LEGAL EAGLES IN THE WORLD OF CONSTRUCTION TAKE NOTE OF THE ISSUES THAT ARE LANDING ON THEIR DESKS OF LATE
BY A.D. THOMPSON
Legal trends are something AGC members of all stripes keep an eye on, but the topic is beyond broad. Legislation and specific concerns — everything from environmental issues to those related to union labor — vary wildly by region and state.
“Construction litigation is incredibly fact-intensive,” says Michael K. De Chiara of Zetlin & De Chiara, LLP. “We’re not building things, but we’re analyzing things forensically and applying laws to the facts and figuring out the best strategies.”
So, what should contractors be keeping their eye on?
“Lawyers,” joked one of our sources, himself a construction attorney.
We spoke to more than a few for this piece — a summary of what trends they’ve been seeing in their respective corners of the nation — and found that as often as there are differences, boutique issues that contractors in one region may see that others do not, there is a lot of overlap.
Materials cost, supply chain issues, COVID-spawned concerns. We cover it all in the below, a primer from the pros on what members are dealing with now — and might want to get in front of — as we begin to emerge from the pandemic-related slowdown.
David Bass, an associate with Koeller, Nebeker, Carlson & Haluck LLP, a Nevada Contractors Association member, has seen smoke from the evolution of marijuana laws billowing into his area of practice — which spans California, Nevada and Oregon.
In the former, the recent introduction of Assembly Bill 1256 is causing a bit of a stir. The bill is intended to prevent employers from using past evidence of marijuana use as justification for discrimination — such as denying or terminating employment.
“It’s targeting things like hair and urine tests,” Bass explains, “and so now we’re speaking to mouth swabs, which are becoming more com-mon and blood. Blood tests are much more invasive, so employers would have to have a reasonable amount of suspicion before they could compel an employee to take a blood test.”
Third-party workplace violence is also on the legal radar, says Bass, “especially since we’ve got such an unemployment and homelessness problem. That combined with mental health puts a lot of issues on the employer with regard to how to keep the workplace safe.”
Both Bass and his colleague Zhanie Soe Myint, a partner at Koeller, note similarities across the region regarding a return-to-work by employees.
“Builders are struggling,” says Soe Myint. “Workers don’t want to come back to an office and want to work from home. Can we compel them to come back? Some employees’ work functions are better done in the office, some aren’t. How can you compel some people to come back and not others?”
De Chiara’s practice is based in New York, and in the past five years, California cases have been 60 to 70 percent of his workload. Much of it in the realm of condominiums, famously responsible for quite a bit of litigation.
“If you build them, they will sue,” he says with a parody of the famous line from “Field of Dreams.”
Developers assume a significant risk with condos, “and after several years on the projects, with most simply looking to do the right thing, they sell down the units and owners come to have most of the voting shares.”
As ownership changes hands, he notes, there’s been a trend of some boards seeking money from developers.
“They’re asserting construction-or design-related claims and whether the problems are real or not, once you get in front of a jury you don’t know what they’ll do.”
As such, these cases typically settle. It’s a pattern De Chiara says is getting repeated around the country.
“And it’s making a lot of the top design professionals and some of the contractors reluctant to build condos in certain areas…. It’s a trend that’s been going on for 10 years. It’s accelerating. And California is leading the pack.”
“The biggest thing we’re seeing here is COVID,” says J.D. Glisson, a shareholder at Greensfelder, Hemker & Gale, PC, an AGC of Missouri member headquartered in St. Louis but with offices in Chicago and Belleville, Illinois. “It has affected the industry significantly.”
Material shortages, he says, have been the greatest challenge — something echoed by just about every source with whom we spoke, though Glisson speculated the Midwest may be disproportionately affected due to shipping from both coasts.
“All of the contractors are having issues getting steel, lumber, electrical supplies…” he says. “It greatly affects job costs as vendors right now can only guarantee pricing for roughly a week or even less. For contractors trying to put together a project bid, that’s not much time.”
As such, material escalation clauses are a hot topic.
“Proactive contractors may already have had one of these in place,” Glisson notes. “Language that considers that if prices increase by X percent, they’ll have room to negotiate. And since most of these increases are due to COVID, many are arguing for force majeure — that this is outside the control of any of the parties.”
Delays, too, come into play under the same umbrella. Take steel, for instance.
“You’ll have suppliers say it’s going to take eight months to get the product. Then the project gets delayed. How do you handle this?”
It hits hard for contractors in areas hit harder by the pandemic. Like hospitality.
“Those who work on hotels, for example, have had projects cancel or halt altogether because the market dropped out,” Glisson explains. “Fortunately, we’re seeing that begin to rebound, but it has led to concerns for contracts moving forward.”
This, due to added concerns for suspended jobs where contractors incur costs for things like security and equipment while the project sits idle.
“Who’s going to pay for the trailer, the crane, and so forth? That’s been happening on hospitality projects here in the Midwest while people are waiting for those budgets to come back online.”
While the effects of COVID have hit the Empire State in ways similar to other parts of the country, it’s accelerated something that’s been brewing in the wings for quite some time, says Michael Vardaro, a managing partner with Zetlin & De Chiara.
“In 2019, New York City passed Local Law 97, which I’ve heard described as one of the most ambitious pieces of emissions legislation any-where,” he explains. The law, which goes into effect in 2024, places caps on carbon emissions from buildings larger than 25,000 square feet. That’s more than 50,000 properties, Vardaro notes.
“Back then, you didn’t hear much about it — it was five years away,” he says, “and COVID probably gave some of these owners and managers a little time to comply as they haven’t had a lot of foot traffic.”
By 2030, the goal is to reduce greenhouse gas emissions by 40 percent. “It goes to 80 percent by 2050 — a significant number. This is something people in New York have begun to pay attention to as they’ll need to figure out retrofits and upgrades on existing buildings to bring them into compliance. It’s less pressing for new projects, which can figure it out on the front end, though it will increase costs.”
Additionally, Vardaro notes, the idea of creating healthy environments is something contractors are getting onboard with.
“New York City has felt COVID’s effects and people are rethinking offices spaces and other types of built structures, looking at traffic pat-terns, thinking holistically,” he says. Vardaro, a board member for the Center for Active Design, says folks are interested in things like the Fitwel concept, a certification for healthy building.
“It’s become more relevant in the wake of COVID. It’s really taken off and presents an opportunity, because if you’re rethinking office spaces, you can pull this ideology into that and other new projects.”
Here as elsewhere, the cost of doing business — in particular getting materials — is a top concern for clients, says Tim Gibbons, shareholder at Chattanooga, Tennessee, firm Chambliss, Bahner & Stophel, PC, an AGC of East Tennessee member.
“The incredible escalation of material prices has been of major concern — it’s through the roof,” he says. “We’re being called on to draft provisions to try and protect different parties from these rising costs.”
He’s heard much the same from colleagues nationwide as prices for lumber have tripled. Even higher for steel.
“It’s difficult, because through no fault of the owner or anyone else, the contractor is now faced with having to breach the contract, quit work and deal with the punishment later or go to the owner and try to work something out.”
Gibbons and others we spoke with have said that in most of these cases, and this has extended beyond materials pricing, folks on both sides of the issue have come to the table to discuss and handle things sensibly.
“Last spring and summer, when we were in the throes of all this, contractors, subs, owners and the public at large had a real willingness to try and work these things out,” says Doug Tabeling, partner at Smith, Currie & Hancock, LLP, a member of multiple AGC chapters. Headquar-tered in Atlanta, the firms’ offices are scattered — from Washington, DC, to San Francisco to Fort Lauderdale and beyond.
As projects begin to spin back up, he wonders whether such approaches will persist.
“People are losing their appetite for it,” he speculates, comparing it to other pandemic-related practices that many have had enough of. “It’s COVID fatigue.”
Tech, too, has been high on the priority list. Glisson says there’s been a rise in construction-related cybercrimes that are costing firms con-siderable amounts of money.
“We’ve probably seen 10-12 contractors over the last couple of years who’ve fallen victim,” he says.
The high rate of electronic communication makes this industry a solid target.
“Lots of payments on projects are initiated by wire transfer and made on a regular, periodic basis that can almost be pinpointed,” he ex-plains. “This creates an environment that’s ideal for phishing scams where credentials can be easily obtained, resulting in owners wiring funds to incorrect accounts.”
It’s led to a whole new era of best practices by contractors on how to communicate with owners, he says.
“Much of this can be avoided with phone verification,” he says, noting that his firm has been preparing presentations on this topic for clients. “It’s also important for contractors to know that there is cybercrime insurance available, and that banks may have some culpability if they’re wiring funds without taking steps to verify.”
Clear communication, in particular due to the increasing prevalence of email and other forms that aren’t face to face, is more important now than ever, said many attorneys with whom we spoke. COVID’s work-from-home impact has upped the ante.
“One thing that’s common in disputes that end up on my desk is that in part there’s a communication failure among the parties,” says Tabeling. “And there’s a risk that the more folks are working remotely in their own spaces, having less in-person face time, being in their own bunkers, will have us seeing more of this.”
Vardaro would likely agree.
“The best way for contractors to prepare for success and prevent legal complications is no different than it’s ever been,” he says. “Clear communication with all those involved in the project in every aspect of the project has always been key.”