Questions & Answers to Current Issues in Construction
Category | Briefing Papers
Matt is a member of the firm’s Construction Law Department. He can be reached at 612.359.7610 or mcollins@fwhtlaw.com.
Supply chain delays and force majeure, new OSHA enforcement guidance changes, the Inflation Reduction Act, Minnesota Wage Theft Statute, and the Duty to Defend. As the largest construction practice in the Upper Midwest, attorneys at Fabyanske, Westra, Hart & Thomson, P.A. receive a wide variety of requests for advice from clients representing virtually all industry participants regarding these issues and more. In this edition of the Briefing Paper, Matt Collins relates some of the current issues facing the industry and provides general advice to assist in navigating today’s environment.
Client Question: We had some delay in the manufacturer’s delivery of some RTUs for a project. As a result, the owner required temporary air conditioning until the RTUs were delivered. Is our company responsible for this additional cost?
Answer: Most construction contracts contain a force majeure clause that excuses delays for causes outside of the contractor’s reasonable control. In order to take advantage of such a clause, timely notice of the delay must be provided, and the contractor must take reasonable steps to minimize the impacts to the construction schedule. Because the typical force majeure clause will provide a basis for an extension of time, the delay in the RTU delivery should be an excusable delay and you should not be responsible for the temporary air conditioning cost.
Client Question: We heard OSHA published new enforcement guideline changes. What should my company know about these new guidelines?
Answer: On January 23, 2023, OSHA announced enforcement guidance changes that became effective on March 24, 2023. Previously, instance-by-instance citations were only applicable to “willful” citations. Now, OSHA guidance states that instance-by-instance citations can be assessed for high-gravity “serious” violations specific to the following types of work: (1) lockout/tagout, (2) machine guarding, (3) permit-required confined space, (4) respiratory protection, (5) falls, (6) trenching, and (7) for cases with other-than-serious violations specific to recordkeeping. Instance-by-instance citations may be assessed when the text of the relevant standard allows the citation (such as, but not limited to, per machine, location, entry, or employee), and when the instances of violation cannot be abated by a single method of abatement. A separate penalty will be assessed for each violation and the adjustment factors are applied to each citation. Examples of instance-by-instance citations are one citation for each employee not using fall protection.
OSHA also issued a reminder to its Regional Administrators and Area Directors of their authority not to group violations, and instead cite them separately “to more effectively encourage employers to comply with the intent of the OSH Act.” This means conduct previously identified as subparts to a particular citation my no longer be grouped together. If the subparts can factually support an independent citation, the conduct may not be grouped under one citation, but separated into multiple citations with their own penalty.
The bottom line is that employers should recognize the increased risk of multiple citations and multiple penalties for failing to comply OHSA safety requirements.
Client Question: What do I need to know about the new Wage Theft law in Minnesota?
Answer: First, the law does not apply to union signatory contractors nor projects required to comply with prevailing wage laws and regulations. Second, most standard contracts and subcontracts provide that the project’s participants must comply with Minnesota law, and this would include the Wage Theft law. Third, in the event a lower-tiered subcontractor failed to pay the wages, the higher tier has the right to seek reimbursement from the offending company. As most wage theft occurs in the lower subcontracting tiers involving smaller contract amounts, the monetary risk exposure for upper tier subcontractors and general contractors should not be too large Using reputable business partners on your construction projects is the best practice to reduce exposure to the new Wage Theft law.
Client Question: The Inflation Reduction Act of 2022 included certain tax credits for the development and construction of qualifying renewable energy projects. What are the requirements for prevailing wage and apprenticeship labor under the IRA?
Answer: On November 30, 2022, the Internal Revenue Service issued Prevailing Wage and Apprenticeship Initial Guidance under Section 45(b)(6)(B)(ii) of the Internal Revenue Code. At the outset, it should be noted that the guidelines are preliminary and the IRS anticipates issuing proposed regulations and other guidance in the future. Under current guidance, in order to qualify for the renewable energy tax credits, the project must use the applicable prevailing wage laws and regulations for the location of the project and the applicable job classifications. Second, the project must use a specified amount of apprenticeship labor.
Although the prevailing wage requirements are fairly straightforward and largely mirror the requirements of a typical prevailing wage project, the apprenticeship requirements are more complex. The apprenticeship requirements include a specified percentage of non-supervisor apprenticeship labor hours and a daily ratio requirement of apprenticeship to journeymen workers on site. The apprenticeship requirements may be met through a combination of prime contractor self-performed work and subcontract work. There are also safe-harbor provisions when the required apprenticeship workers are unavailable and the contractor has made a good faith effort to comply. Conversely, there are per day penalties of up to $500.00 per hour for intentionally evading the apprenticeship requirements.
As further regulations and guidance is developed, the details surrounding these requirements and how the law will be implemented should become clearer.
Client Question: The Minnesota legislature passed a law this year limiting the duty to defend obligation contained in many standard subcontracts in Minnesota. What is the result of this legislation?
Answer: Several years ago, the legislature passed a law limited the ability of Party A to require by contract Party B to indemnify Party A from its own negligence. In other words, the legislature passed a law making each party to a construction contract responsible for their own conduct. After the law was passed, standard contracts were re-written to comply with the law, but a new concept was introduced. Instead of requiring indemnity for someone’s own acts, Party A required Party B to provide a legal defense to any claim involving both Party A and Party B.
Under the new law today, those broad duty to defend provisions in construction contracts are no longer enforceable. Now, each party to a construction dispute will only be able to seek a defense from the other party to the extent the other party is responsible for the problem at issue. There are contractual provisions that could solve this problem while still complying with the new statute.
Client Question: I’m involved in a project requiring Cultural Resource Monitoring for suspected buried artifacts. During a stretch of the project not subject to the Cultural Resource Monitoring, my crew encountered possible artifacts that were reported to the owner. The project has now been shut down for several weeks while the artifacts are investigated and preserved. The owner claims that the contract’s no-damage-for-delay provisions apply and is refusing to compensate our company for stand-by time and other related costs from this delay. Am I out of luck?
Answer: As lawyers like to say, “It depends.” Minnesota law prohibits the enforcement of a no-damage-for-delay clause on public projects when the delay arises from the conduct of the owner. Minn. Stat. § 15.411. If the owner should have included the Cultural Resource Monitoring area where the artifacts were discovered , but failed to do so, you may be entitled to additional time and compensation. Further information should be gathered to determine what the owner knew about the likelihood of encountering artifacts in places other than those requiring Cultural Resource Monitoring.
Conclusion: Hopefully, these questions and answers have provided the reader with some valuable information to help navigate the current local construction industry environment. Of course, you should contact your own attorney if you have further questions and to learn the details surrounding the issues identified in this edition of the Briefing Paper.
Announcements
Congratulations to the Fabyanske, Westra, Hart & Thomson, P.A. attorneys who have been named 2023 Minnesota “Rising Stars”. They are Hugh Brown, Colin Bruns, Elise Radaj, and Leon Wells. “Rising Stars” are nominated by their peers and must be 40 years old or under, or have been practicing for 10 years or less. No more than 2.5 percent of the lawyers in the state are named to the list. For more information click here.
Congratulations to the seven attorneys from Fabyanske, Westra, Hart & Thomson, P.A. who have been named 2023 “Minnesota Super Lawyers”. The polling, researching, and selecting of “Super Lawyers” is designed to identify Minnesota lawyers who have attained a high degree of peer recognition and professional achievement. Only five percent of Minnesota attorneys receive this honor. FWHT’s 2023 “Minnesota Super Lawyers” include Mark Becker, Julia Douglass, Gary Eidson, Marv Fabyanske, Kyle Hart, Jesse Orman, and Dean Thomson. Dean Thomson was also selected as a Top 100 “Super Lawyer”. For more information click here.
Fabyanske, Westra, Hart & Thomson, P.A. recognized as one of “The Top 50 Construction Law Firms” in 2023 by Construction Executive Magazine, a leading construction industry magazine for construction firms. For more information click here.