The Impact of the IIJA and Amended Buy American Act on the Construction Industry

Chad Theriot and Stan Millan | ConsensusDocs

Contractors working on federally funded construction projects need to be aware of the new Infrastructure Investment and Jobs Act (IIJA) and amendments to the Buy American Act (BAA) which have expanded the requirement that contractors use domestic goods and materials on their projects.  Failure to consider these requirements could have far-reaching impacts.

Overview of Domestic-Procurement Laws and Regulations

A number of domestic-preference laws exist today, which generally require that certain goods purchased with federal funds must be produced primarily in the United States. Projects affected include Department of Transportation (DOT)-funded highways, public transportation, airports, aviation, and rail, and Environmental Protection Agency (EPA)-funded water infrastructure initiatives, among others.

The Biden administration recently amended the BAA federal acquisition regulations to increase, in phases, the domestic-content requirement for federal procurement, from the current level of just 55% to 60%, 65%, and 75% over the next seven years. Exceptions are included, and a reporting requirement has been added to account for “critical” construction materials and domestic end products. The administration’s rationale for these changes stems from what it believes is the desire of Congress to further increase the domestic materials and services used in federal procurements.

Before 2021, however, the United States waived the BAA requirements for government procurements covered under existing trade agreements. Those agreements treated foreign goods the same as domestic goods.

The new act requires federal agencies, including and in addition to DOT and EPA, to develop their own buy-American rules. State and local governments using federal funds must also comply with such rules when launching projects to upgrade bridges, piping, sewerage, etc. Given the complexity of the new law’s requirements, this situation virtually invites problems for contractors.

The Situation Today

Beginning in 2022, the buy-American requirements have been expanded to all federally funded infrastructure projects, whether funded through IIJA or infrastructure grants.  Projects involving electric utilities, water, transportation, real property and buildings, transmission lines, and more — totaling hundreds of billions of dollars annually — are also covered by these requirements. State and local governments using federal funds for their construction projects must obtain a trade agreement assessment and a specific waiver if they want to exclude the buy-American requirements.

That said, State and local governments using federal funds may still be granted a waiver from domestic-item requirements, although the waiver process has been modified. All waiver requests will be centralized in, and reviews handled by, the new Made in America Office (MIAO) within the Office of Management and Budget (OMB), rather than by the specific agencies through which grants are made. Waiver requests will be publicized for comment and will be subject to a 15-day review period. Waiver requests will be approved or denied based on a number of factors, including consistency with the public interest, domestic unavailability, lack of domestic quality, high domestic cost, and foreign fair-trade practices.

The new act covers iron, steel, certain manufactured products, and non-ferrous metals such as copper, as well as polymers, glass, and construction materials (e.g., lumber and drywall, but not aggregate). By definition, “construction materials” is a rather broad category, and is intended to mean pre-constructed articles, other articles, materials, or supplies brought to a construction site by a contractor for incorporation into a work or building. Exempt from — or not on — this list are life safety equipment produced as a complete system, materials purchased directly from the government, and certain other products.

The act defines as “produced in the United States” any product that contains more than 55% US domestic content. It further requires that all construction materials must be manufactured in the United States. United State  origination standards cover a range of processes, from melting to coating; for construction materials, the OMB will define in regulations all relevant manufacturing processes.

With the Biden Administration pumping hundreds of billions of federal tax dollars into infrastructure projects through IIJA and BAA, many projects are now subject to requirements demanding that contractors use a certain percentage of domestically produced goods and materials.  This could very likely also apply to state and local government construction projects funded by United States tax payers.  Contractors need to be aware of these new requirements to ensure they do not inadvertently run afoul of the IIJA and BBA and face penalties and other repercussions.  

“The Construction Industry Team at Jones Walker LLP is one of the most highly regarded and award-winning construction law practices in the nation. Our experienced construction attorneys understand the complex dynamics between — and the unique priorities of — project participants and can craft effective solutions that minimize disputes, manage risks, and help keep projects moving from conception to completion.”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Subsidence Exclusion Bars Coverage for Damage Caused by Landslide

Tred R. Eyerly | Insurance Law Hawaii

    The Ninth Circuit affirmed the district court’s order granting summary judgment to the insurer who denied coverage based upon the policy’s subsidence exclusion. Atain Spec. Ins. Co. v. JKT Associates, 2022 U.S. App. LEXIS 6351 (9th Cir. March 11, 2022). 

    JKT was hired by Lora Eichner Blanusa in 2011 to perform landscape and hardscape work at her house. After selling the house to Richard Meese, a catastrophic landslide occurred in 2019. Portions of the rear of the property slid downhill by 15 feet. Meese sued JKG and others. The owner of an adjacent property, Kristi Synek, filed a separate action against JKT and others. JKT tendered both suits to Atain, who defended under a reservation of rights.

    Atain filed a coverage action in federal district court regarding both underlying suits. The district court granted summary judgment to Atain, ruling there was no duty to defend or to indemnify.

    The Ninth Circuit affirmed. The subsidence exclusion read:

This insurance does not apply and there shall be no duty to defend or indemnify any insured for any “occurrence”, “suit”, liability, claim, demand or cause of action arising, in whole or part, out of any “earth movement.” This exclusion applies whether or not the “earth movement” arises out of any operations by or on behalf of any insured.

    Because a landslide was an “earth movement,” the terms of the exclusion barred any coverage for any claim “arising, in whole or pert,” from the landslide or from any “settling” or “slipping” that preceded the landslide, and did so regardless of the case of the landslide.

    The Meese complaint did not allege any facts or claims concerning injuries that occurred independent of the occurrence of the landslide and the earth movement that preceded it. Nothing in the underlying complaint suggested that Meese suffered any relevant injuries that were independent of the landslide. Because all injuries connected to the Meese complaint “aris[e] in whole or part, out of . . . ‘earth movement,'” there was no possibility of coverage. 

    The same conclusion was reached as to the Synek complaint. JKT could not point to any allegation in the complaint that sought compensable damage flowing from the alleged encroachment apart from its subsequent contribution to the landslide.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

A Retrospective As-Built Schedule Analysis can be used to Support Delay

David Adelstein | Florida Construction Legal Updates

Delay claims are part of construction.   There should be no surprise why.  Time is money.  A delay claim should be accompanied by expert opinions that bolster evidence that gets introduced.  The party against whom the delay claim is made will also have an expert – a rebuttal expert.  Not surprisingly, each of the experts will rely on a different critical path as to relates to the same project.   The party claiming delay will rely on a critical path that shows the actions of the other party impacted their critical path and proximately caused the delay.  This will be refuted by the opposing expert that will challenge the critical path and the actions claimed had no impact on the critical path (i.e., did not proximately cause the delay). Quintessential finger pointing!

This was the situation in CTA I, LLC v. Department of Veteran Affairs, CBCA 5826, 2022 WL 884710 (CBCA 2022), where the government terminated the contractor for convenience and the contractor claimed equitable adjustments for, among other things, delay.   The contractor’s expert relied on an as-built critical path analysis by “retrospectively creating updates to insert between the contemporaneous updates.”  Id., supra, n.3.  The government’s expert did not do a retrospective as-built analysis and relied on only contemporaneous schedule updates.  Id.

The government’s expert testified he was not a fan of a retrospective (after-the-fact) as-built analysis because this analysis can lead to manipulation.  He testified that he prefers to rely on contemporaneous schedule updates versus an as-built analysis where activities are added.   The contractor’s expert countered by saying the government’s expert wants to ignore as-built facts which would warrant adjustments to contemporaneous project schedules to account for what actually occurred in the field.

Who is right?  Is a retrospective (after-the-fact) as built analysis credible?   YES, it is.  But, in an answering this question, let’s bullet point some key aspects as articulated by the Civilian Board of Contract Appeals, which need to be underscored for importance:

 The contractor “has burden of proving the extent of the delay, that the delay was proximately caused by government [owner] action, and the delay harmed” the contractor.  CTA I, supra (citation omitted).

 “Only delay on a project’s critical path results in overall delay.”  Id.

 “As as-built critical path that reconstructs schedule updates is an acceptable methodology” “[A] rigorous ‘as-built’ approach- reviewing contemporaneous evidence in hindsight to trace the activities on the actual, longest path to completion-has been endorsed by government contracts tribunals.”  Id.

 “Because we must determine why a project lasted as long as it did, we [the Board] want to know the path to the latest work – including the critical work immediately preceding that work, and just before that, and so on.” Id.

 “We reject [the government’s] accusation that retrospectively adjusting as-built schedules based on project documentation or other evidence necessarily turns the schedules into ‘fiction.’ There is, to be sure, a heavy presumption that regularly updated, contemporaneous schedules are the best evidence of project progress.”  Id.

 “[F]orensic schedule analysis is ‘both a science and an art’ and ‘not a magic wand’ but a set of techniques requiring ‘the application of an expert’s well-considered judgment in evaluating the logic of underlying the various pieces of information that support the analysis.’”  Id.

 Even if relying on an as-built analysis, there needs to be persuasive contemporaneous project documents – “[e]xpert opinions offered on certain matters that…are not supported by the record tend[] to cast a shadow on the value of other opinions concerning issues where the underlying factual matters were less clear.” Id. (citation omitted) (discussing aspects of contractor’s experts opinion that relied on an unknown extent of hindsight with interviews of the contractor’s project team which the government and the Board were not privy, and where there was not persuasive contemporaneous evidence).

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Not Your Average Desktop Printer: How 3D Printing May Impact the Construction Industry

Jason A. Copley and Michael I. Schwartz | Cohen Seglias

We are in the midst of what has been termed the “Fourth Industrial Revolution,” where manufacturing and other industries take advantage of modern advances in smart technology, automation, and cloud computing. 3D printing (also called “additive manufacturing”) is one such innovation starting to disrupt traditional business processes. The healthcare, aerospace, manufacturing, and automotive industries are being transformed by 3D printing methods. Other industries are taking notice including the construction industry, which uses the term “3D printing” to refer to the manufacturing process by which digitally-created designs and models are constructed in the field using robotic arms that pour building material layer by layer.

In its current form, 3D printing is primarily used to construct small residential homes on an individual basis or, more recently, in planned, multi-home developments. The first-ever 3D-printed, fully sustainable neighborhoods in the United States are being constructed in California by the Palari Group in partnership with construction technology company Mighty Buildings. The Palari Group’s goal is to develop net-zero energy communities, with new deliveries planned for spring 2022. Miami-based homebuilder Lennar is planning to build 100 3D-printed homes in the Austin area in 2022. Lennar will build their homes with the Vulcan construction system developed by another construction technology company, ICON. In southeast Mexico, 3D printers are currently constructing a housing community for low-income families, designed to withstand hurricanes, earthquakes, and other natural disasters. The goal is for these homes to have enough durability to be passed down from generation to generation.

As the technology advances and the construction industry becomes more receptive to 3D printing, its natural progression will be to construct larger and more complicated multi-story buildings, even skyscrapers. Presently, the world’s largest 3D-printed building is a two-story municipality building that spans 6,900 square feet in Dubai, where 3D printing technology has been embraced. The Dubai Future Foundation plans to construct 25% of its new buildings using 3D printing, with an ultimate goal of making Dubai the world’s 3D-printing hub by 2030.

Proponents of 3D-printed construction champion this market-disrupting building method as both an effective, time-saving, and cost-efficient way to address the current housing shortage and high demand. 3D printing has already shown an ability to decrease material and labor costs substantially, which can lead to more affordable housing for purchasers and increased profits for builders. Material waste is virtually non-existent in 3D printing as the printer discharges the exact amount of material required for the job, and projects typically do not require formwork for vertical wall installation. Labor inputs are also drastically decreased. In Shenzhen, China, for example, only eight workers were required on site to construct a portion of a museum using 3D printing, as compared to the estimated 160 workers that would have been required if traditional building methods were used. 3D printing is also touted as energy efficient. Traditional square-shaped buildings can be replaced by rounded walls, which have been found to minimize humidity and thus require less cooling. From an aesthetic point of view, architects are intrigued by the endless design possibilities using computerized blueprints and sketches.

Meanwhile, critics of 3D-printed construction are concerned with the associated learning curve, how other trades will be affected, as well as the impact on overall project coordination. From a labor perspective, specific skilled workers in the carpentry, masonry, and drywall trades are worried that 3D printing could lead to widespread job displacement as workers are replaced by 3D printers, and the need for onsite manpower is greatly reduced. Additionally, procuring a 3D printer is difficult due to limited supply and complex customization needs. It can also be cost-prohibitive, depending on whether the printer is purchased or leased, and whether the building components are printed offsite or onsite. If printed offsite, the developer must arrange for transportation and installation of the components similar to a modular construction project. If printed onsite, the printer, which is expensive and oversized, must be safely transported to and from the project site and protected while onsite. Printers often weigh several tons and can cost in excess of $500,000 for the equipment and sophisticated computer programs. Setup and dismantling costs are also significant, making multi-home projects more attractive for 3D printing developers.

A builder’s stance on 3D-printed construction notwithstanding, the truth is that buildings cannot be constructed in the field without the necessary building permits and without complying with all existing codes and regulations. Unlike traditional materials and methods with hundreds of years of collective knowledge as reflected in building codes, 3D printing is a new and evolving construction method that requires similarly innovative regulations to address this developing technology.

One organization, the International Code Council, introduced Appendix AW governing 3D-printed building construction, which was adopted in the 2021 International Residential Code (IRC). The appendix provides for the design, construction, and inspection of buildings, structures, and building elements fabricated by 3D-printed construction techniques. While the appendix shows progress toward a unified building code that recognizes 3D printing as an accepted building practice, state and local jurisdictions will need to formally adopt the new aspects of the 2021 IRC, including Appendix AW. The same is true for constructing non-residential buildings, as the International Building Code (IBC) has yet to incorporate a provision for 3D printing construction technology. Instead, an acceptance criteria for 3D concrete walls (AC509) has been developed under IBC Section 104.11, which allows for alternative materials, design, and construction methods provided that such alternatives meet the intent of the IBC. Regardless, local building codes will need to be modified to accommodate 3D printing, and local building and code compliance departments must become conversant in this new building method.

Once proper permitting is obtained, a builder’s natural next question would be how the 3D printing process could backfire, resulting in legal costs that eclipse any planned savings. Like any other construction contract, a project utilizing 3D printing technology should still contain provisions related to workmanship. While computers may reduce the risk of construction errors, computers may also malfunction like any other piece of equipment. Additionally, all designs require input from people and then execution in the field. This means that architects, engineers, general contractors, subcontractors, and suppliers still face many of the same risks associated with defective work, even if those risks now involve a computerized element.

Conceptually, one could foresee a reduction in litigation related to project delay, as 3D-printed construction is projected to dramatically reduce the time needed to construct a building. One could also foresee that lawsuits related to jobsite injuries might also be substantially reduced, as fewer workers are required onsite and printers are performing a portion of the more strenuous and dangerous tasks. On the other hand, 3D-printed construction could expose a whole new category of potentially liable parties, namely software engineers and manufacturers of 3D printers. While new building methods give rise to initial reservations and skepticism, developers and contractors alike should consider investigating this new frontier in order to stay ahead of the curve.

You can watch the 3D printed construction process in action by visiting: https://youtu.be/XHSYEH133HA.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Statute of Limitations and Bad Faith Claims: Factors to Consider

Anastasiya Collins | SDV Insights

How much time do our clients have to bring a bad faith action against an insurer? Although we are not frequently asked this question, it is one that we constantly analyze before asserting a bad faith claim.

To answer this question, we look to the statute of limitations, which is a law passed by a state legislative body that sets the maximum amount of time for a party to bring a claim based upon a particular cause of action. For policyholders, knowing which statute of limitations applies to their bad faith claim is critical because it indicates whether it is possible to initiate legal proceedings. In addition, it determines the amount in damages available in case of a successful resolution.

Statute of Limitations in Breach of Contract vs. Tort Claims
One key determinant of a statute of limitations for bad faith is whether the claim is brought as a tort or a breach of contract action. The consequence of framing bad faith as a tort is that a policyholder is not just limited to contract damages. The policyholder can also receive recourse for emotional distress, pain, suffering, punitive damages, attorney’s fees, and other damages that the court may consider appropriate. Unfortunately, however, not every jurisdiction allows plaintiffs to bring bad faith actions as tort claims. While, for example, courts in California, Colorado, and Connecticut allow bad faith claims sounding in tort, courts in jurisdictions such as Tennessee do not.

This background information is very important to keep in mind as different statutes of limitations may apply to common law bad faith claims sounding in tort as opposed to those sounding in contract. For example, if bad faith is brought as a breach of contract claim in California, plaintiffs have four years from the date they were denied in bad faith to bring action against the insurer. If, however, bad faith is brought as a tort claim, that opening narrows to two years. The length of these time periods and the moment when the statute of limitation in a bad faith claim starts to accrue, significantly vary across jurisdictions. However, the window on a contract claim tends to be longer than that of a tort claim.

Common Law vs. Statutory Bad Faith Claims
When pursuing a bad faith claim, it is also important to keep in mind any state laws that may be relevant. Bad faith claims can broadly be categorized as either: (1) common law bad faith claims; or (2) statutory bad faith claims. The first category stems from case law, while the second is based on laws enacted by state legislatures that deal with insurer bad faith. For example, many states have passed laws based on the National Association of Insurance Commissioners’ “Unfair Claims Practices Settlement Act.” While most states in the country have adopted versions of this act, including California, Connecticut, and Florida, some, like Mississippi, have not.

In states that allow for a private right of action based on a statute, the laws may specify a limitations period. For example, in Connecticut, while a common law breach of contract bad faith claim must be brought within six years, and claims based on the state’s Unfair Trade Practices Act must be brought within three.

Contractual Modification of a Limitations Period
Statutes of limitations for bad faith claims can also be context-dependent. Many courts across the country will allow for contract modification of a limitations period, but typically for purposes of shortening the permitted time period for bringing a claim. Some courts have allowed for a contractual lengthening of a statute of limitations. For example, a court in California has held that the three-year statute of limitations for tortious bad faith specified in a health insurance policy trumped the state’s two-year period prescribed by the California statute.1

Due Diligence for Statutes of Limitations
Bad faith litigation and applicable statutes of limitations are more complex and require more attention than other claims since they are dependent on the nature of the cause of action asserted. Because a bad faith claim may be brought either as a tort or as a breach of contract claim, and because state statutes may apply to give a right of action, policyholders must be mindful of the different deadlines and requirements that may be relevant to each type of claim. Any contractual modification of a statute of limitations may also be relevant. Thus, it is imperative, that policyholders work with an experienced attorney who can advise them on their jurisdiction’s unique rules if they have faced a bad faith handling of their claim.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.