revised to clarify and strengthen the authority of the arbitrator. Key changes include allowing an arbitrator to withhold approval of any intended change in party representation that could compromise the proceedings or the final award, to set a hearing without consulting a party that he or she reasonably believes will not participate and to permit a party to file a motion for summary disposition of a claim if the arbitrator believes that party has demonstrated the motion is likely to succeed.

Summaries of the key changes to each set of Rules, as well as the complete rules, can be viewed on the Construction Arbitration Rules & Procedures and Expedited Construction Arbitration Rules & Procedures pages on the JAMS website.