July 2018 Edition
House Endorses Contractor Payment Protections
On May 24, the full U.S. House of Representatives approved two important payment protections for contractors and subcontractors performing work on federal construction projects. The provisions were incorporated in the National Defense Authorization Act for Fiscal Year 2019 (H.R. 5515), which the House approved by a vote of 351 to 66.
One provision would freeze at $150,000 the automatic threshold increases for the federal government to require payment bonds on its construction projects. The second provision would require federal procurement agencies to be transparent about their change order practices.
“Approval of these new payment protections set the stage for consideration in the Senate,” said ASA Chief Advocacy Officer E. Colette Nelson.
She reported that ASA is working with the members of the Construction Industry Procurement Coalition to assure that the payment amendments and other construction provisions are included in the final law.
“Once enacted, both of these provisions will add layers of protection to contractor and subcontractor payment on federal construction,” Nelson said. “Further, they will establish a precedent for public work at the state and local levels.”
ASA’s Manual Charts State Anti-Indemnity Laws
How does your state handle indemnity? You can easily find out with ASA’s Anti-Indemnity Statutes in the 50 States. This manual is a resource for identifying which states have anti-indemnity laws and indicates which states prohibit indemnity for partial fault or sole fault of the indemnified party. Furthermore, the manual indicates in which states a party is prohibited from requiring a subcontractor to name it as an additional insured, thereby closing the additional insured loophole.
Anti-Indemnity laws are important to subcontractors because too often contractors and owners shift risk to the subcontractors that subcontractors can’t control. Specifically, “hold harmless” and “additional insured” provisions in a construction subcontract seek to hold the subcontractor accountable for worksite accidents or other losses that are not the fault of the subcontractor. These “hold harmless” and “additional insured” provisions are problematic to subcontractors because they may unfairly shift the financial responsibility for claims to the subcontractor or its insurance company. As a result, a party who is indemnified by the subcontractor may use less care to avoid injury or loss because the indemnified party is not liable for its own actions. This carelessness may result in more accidents on the worksite that could have been avoided.
Many states have enacted laws that address at least some of the issues in shifting the burden of liability to a subcontractor. Forty-one states have some form of law which prohibits a construction contract that requires a subcontractor to indemnify another party for its negligence (but some of these states limit the application of the law, for example, only to public projects). Only 27 states prohibit a subcontractor from indemnifying another party for its sole or partial fault; 14 states only prohibit a subcontractor from indemnifying another party for its sole fault. Only six states prohibit a party from requiring another party to name it as an additional insured under a policy of insurance.
The ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual. The ASA Anti-Indemnity Statutes in the 50 States is available under “Insurance and Risk Management” in the Member Resources section of the ASA Web site.
ASA Introduces White Paper on Mastering Payment for Stored Materials
Subcontractors that purchase and store materials in advance for their portion of a project face a special set of payment concerns. The ASA white paper Mastering Payment for Stored Materials reviews these risks, discusses industry practices, and recommends steps a subcontractor can take to protect itself. For example, if bid documents don’t address payment for stored materials, a subcontractor may want to condition its bid on language assuring timely payment.
The ConsensusDocs Form 750, Standard Form of Agreement Between Constructor and Subcontractor, provides that the subcontractor is entitled to payment for materials and equipment delivered to the site, or at another location if agreed in writing.
Contract terms permitting payment for materials delivered and stored either on-site or off-site universally use subjective terminology such as “suitably” to describe the way the materials must be stored, require that off-site locations for storage be approved in writing, in advance, and universally require subjectively-described “satisfactory evidence” that title is transferred and that the materials are properly insured. Regular communication with the prime contractor, in advance of ordering materials for which early payment will be sought, is therefore vital.
When a specific acquisition of such materials or equipment is contemplated, talk to the prime contractor ahead of time to be certain that your arrangements will be “suitable” and “satisfactory.” A written document prepared by either yourself or the prime contractor, with the signature or initials of a person in authority, will serve as the best guarantee for any subcontractor’s expectation of being paid for materials not scheduled to be immediately incorporated into the work. Even an email exchange with the proposed arrangement and a response accepting the arrangement can serve this purpose. A discussion with an insurance agent knowledgeable of the terms of the builder’s risk policy for the project may also save expense and time.
The white paper is available under “Contracts and Project Management” in the Member Resources section of the ASA Web site.
NLRB to Consider Rulemaking to Address Joint-Employer Standard
On May 9, the National Labor Relations Board announced that it has started the internal process necessary to consider rulemaking on the joint-employer standard. Any proposed rule would require approval by a majority of the five-member Board, and the next step would be the publication of a Notice of Proposed Rulemaking.
The joint employer policy determines when one business can be held legally responsible for workplace violations at a company it has ties to. The NLRB’s new Trump-appointed majority has attempted to reverse an Obama-era precedent that vastly increased the potential liability of corporations.
“Whether one business is the joint employer of another business’s employees is one of the most critical issues in labor law today,” said NLRB Chairman John F. Ring. “The current uncertainty over the standard to be applied in determining joint-employer status under the Act undermines employers’ willingness to create jobs and expand business opportunities. In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be. I am committed to working with my colleagues to issue a proposed rule as soon as possible, and I look forward to hearing from all interested parties on this important issue that affects millions of Americans in virtually every sector of the economy.”
DOL Announces Pilot Program to Expedite Resolution of Wage Violations
The Wage and Hour Division of the U.S. Department of Labor has announced a new pilot program, the Payroll Audit Independent Determination program, which expedites resolution of inadvertent overtime and minimum wage violations under the Fair Labor Standards Act. Under this program, WHD will oversee resolution of potential violations by assessing the amount of wages due and supervising their payment to employees.
WHD will not impose penalties or liquidated damages to finalize a settlement for employers who choose to participate in the PAID program and proactively work with WHD to fix and resolve their potential compensation errors. Employers may not participate in the PAID program if they are in litigation or currently under investigation for the practices at issue. Employers also will not be able to use the pilot program repeatedly to resolve the same potential violations, as this program is designed to identify and correct potentially non-compliant practices. Settlements will be limited in scope to only the potential violations at issue.
The pilot program further requires employers to review WHD’s compliance assistance materials, carefully audit their pay practices, and agree to correct the pay practices at issue going forward. These requirements improve the employers’ compliance with their minimum wage and overtime obligations, which helps ensure employees’ rights are protected.
According to WHD, the new PAID program is intended to ensure that more employees receive back wages they are owed—faster. Employees will receive 100 percent of the back wages paid, without having to pay any litigation expenses, attorney fees, or other costs that may be applicable to private actions. WHD will implement the pilot program nationwide for approximately six months, after which it will evaluate the pilot program and consider future options.
For more information on the pilot program, visit the DOL Web site.
Immigration Services Launches New E-Verify Web Site
Employers using the federal government’s E-Verify system have a new, more user-friendly Web site to assure that prospective employees are authorized to work. The U.S. Citizenship and Immigration Services’ E-Verify.gov is the authoritative source for information on electronic employment eligibility verification.
The new Web site provides information about E-Verify and Form I-9, Employment Eligibility Verification, including employer responsibilities in the employment verification process. E-Verify.gov allows employers to enroll in E-Verify directly and permits current users to access their accounts. Employers can access E-Verify anytime, anywhere directly from a Web browser. Nearly all employees are confirmed as work-authorized instantly or within 24 hours. The system, which has nearly 800,000 enrolled employers, compares information from an employee’s Form I-9 to records available to the Department of Homeland Security and the Social Security Administration to verify authorization to work in the United States.
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