Construction Contractors Beware: Think Twice Before Paying Prevailing Wage Assessments!

Jeffrey Risch | SmithAmundsen

Big Labor continues to use local, state and federal prevailing wage laws to target contractors they have a “beef” with.  Since most prevailing wage audits are triggered by a complaint (including 3rd party complaints), trade unions and certain union-friendly organizations can easily turn in a contractor with the general assertion that the contractor is not complying with applicable prevailing wage law. While contractors and merit shop trade associations could do likewise, they typically don’t for obvious business reasons.  Having concentrated my practice on assisting contractors with prevailing wage disputes throughout the U.S., this trend not only continues but is ramping up in recent months.  While contractors who intentionally cheat the system and ignore their legal obligations should get what they rightly deserve, many contractors are facing audit assessments that are simply  off or incorrect.  Paying a disputed assessment in the hope of not upsetting the government agency or believing that cooperation will bring you favor is arguably one of the worst things a contractor can do these days; failing to properly document your disputes with any assessment that you believe has been issued in error could be the 2nd worst thing. 

In short, I am now seeing more and more audit findings that are just flat out wrong, in whole or in relevant part.  Additionally, it is often the case that even if the ultimate assessment is correct, the discrepancy is based on a clerical mistake, an unintentional accounting or reporting error or a case of disputed worker classification.  However, many general contractors and public bodies, especially local units of government, are being told that they must reject the bid of a contractor who has any past or pending prevailing wage complaint against it, even when the contractor is the low bidder. By rejecting bids or terminating contracts with non-debarred contractors who are simply fighting the good fight with prevailing wage issues, these general contractors and public bodies are depriving contractors of fair due process, stifling competitive bidding and ignoring their obligations to the taxpayer.

In these times, contractors need to be extra cautious and careful in any and all communications with any government agency investigating prevailing wage compliance. To be clear, every complaint must be taken seriously by the contractor to ensure that the record ultimately reflects that the contractor is not only complying with its legal obligations, but also free to bid and perform public construction projects without interference. 

With the above in mind, there are 5 basic rules for anyone performing public construction work to follow with an eye on growing prevailing wage enforcement:

  1. Know your legal obligations under any and every local, state or federal prevailing wage ordinance/law that applies to your business (note: what’s permissible under Federal Davis-Bacon may be unlawful under local/state prevailing wage law);
  2. Ensure your business is complying with all applicable prevailing wage obligations for every worker, every day, every week, every job — not simply paying the correct rates but also keeping and maintaining detailed and accurate time and payroll records;
  3. Never allow a prevailing wage audit or investigation  to be closed or remain in limbo without some document that confirms your full compliance with your legal obligations (you will have to do this yourself);
  4. Never sign any settlement agreement concerning prevailing wage issues without first reviewing it with competent legal counsel to help ensure that no admission of liability or guilt is made and to expressly state that you are free and clear to bid and perform future public construction work; and
  5. Educate your local units of government on who you are and highlight your good name and business reputation — get to know the public officials, get involved and form relationships.

Certain Project Completion Incentives May Not be Covered Under ERISA

T. Kelly McKee | Framing Issues

A recent case before the Fifth Circuit Court of Appeals1 determined that a “Project Completion Incentive” applying to employees on a construction project (the “Plan”) was not governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).2

Former laborer Employees of the construction manager Employer filed a lawsuit in Louisiana State Court asserting that the Employer was required to pay them the “Project Completion Incentive” under the Plan for the time spent on the project—despite conceding that they quit the project before completion and were therefore not eligible for the incentive under the Plan terms.3 The Employees asserted that the Plan’s terms violated Louisiana State law as an illegal wage forfeiture agreement.4 The case was removed to federal court—where if ERISA governed, the Employees would have no claim.5

The Fifth Circuit Court of Appeals determined that the Plan was properly considered a severance, and that some severance plans are governed under ERISA.6 The Fifth Circuit Court of Appeals determined that a severance plan is only covered under ERISA if it requires an “ongoing administrative program.”7

In this matter, the Fifth Circuit Court of Appeals determined that the plan did not require an “ongoing administrative program,” because:

  • The Plan only called for a single payment (i.e., no assumption of an ongoing administration responsibility);8
  • The payment required only a simple calculation (i.e., not a complex calculation of benefits as is normally found in ERISA);9
  • The Plan’s triggering events were tied to a single project (i.e., not multiple infrequent triggering events to manage);10
  • The Plan did require some discretion to determine whether an employee was transferred, laid off due to reduction-in-force, or quit; but the “modicum of discretion” required was not enough to “turn a severance agreement into an ERISA plan”—especially when some decisions were clear (i.e., an employee who quits).11

The Fifth Circuit Court of Appeals found that the Plan did not have an ongoing administrative scheme and remanded to the District Court of Appeals, to be returned to the State Court for lack of subject matter jurisdiction.12

The Employer will now have to continue this litigation in state court under Louisiana State law to determine if the Plan qualifies as an illegal wage forfeiture agreement.

This decision indicates that in writing or reviewing a project completion incentive or other labor retention incentive, a construction employer may have some things to consider. To wit:

  • Your construction employee completion/retention incentives, may qualify for ERISA and thus be subject to statutory or regulatory oversight;
    • Upside—they are not subject to state law claims;
    • Downside—due to more involved regulations, administrative management may be required.
  • Your construction employee “completion incentives,” may qualify as a severance or be covered by another state law wage statute, rule, or regulation;
    • Upside—they are not subject to ERISA; and
    • Downside—they may be subject to local laws on wages that you should be aware of when drafting and executing.

While these considerations are not a reason to stop using these incentives (the large upside or maintaining a consistent workforce is hard to ignore), in the world of construction employment, it is never a bad time to review your current contracts (employment or otherwise) and determine how they may be interpreted so that you are planning appropriately and mitigating risk appropriately.

It is always a good idea to undertake reviewing or drafting contracts, agreements, or plans with qualified counsel.


1 Atkins v. CB&I, L.L.C., 20-30004, 2021 WL 1085807, at *1 (5th Cir. Mar. 22, 2021)

2 “The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. [¶] ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty.” See ERISA, DOL.Gov, https://www.dol.gov/general/topic/health-plans/erisa (last visited March 24, 2021); see also 29 U.S.C.A. § 1001, et. seq.

3 Atkins, 2021 WL 1085807, at *1. The Plan stated in relevant part: “[Employer] will pay to CRAFT employees who meet the eligibility requirements below a Project Completion Incentive payment equal to five percent (5%) of the employee’s total earnings … earned while working for [Employer]… as a retention incentive to continue working on the Project until their role on the project is complete. The Project Completion Incentive is calculated based on total earnings earned by the employee at the Project site beginning the date employment begins at site until the eligible employee is laid off in a reduction-in-force or [Employer] transfers the employee from the Project site when the employee’s role on the project is complete. Employees who quit, transfer or terminate their employment for any other reason are not eligible for the Project Completion Incentive payment. [Employer] will pay the Incentive payment to an eligible employee on his/her final paycheck.” Id. (emphasis in original).

4 Id. (citing LA. STAT. ANN. § 23:631, 23:632, 23:634).

5 Id.

Id. at *2.

7 Id. (citing Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12 (1987)) (“The Court held that ERISA did not govern this law because it required only a ‘one-time, lump-sum payment triggered by a single event [which] requires no administrative scheme whatsoever.’ ERISA governs only for a severance plan that requires an ‘ongoing administrative program.’ The ‘complex administrative activities’ typical of such a plan may include ‘determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of fund for benefit payments, and keeping appropriate records in order to comply with applicable reporting requirements.’” (internal citations omitted)).

8 Id.

9 Id. at *3.

10 Id. The Fifth Circuit of Appeals considered this point in finer detail than the preceding, because Fort Halifax Packing Co. was all triggered by a single plant closing, which impacted all employees at the same time. However, the Plan at issue had multiple different triggers (i.e., reduction in work force, transfer by Employer, project completion).  Regardless of the numerous triggers, the Fifth Circuit of Appeals determined that since the Plan only dealt with the singular project, these were not the types of multiple triggers that indicate ERISA may govern. Id. (“payments will not be triggered with anything nearing the frequency of typical retirement, health, or even severance plans when employees become eligible for benefits at different times throughout a company’s existence.”).

11 Id. at *3–4.

12 Id. at *4 (“Consistent with the lack of complexity needed to answer the “who” and “how much” questions about the bonus, we do not see any special administrative apparatus dedicated to overseeing the Plan. A plan is more likely to be governed by ERISA when it includes administrative procedures, such as procedures for handling claims and appeals, is administered on a large-scale to many employees, requires continuous monitoring of payees, or requires additional oversight once the benefit has been paid, either because of continuing insurance benefits or the possibility of clawing back severance payments if the employee returns to work[.] The record shows none of that here.” (internal citations omitted)).

Seven Trends That Impact Commercial Construction Litigation in 2021

Jeffrey Kozek and E. Mitchell Swann | Construction Executive

2021 stands to bring sizeable change to the commercial construction industry as trends that had been on the horizon meet the impact of the pandemic. That means it will be even more important for architects, engineers, contractors and owners to prioritize revisiting their project plans as the industry adapts so that they can better reduce their likelihood of facing litigation down the line.

While many in the industry will struggle to react to the ongoing environment, building stronger contractual understanding and preparedness to adapt could be the difference in being able to complete the work and move onto the next project in a timely manner. Meanwhile, contractors are using a wider usage of technologies for improved project communication and efficiency. 

In the coming year, there are seven trends will have the greatest impact on commercial construction 

1. SAFETY MEASURES ON SITE

The continuing challenges of COVID-19 may seem familiar after all these months, but continuing to navigate safety measures on site will remain a necessity in 2021. Although the execution of parameters such as distancing, staggered shifts and proper PPE, is likely to impact projects’ cost and schedule, these measures are critical for the protection of all workers on site, and ignoring them could result in fines, shutdowns or even litigation. 

2. DISPUTES AND BANKRUPTCY

Not only will onsite work see the effects of the pandemic, but supply chain delays, pricing increases on materials and project funding shortfalls, to name a few, are likely to lead to claim and payment disputes. Yet, as a number of small businesses across the country have had to declare bankruptcy during this period, owners and contractors whose work has been disrupted need to be prepared for related complications to their payments and project completions. 

3. COURT BACKLOGS

The other side of that equation is that the pandemic has impacted the court system itself, with many state and federal facilities shutting down for weeks, if not months, beginning last March. This not only delayed the progress of numerous cases and projects, but created a legal backlog that has only slowly been addressed throughout the year. With parties on all sides looking to recoup the lost time and/or cost from the pandemic as well as their case, some will opt to settle to more quickly to resolve these matters. 

4. DESIGN OF AIR HANDLING STRUCTURES

In a last COVID-19-related trend, building and construction owners need to be aware of how the design of air handling structures will likely change as a result of this period. In facing an airborne virus, strong evidence shows the importance of ventilation air system effectiveness in reducing the transmission rate of infection in sort of a “dilution as a solution to pollution” approach with a finite indoor biological point source. Yet, increased ventilation air quantities will also increase equipment sizes and operating energy costs for heating and cooling. This should increase the attention to, and consideration of, dedicated outdoor air systems and demand-controlled ventilation so that the quantity of ventilation air supplied is responsive to the population being served. 

5. PREFABRICATED OR MODULAR CONSTRUCTION TECHNIQUES AND ASSEMBLIES

With eyes to the future, the implementation of new designs and materials will begin to have a greater impact on projects. Already, more than 80% of contractors report using prefabricated or modular construction techniques and assemblies on projects, and those numbers only stand to increase. As the technology advances, these materials can greatly improve efficiency and quality control, reduce construction safety risk and, in the age of COVID-19, offer better control over workforce virus exposure due to “social distancing” and related transmission risk.

6. BIM ADOPTION

The construction industry has often been slow to adopt technology, but one of the more impactful ways U.S. companies are beginning to change their approach to projects is with wider adoption of Building Information Modeling, a digital process to construct more detailed 3D models for new buildings. Properly developed and implemented BIM strategies can enhance team communication, coordination and “what if” collaboration during design and construction. All of these efficiency technologies can help nip potential problems in the bud. BIM tools software can also greatly help an owner with on-going maintenance and operations – both of which will have a heightened profile in the post-COVID world.

7.  GREEN BUILDING

Finally, among the new projects arising in 2021, many more will highlight continued increases in green building. LEED certifications have grown by more than 69,000 projects over the last 10 years, with nine design and building categories in which a project can earn points toward LEED recognition from the U.S. Green Building Council. Green buildings often focus on a better Indoor Environment and “wellness”’ of the occupants. In the COVID-19 context, that focus area is a natural fit for reducing potential paths of transmission. Verification of performance will take on an even more significant presence on the green building stage.

Although every project faces a unique set of circumstances, the impacts of these seven areas are likely to be felt across the board. Stronger preparedness and flexibility can go a long way in helping mitigate the risk of litigation and find greater success in the coming year.

Defining Constructive Acceleration

David Adelstein | Florida Construction Legal Updates

When it comes to the definition of “constructive acceleration,” the case of Fraser Const. Co. v. U.S., 384 F.3d 1354 (Fed.Cir. 2004) is a cited case and contains an instructive definition, quoted below, for proving a constructive acceleration claim.

In a nutshell, a constructive acceleration claim is when the contractor incurs added costs for trying to complete the contract on time when it should be provided extensions of time to perform based on excusable delay (i.e., delay not caused by the contractor).  These added costs could be bringing in additional supervision to manage the work, adding manpower to perform the work, working overtime, working weekends, adding more shift work, stacking trades, etc.  However, just because a contractor claims they have been constructively accelerated does not make it so.  The contractor has to actually ask for an extension of time based on an excusable delay and the owner either denied the extension or unreasonably sat on the request for an extension of time; thus, the contractor incurred significant costs to accelerate in order to finish the project on time because it was deprived of a requested time extension for excusable delay.

If you are a contractor and need to support a constructive acceleration claim, please take note of this definition by the Fraser Construction court:

A claim of acceleration is a claim for the increased costs that result when the government requires the contractor to complete its performance in less time than was permitted under the contract. The claim arises under the changes clause of a contract; the basis for the claim is that the government has modified the contract by shortening the time for performance, either expressly (in the case of actual acceleration) or implicitly through its conduct (in the case of constructive acceleration), and that under the changes clause the   government is required to compensate the contractor for the additional costs incurred in effecting the change. 

A claim of constructive acceleration ordinarily arises when the government requires the contractor to adhere to the original performance deadline set forth in the contract even though the contract provides the contractor with periods of excusable delay that entitle the contractor to a longer performance period. Although different formulations have been used in setting forth the elements of constructive acceleration, the requirements are generally described to include the following elements, each of which must be proved by the contractor: (1) that the contractor encountered a delay that is excusable under the contract; (2) that the contractor made a timely and sufficient request for an extension of the contract schedule; (3) that the government denied the contractor’s request for an extension or failed to act on it within a reasonable time; (4) that the government insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the government that it regarded the alleged order to accelerate as a constructive change in the contract; and (5) that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule.

Fraser Const. Co., supra, at136.

The Claim Process – Concurrent Delays: Understanding the Impact on Delay Claims

Amandeep Kahlon | Bradley Arant boult Cummings

A delay is “concurrent” is a delay to the critical path of the project caused by multiple events not exclusively controlled by one party. If you are impacted by a delay to the critical path that was not within your control but are responsible for another overlapping delay to the critical path, the delays are concurrent, and you may not be able to recover damages for the former delay. You may, however, still be entitled to an extension of the contract time, which is usually classified as an “excusable delay” (contrast, with “compensable delay” where time and money are recoverable).

THE CRITICAL PATH

Whether a delay is concurrent generally depends on who the responsible party was and whether the delay is on the critical path. A contemporaneous delay that does not affect the critical path may not be “concurrent” for purposes of schedule review and analysis. Similarly, if the critical path is delayed simultaneously by two separate events, both outside your control, neither delay will be considered concurrent with respect to your delay claim or defense of the same. However, if the delay impacts from those two events run simultaneously, you may not be entitled to double or duplicative recovery. You will only be able to recover for the actual delay to the critical path.


On complex construction projects, with multiple overlapping activities and, sometimes, multiple critical paths, determination of concurrent delays can be difficult.


SCHEDULE UPDATES

On complex construction projects, with multiple overlapping activities and, sometimes, multiple critical paths, determination of concurrent delays can be difficult. In such circumstances, it may make sense to staff a scheduler to a project full time or even hire an outside scheduling consultant to review and update your schedule regularly as the project progresses and impacts accrue. If you end up in a dispute or claim with a subcontractor, owner, or other party, having consistent and quality schedule updates will help you analyze the different delays to the project and determine responsibility and concurrency.

Sometimes concurrent delays will not show up on schedule updates, but may be revealed when project documentation is reviewed. Certain delays may be reconstructed from project documents like daily reports or material procurement trackers. For example, daily reports may capture impacts from weather or site issues that do not always make it up the food chain to a scheduler or consultant who is updating the schedule. This may be especially true on already heavily impacted projects, where parties are scrambling to keep the project progressing and the schedule is not regularly updated or well-maintained.

CLOSING THOUGHT

Concurrent delays can have a substantial impact on delay disputes on construction projects. If you have, or are facing, a big delay claim, being able to map out possible concurrency will help you value your claim or your exposure better and help you make better commercial and litigation decisions.


If you end up in a dispute or claim with a subcontractor, owner, or other party, having consistent and quality schedule updates will help you analyze the different delays to the project and determine responsibility and concurrency.


Additionally, note that concurrency is a difficult concept for many trained professionals in the construction industry. If you are heading down the path towards litigation, you might also consider concurrency in the context of how a lay judge or jury may view the concept.

If your claim involves a complex delay analysis with concurrent delays over a portion of the delay period, are you going to be able to convince a fact finder that he or she should award you damages? If not, you might reconsider a more aggressive position on your claim.