Archive for April, 2011

Public Contracting…The Potential Perils?

It’s no secret that when the economy takes a hit…so does the construction industry.  So what do contractors do when the work available is minimal and private companies cannot afford to carry out their grandiose plans of development?  Contractors turn to public contracting.  Even with the crippling California state economy, state projects are still going forward.  Many state agencies are accepting bids on projects that will take years to complete and state projects appears to be where the money is…or so contractors hope.  Moreover, public contracting can be very lucrative as you have a potentially solid source of funds to pay for the work and generally the work can be billed at a higher rate as it is done on a prevailing wage.

However, the process of obtaining a public contract is different than private contracting.  In the realm of public contracts, the public agency must put the project out to bid and the lowest bidder is awarded the contract.  As with private contracts, the contracts between the public agency and contractor can be very one sided in favor of the public agency.  Getting that burdensome contract can be a difficult and frustrating venture as many different contractors are fighting for the bid.  Consequently, some contractors may prepare their bids in such a way that change orders will be needed in the future.  Thus, allowing the contractor to obtain the project with the lowest bid, but allowed to make up the difference through change orders.  This is hardly what the legislators envisioned when they created the concept of awarding the contract to the lowest bidder.  Ultimately, bid awards can be challenged on the grounds that they are non-responsive to the bid request.  However, that can be a difficult task to undertake.

Nevertheless, the most common problem in the terms of contracting usually arises with change order work, whether it be a public contract or a private contract.  Unlike many private contracts, the contractor generally has no option to refuse extra change order work on public projects. In fact, similar to that of forced labor, the state can usually force contractors to do extra work, whether the contractor wants to or not.  Now while the contractor may think…I want out! How can they make me do this?  The reason the state can usually make you do this is because when you the contractor were awarded that contract in the very beginning of the project…that contract contained terms which stated more or less, that the contractor will do extra work if upon the direction of the public agency.

What is more, the public contract generally requires the contractor to perform the work, even without a written agreement on the price of the additional work.  The public agency generally tells the contractor to file a claim.  In other words, the contractor will be forced to wait until the end of the project to be paid for the additional work he/she performed.  Thus, the contractor is funding the project with his/her own finances.  In our experience, this is something that public officials never seem to understand.

Why do we think this is?  There are many potential reasons, but to name a few we think that it boils down to: (1) the current financial status of many local governments; (2) the lack of understanding of government officials as to what it takes to complete a construction project (they do not seem to understand that contractors are putting their money into the project first and then hoping to be paid back later); and (3) government officials operate “credit” or “attaboys”… and you do not receive “credit” or an “attaboy” if you cannot deliver the project in accordance with the original bid.

So what do contractors do who are stuck in this situation? They need to operate within the rules set forth to get paid…every public contract has extra change order work procedures and claims procedures which must be followed on both sides.  More often than not, at least in our experience, the public agency project managers do not read the prime contract, do not understand the prime contract, yet continue directing the work. The important thing to remember is that these project managers are not invincible…and they are often incorrect.  A good contractor will use its independent judgment, follow the laborious terms in that contract (which is required by the California Public Contract Code), follow up on payment, submit accurate claims for improperly denied change order requests, and keep the state agency on its feet so they know early on that the contractor will not be pushed around.

So, if you venture into the realm of public contracting, we would like to give a few sound pieces of advice:  (1) pay attention to the bid documents… as well as the bids of your rival contractors; (2) read and understand the contract; and (3) be sure to follow the change order procedure.


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Where Do You Want To Do Business?

As you know, we are avid readers of the Sacramento Business Journal.  Last week the Sac Bizjournal ran a story about the difficulties of doing business with the City of Sacramento.  You can read the article here.  With the Kings potentially leaving town and office vacancies at all time highs… I can’t help but think that the Business Journal may be on to something.  Meanwhile, the Business Journal notes that it conducted an informal poll that indicated that Roseville was the most business friendly city in the Sacramento region.  Moreover, the City of West Sacramento touts itself as the city that gets things done.  So, the question to you is… where do you want to conduct your business?

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How Long Will It Take For My Case To Get To Trial

One of the more common questions from clients is the length of their case.  For example, in a simple breach of contract case, where a client is the plaintiff it may take over two years for the plaintiff to obtain a courtroom and proceed to trial.  Although a majority of civil cases settle, any plaintiff or defendant should have an expectation that it could take at least two years for the matter to be resolved, if not more.

To originally address this problem, the legislature adopted the Trial Court Delay Reduction Act in an effort to manage the pace of litigation.  Normally most cases fall within these standards, absent class action, complex litigation or other cases exempt from time standards.  The goal is to have 75% of cases resolved within twelve months, 85% of cases resolved in eighteen months, and 100% of cases resolved after two years of filing.  Although the courts, lawyers and clients try their best to keep cases moving along, in reality ordinary cases may take much longer.  Further, with less funding for the court system and criminal case priority, civil litigants often find themselves preparing for trial in two or three occasions waiting for a courtroom.  This is quite frustrating for clients because there is substantial time, money and emotions involved in any litigation.  Nevertheless, until there is additional funding for the court system these timelines will remain in place for awhile.

We advise our clients of these time expectations upfront to prepare them for the next two to three years of their lives and find this provides guidance and manages client expectations.

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Workers’ Comp Rate Increases… Haven’t We Been Here Before

The Sac Biz Journal has bad news for employers… workers’ compensation insurance rates could be going up.  Apparently, the Workers’ Compensation Insurance Ratings Bureau recommended a 40% increase in workers’ comp insurance.  Now the 40% rate increase is not necessarily going to become effective as it is merely advisory recommendation only.  Nevertheless, we could see an increase in rates as medical care costs are going up.

Hearing about workers’ compensation increases ultimately reminds me of the early 2000’s when we had a workers’ comp crises.  Hopefully, we will not have another workers’ comp meltdown.

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Contractors: Get Your Money Directly From The Owner Or Lender With A Stop Notice

Almost all California contractors are aware of the availability of the California mechanic’s lien law, and how they can use these important procedures to obtain payment from a problem project.  However, many contractors are not aware of a similarly powerful procedure:  the stop notice.   This article will give a basic primer on how stop notices are different than mechanic’s liens, and how a contractor can use them to get the money they are entitled to.

The basic difference between a mechanic’s lien and a stop notice is as follows: A mechanic’s lien is a lien on property, whereas a stop notice is a lien on funds.   A contractor can use one, or the other, or both.  However, be aware that on public works, the only remedy may be a stop notice.  The stop notice puts a lender, owner, or anyone else holding construction funds on notice that there is money due and owing to the claimant.

When done properly, the lender or owner has a duty to withhold money from the construction funds sufficient to pay the stop notice claimant.  In most cases attorney’s fees can be recovered as well.  The end result of a successful stop notice suit is a judgment ordering the construction lender or owner to pay the stop notice claimant out of the undisbursed balance of any construction loan funds.

I cannot tell you the number of times I have seen cases where a subcontractor client knew that the owner or lender had the money, but the general contractor was refusing to pay them.  In such a case a stop notice can be the perfect remedy as it allows the claimant to cut out a non-paying general contractor or owner, and obtain the money rightfully owed to them directly from the owner or construction lender.  Stop notices are also particularly effective when a dispute arises during an ongoing construction project, or when the owner’s equity in the project property may be insufficient to pay out a mechanic’s lien because of excessive senior encumbrances.

Stop notices, like mechanic’s liens, have certain mandatory steps that must be taken, such as proper service of preliminary notices and proper preparation and filing of the stop notice itself.   It is important that the appropriate steps be taken at the beginning of a project in order to ensure the right to later file a stop notice.  Moreover, in certain circumstances, such as when forcing a construction lender to pay, a stop notice must be bonded in order to ensure that the claim is valid.   There are a multitude of companies that will provide such a bond, often for a relatively low percentage of the bond.

When done properly the stop notice can be an incredibly effective tool to recover money owing to a contractor. However, please be aware that the stop notice laws are very technical, and failure to follow the proper procedures and timelines will often result in forfeiture of a contractor’s right to recover pursuant to a stop notice.  This article is by no means intended to cover every step of filing a stop notice. If you have any questions on stop notices, or would like help in filing one, please feel free to contact myself, or any other attorney at our firm.

Legal questions regarding construction or employment law?

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What Exactly Is A Layoff And What Does It Mean (Legally)?

While the term “layoff” is routinely used when discussing the workplace, the exact concept of what it means is subject to some confusion.  Sometimes known by the term “downsizing”, a layoff is also frequently associated with the word “termination” in the minds of employees, as in modern times an employee who has been laid off often does not return to work.  To make matters more confusing, a layoff is sometimes called a “reduction in force”, “rightsizing”, “workforce reduction”, “workforce optimization”, or any number of additional terms.  Generally these are all euphemisms for what is in essence a layoff:  a temporary suspension or permanent cessation of employment of an employee or group of employees due to certain positions being cut, dwindling finances, or work not being available.

Layoffs should be differentiated from terminations.  A termination is a voluntary or involuntary cessation of an employee’s employment due to either the decision of the employee or the employer.  When the employee makes the decision, it is usually called a resignation.  When the employer makes the decision, it is known as being fired.  The reasons for a termination generally concern lack of performance, dishonesty, habitual lateness, theft, insubordination, etc., as opposed to a layoff where the employee’s specific actions usually have little to do with the cessation of employment. Workers who have been laid off can almost always collect unemployment from the State.

Employers should be careful not to call a termination a layoff when in fact the employee is being fired.  While employers sometimes attempt to soften the blow of being fired by calling it a “layoff”, it is generally best to be honest as to the reason for terminating an employees and avoid confusion, as any subterfuge can come back to bite the employer should an employee decide to sue over the termination.  Understandably such honestly may affect an employee’s ability to use the employer as a reference.

Employers should also realize that laying off an employee does not immunize the employer from legal liability for employment discrimination or harassment.  If a motivating reason for “laying off” an employee is the employee’s race, gender, disability, national origin, ancestry, or sexual orientation, the employee may be able to claim unlawful discrimination in the exact same manner as they could if they were fired, even if the “layoff” is only termed temporary.  An employee’s “protected activity” (ie., union activity, reporting of illegal activity) also cannot be a motivating factor for laying them off.  Viewed more broadly, any employment actions including cutting of hours, reduction of benefits, or transfer of position should be carefully analyzed as to motive and the characteristics of the employees affected.

Layoffs become more complicated if the employer is a large organization.  The WARN act requires employers with more than 100 full-time employees to give affected employees at least 60 days advance written notice of an intended plant closing or mass layoff.  The WARN act can be complicated, and employers planning such an action are well advised to discuss with legal counsel.

In today’s climate layoffs have become commonplace, with employer’s streamlining their businesses or simply unable to support certain employees.  Employers or employees facing such a situation should take some time to investigate the legal ramifications of such an event.

For more information on employment law