SLDF Update: Good News from Oklahoma

As an update to the SLDF case pending before the Oklahoma Supreme Court, H2K Technologies, Inc., v WSP USA, Inc. and Fidelity and Deposit Company of Maryland, involving the waiver of subcontractor lien rights, a decision was reached on November 16, 2021, reversing and remanding the matter to the trial court for further proceedings. The Oklahoma Supreme Court held that a subcontractor’s statutory right to waive its lien rights may not be exercised by anyone other than the subcontractor. Here, the subcontractor was ruled to not be bound by the waiver of lien rights by another party in the contractual lien which was done without the subcontractor’s knowledge or consent. This ruling represents a victory for subcontractors. However, the case presents us with a note of caution that it is very important for subcontractors to carefully review the language that pertains to liens and waivers of liens in their subcontract and the prime contract.

Thank you to David Walls, Esq. for providing us with the update on this case.

ASA Offers Comments to the FY22 NDAA

ASA, along with the Construction Industry Procurement Coalition (CIPC), offered comments to the House and Senate Armed Services’ Committee Leadership highlighting our views regarding the FY22 National Defense Authorization Act (NDAA). We support the Defense Department submitting a report on the Cybersecurity Maturity Model Certification (CMMC) on small businesses. CMMC is one of the most ambitious cybersecurity compliance requirements ever undertaken by the department. The program is designed to be a mandatory requirement on all defense contracts. The potential of excluding a significant portion of small business defense contractors and the ability for agencies and prime contractors to meet small business goals should be evaluated and reported to Congress and the public. Additionally we supported the exemption of the Miller Act from the periodic indexing required under Title 41. The Miller Act currently requires all general contractors on federal construction projects over $150,000 to furnish surety bonds to protect the government’s use of taxpayer funds and to ensure payments to subcontractors, and suppliers. Any increase in the contract price threshold through indexing exposes workers, suppliers, and taxpayer dollars to unnecessary risk.

We opposed the bill’s section regarding new and onerous requirements for military construction contractors which goes against decades of federal contracting policies and precedent, including requiring all contractors and subcontractors performing a military construction contract be licensed in the state where the work will be performed and issuing local hiring preferences. Per our comments, “this section will severely restrict military construction contractors to perform work, leading to an exodus from the industry and jeopardizing critical military infrastructure projects.” Additionally, we opposed the provision repealing section 829 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. 114-328), which states that a contracting officer shall first consider the use of fixed-price contracts in the determination of contract type. For architect/engineering services contracts, with well-defined scopes of work and clear deliverables identified, fair and reasonable costs of services can be negotiated. This makes fixed-price contracts more efficient for all parties. When the contractor and agency know and agree on a bottom-line cost and deliverables schedule for a well-defined scope of work, contract administration, accounting, and billing are simplified. This reduces associated overhead costs and time impacts. Agency flexibility to use the most effective and efficient contract type should be preserved. 

Tax Provisions in Build Back Better Act

On November 19^th, the House passed the Build Back Better Act (the “BBB”) (HR. 5376) and in the tax area, many of the provisions which could have been very detrimental to small businesses and their owners were removed from the final House passed version of the BBB. More specifically, in the final House bill, this is what happened with the proposed tax provisions:

• No change to income tax or capital gains rates. Only those with modified adjusted gross income (“MAGI”) of more than $10,000,000 will see an increase in income taxes through a new surtax;
• No change to the estate and gift tax exemption amounts or rates for anyone;
• No change to the step up in basis for assets going through an estate;
• No change to the grantor trust rules;
• No change to the valuation discounts used when transferring interests in most family-owned businesses from an older to a younger generation;
• A new significant surtax for the super wealthy and non-grantor trusts;
• Additional 5% surtax on MAGI in excess of $10,000,000 (single or married filing jointly) for individuals and in excess of $200,000 for non-grantor trusts;
• Extra additional 3% surtax on MAGI in excess of $25,000,000 (single or married filing jointly) for individuals and in excess of $500,000 for non-grantor trusts;
• No change to C corporation tax rates;
• Expansion of the 3.8% net investment income tax (NIIT) to apply to active business income from pass-through entities (such as S corporations and partnerships) for those taxpayers earning more than $400,000 (if single) and $500,000 (if married filing jointly). Under current law the 3.8% net investment income tax only applies to passive income. The effective date for this provision in the House bill is January 1, 2022;
• No change to the 20% qualified business income deduction under 199A for pass-through entities. Though the 199A deduction is still set to sunset at the end of 2025;
• A change to the SALT (state and local taxes) deduction limit increased it up to $80,000 until 2031 at which point the deduction would go back permanently to the $10,000 limitation brought in by the 2017 tax bill. This is a revenue raiser since under the current law, the $10,000 limitation is set to sunset at the end of 2025 and would revert to prior law with an unlimited SALT deduction as of 2026; and
• No required reporting of banking transactions to IRS.

It’s too soon to judge what the Senate version will look like or even when it will be brought up, however it seems unlikely that any other negative tax provisions will come in, particularly with Senator Manchin having the deciding vote.