Category: Construction Law

New Jersey Closes all Non-Essential Construction Projects

On April 8, 2020, New Jersey Governor Phil Murphy signed Executive Order No. 122, requiring the closure of all non-essential construction projects beginning at 8:00 p.m. on Friday, April 10, 2020. The executive order does not define “non-essential construction project”; instead, it lists the following “essential construction projects” that may continue to operate:

  • Projects necessary for the delivery of health care services (e.g., hospitals, health care facilities, and pharmaceutical manufacturing facilities);
  • Transportation projects;
  • Utility projects;
  • Affordable housing residential projects;
  • School projects (e.g., pre-K-12 schools and higher education facilities);
  • Projects already underway involving single-family homes or apartments with a construction crew of five or fewer individuals;
  • Projects already underway involving a residential unit for which a tenant or buyer has legally agreed to occupy by a certain date and the construction is necessary for the unit’s availability;
  • Projects involving facilities in which “the following takes place: the manufacture, distribution, storage, or servicing of goods or products that are sold by online retail businesses or essential retail businesses (as defined by Executive Order No. 107 (2020) and subsequent Administrative Orders)”;
  • “Projects involving data centers or facilities that are critical to a business’s ability to function”;
  • “Projects necessary for the delivery of essential social services, including homeless shelters”;
  • “Any project necessary to support law enforcement agencies or first responder units in their response to the COVID-19 emergency”;
  • “Any project that is ordered or contracted for by Federal, State, county, or municipal government”;
  • “[A]ny project that must be completed to meet a deadline established by the Federal government”;
  • Any work on a non-essential construction project that is required to physically secure the site, ensure building structural integrity, abate hazards, or confirm that the site is protected and safe during the suspension of the project; and
  • “Any emergency repairs necessary to ensure the health and safety of residents.”

The New Jersey State Director of Emergency Management (who is the Superintendent of the State Police) has the discretion to amend this list of essential construction projects.

Essential construction projects that continue to operate must continue to adhere to guidelines and directives issued by the New Jersey Department of Health, the Centers for Disease Control and Prevention (CDC), and the Occupational Safety and Health Administration to maintain a clean, safe, and healthy work environment for employees. These businesses must also implement policies and protocols to enforce best practices regarding social distancing and good hygiene, including but not limited to:

  • Prohibit all non-essential visitors from entering the worksite;
  • Limit worksite meetings and groups to fewer than 10 people;
  • Require individuals to maintain a minimum 6 feet of social distancing when possible;
  • Stagger work start and stop times to limit the number of individuals entering and leaving the worksite at the same time, to the extent possible;
  • Stagger lunch breaks and work times to enable operations to safely continue while utilizing the fewest number of individuals as possible;
  • Limit the number of individuals who can access common areas at the same time;
  • Provide employees with cloth face coverings and gloves, and require workers to wear them while on premises unless there is a medical reason prohibiting it (Note: If any individual (employee or visitor) declines to wear a face covering on premises due to a medical reason, the business cannot require the individual to produce medical documentation verifying his or her condition.);
  • Require essential visitors to wear cloth face coverings while on premises (Note: If a visitor refuses to wear a face covering for a non-medical reason and if a covering cannot be provided to the visitor, then the business must deny entry to the individual);
  • “Require infection control practices, such as regular hand washing”;
  • “Limit sharing of tools, equipment, and machinery”;
  • Provide hand sanitizer and wipes to employees and visitors; and
  • “Require frequent sanitization of high-touch areas” (e.g., restrooms, breakrooms, equipment, and machinery).

These businesses must also implement policies and protocols in the event the worksite is exposed to COVID-19, including but not limited to:

  • “Immediately separate and send home workers who appear to have symptoms consistent with COVID-19”;
  • “Promptly notify workers of any known exposure to COVID-19 at the worksite, consistent with the confidentiality requirements of the Americans with Disabilities Act and any other applicable laws”; and
  • “Clean and disinfect the worksite in accordance with CDC guidelines when a worker at the site has been diagnosed with COVID-19.”
© 2020, Ogletree, Deakins, Nash, Smoak & Stewart,P.C., All Rights Reserved.

Commercial PACE Works: National Study Shows Only One Default Out of 1,870 Deals

A recent study by the US Department of Energy’s Lawrence Berkeley National Lab shows that commercial property assessed clean energy loans (PACE) are growing in popularity and are a good bet for lenders and property owners. Through 2017, projects worth $887 million have been completed, creating more than 13,000 jobs.1 The study found just one default on a PACE loan out of 1,870 deals nationwide since 2008.2

PACE is an innovative program that enables property owners to obtain low-cost, long-term loans for energy efficiency, renewable energy, and water conservation improvements. Projects financed using PACE can generate positive cash flow upon completion with no up-front, out-of-pocket cost to property owners—eliminating the financial barriers that typically prevent investment in revitalizing aging properties. The term of a PACE Financing may extend up to the useful life of the improvement, which may be as high as 20 years or more, and can result in cost savings that exceed the amount of the PACE financing. The result is improved business profitability, an increase in property value, and enhanced sustainability. PACE financing is also available for new construction under Wisconsin law.

Along with the Wisconsin Counties Association, Slipstream and other partners, von Briesen had a leadership role in creating PACE Wisconsin, a joint powers commission comprising a consortium of Wisconsin counties. von Briesen’s vision of a uniform PACE program throughout the state was implemented through creation of a joint powers commission open to any county that wishes to join. PACE is now available in 43 Wisconsin counties, representing 85% of the state’s population.

The recent PACE study also showed that most jurisdictions adopting PACE programs are using a model similar to the one adopted in Wisconsin, because it is easy for local governments to administer.3 Midwestern states are leading the way in expanding PACE. Wisconsin now ranks 11th in PACE financing deals completed, according to PACENation data through 2017.4 In 2019 PACE Wisconsin closed an $8.8 million deal on a historic hotel renovation in Green Bay, financed with a taxable bond offering by the Public Finance Authority. PACE Wisconsin has $15 million in total closings so far in 2019, and over $10 million in the pipeline for the rest of the year.

PACE Wisconsin has registered more than 80 contracting firms that are ready to make buildings more efficient and more comfortable, and has 17 capital providers available to finance building upgrades and new construction. PACE Wisconsin is also supporting legislation to improve the program by reducing paperwork requirements and making financing available for electric vehicle charging equipment. More information about PACE Wisconsin can be found on its website, www.pacewi.org.

1 PACE Market Data, PACENation website, https://pacenation.us/pace-market-data/(accessed August 4, 2019)
2 Commercial PACE Financing and the Special Assessment Process: Understanding Roles and Managing Risks for Local Governments, Greg Leventis and Lisa Schwartz, Lawrence Berkeley National Laboratory, June 2019, http://eta-publications.lbl.gov/sites/default/files/final_cpace_brief_1_ 112308-74205-eere-c-pace-report-arevalo-fz.pdf (accessed August 4, 2019).
3 Commercial PACE Financing and the Special Assessment Process: Understanding Roles and Managing Risks for Local Governments, Greg Leventis and Lisa Schwartz, Lawrence Berkeley National Laboratory, June 2019, http://eta-publications.lbl.gov/sites/default/files/final_cpace_brief_1 _112308-74205-eere-c-pace-report-arevalo-fz.pdf (accessed August 4, 2019).
4 Study: Nonpayment risk remote for commercial clean energy loans, Frank Jossi, Midwest Energy News, July 31, 2019, https://energynews.us/2019/07/31/national/study-nonpayment-risk-remote-for-commercial-clean-energy-loans/ (accessed August 4, 2019) (citing PACE Market Data, PACENation website, https://pacenation.us/pace-market-data/ (accessed August 4, 2019)).

©2019 von Briesen & Roper, s.c

Beware of the Barter: A Cautionary Tale

A recent ruling by Tennessee’s top court sends a strong message: be leery of waiving traditional forms of payment in favor of accepting goods or services. In TWB Architects, Inc. v. The Braxton, LLC, et al., an architecture firm and a cash-strapped developer executed an agreement for the architect to receive a penthouse condominium instead of his design fee. When the developer could not deliver a deed for the condominium, the architecture firm sued the developer for its fees.

So far, the ensuing litigation has lasted over 10 years and, most recently, resulted in an opinion by the Supreme Court of Tennessee that reversed summary judgment in favor of the architect and remanded the matter back to the trial court for still more proceedings.

The parties originally entered in a standard Architect Agreement, whereby the plaintiff, TWB Architects, was to be paid for its design services based on two percent of the construction costs for the project. After failing to obtain sufficient financing for the project, the defendant, The Braxton, informed TWB that it could not pay the design fees and suggested TWB accept a condominium in the project as payment instead. TWB agreed, and the parties executed the Condominium Agreement.

Thereafter, TWB’s owner acted as though he owned the condominium contemplated in the deal, which just so happened to be a penthouse. He invested nearly $40,000 in upgrades and repeatedly referred to the penthouse as “his penthouse.” In December 2008, he moved into the penthouse and represented himself as its owner.

However, shortly thereafter, issues arose with Braxton’s ability to deed the condominium to TWB’s owner. At that point, TWB decided to change course. It claimed that it was still entitled to the original design fee under the Architect Agreement and filed a mechanic’s lien for the unpaid fees. Braxton claimed the Condominium Agreement had acted as a novation, nullifying the Architect Agreement and, accordingly, TWB’s ability to collect its fee thereunder.

The trial court granted summary judgment in favor of TWB, holding it could still recover its design fees because there was insufficient evidence that the parties intended a novation by substituting the Architect Agreement for the Condominium Agreement. The court of appeals affirmed, but the Tennessee Supreme Court reversed. The Supreme Court found that summary judgment was improperly granted because disputed questions of material fact existed about whether TWB and Braxton intended a novation when they executed the condominium agreement.

Unless the parties can settle the matter, the case will now require a trial to determine whether TWB can recover its fees. It’s unknown whether TWB’s owner is still living in the penthouse.

This case is a great example of how a tempting barter – like accepting a penthouse from a cash-strapped developer – may sound like a nice solution at the time, but can lead to further headaches and protracted litigation.

© 2019 BARNES & THORNBURG LLP

For more developer-architect concerns, see the National Law Review Real Estate law or Construction Law pages.

Chicago’s Willis Tower – No Longer the Highest Roof in the Western Hemisphere

Well, it had to happen someday. Though Chicago’s Willis Tower hasn’t held the honor of being the world’s tallest building since 1998 and dropped off the world’s 10 tallest list in 2016, the famous 1973 skyscraper had still held on to the claim of tallest roof height in the Western Hemisphere. Until now. As reported in Curbed Chicago on July 29, New York’s Central Park Tower overtook the 1,453-foot-tall Chicago icon on its way to an eventual final roof height of 1,550 feet.

Roof height took on special importance among Chicago skyscraper fans in 2013 when Willis officially lost its status as the tallest building in the U.S. to New York’s One World Trade Center under somewhat contentious circumstances. Despite the East Coast skyscraper’s considerably lower 1,368-foot roof, it managed to dethrone the Chicago tower by using a 1,776-foot-tall decorative spire. The twin antennas of Willis, however, were determined not to count toward official building height, per the Council on Tall Buildings and Urban Habitat rules.

 

© 2019 BARNES & THORNBURG LLP
For more in building-related news, see the National Law Review Construction Law page.

White House Encourages Coordination of Infrastructure Permitting Through One Federal Decision Memorandum

On April 9, 2018, the White House announced that twelve federal agencies had signed the One Federal Decision Memorandum (“MOU”), establishing a coordinated and timely process for environmental reviews of major infrastructure projects. The MOU addresses one of President Trump’s signature policy promises from the 2018 state of the union – to reduce the infrastructure permitting process to at most two years.

The MOU comes in response to Executive Order 13807, signed by the President on August 15, 2017. The Executive Order directed federal agencies to, among other things, develop a two year permitting timeline for “major infrastructure projects,” and designate a “lead agency” to shepherd projects through the permitting process. The President specifically sought to address inefficient and duplicative practices such as multiple agencies producing separate Environmental Impact Statements.

The MOU and its accompanying Implementation Memorandum provide instruction to and agreement among agencies on how to improve the coordination and execution of permitting reviews. Benchmark improvements include:

  • A single Environmental Impact Statement for all agencies

  • A single Record of Decision except in specified circumstances

  • A two-year average time period for concluding all environmental reviews and authorization decisions for major infrastructure projects

  • Written concurrences from cooperating agencies at interim milestones in the consolidated Permitting Timetable governi­­­ng the multi-agency review-and-authorization process for a project

In evaluating the potential impact of these actions in comparison to prior initiatives to improve the permitting process, two additional factors should be considered.

First, this Administration appears committed to improving infrastructure permitting beyond issuing these documents. The current actions anticipate further change within the Executive Branch, at the White House’s direction, whereas similar actions under past administrations represented the culmination of an initiative.

Second, specific requirements in the Implementation Memorandum and MOU will require agencies to change their current processes in order to comply, instead of past efforts which largely encouraged Agencies to achieve better results using existing methods.

For example, the new guidance requires written concurrence from cooperating agencies at specific interim milestones within an established, consolidated permitting timetable. The guidance also requires agencies, with some exceptions, to develop a consolidated record supporting the One Federal Decision, instead of isolated administrative records within each agency. Implementing these and other changes will require modification of the status quo for many agencies. Indeed, the guidance calls for signatory agencies to submit plans (within 90 days) to implement the MOU through new guidance or regulations.

The following is a summary of key points from the Implementation Memorandum and MOU and a detailed list of specific provisions.

General Agreements – Outlines the overarching features of the MOU including a requirement for federal agencies to work together to develop a single Environmental Impact Statement and Record of Decision (“ROD”), and to issue all necessary authorization decisions within 90 days of the ROD.

Permitting Timetable – Provides guidance on the milestones to be included in the Permitting Timetable, including estimated milestones for which the project sponsor is to develop and submit complete applications and any other information required for Federal authorization of the project, including required authorization decisions by non-Federal entities.

Agency Roles and Responsibilities – Provides further details on the duties of lead agencies in preparing the federal EIS and outlines roles for cooperating and participating agencies. For example, cooperating agencies may only provide written comment on issues within their substantive areas of expertise.

Scoping and Concurrence Points – Provides for using the NEPA scoping process to develop relevant analyses, studies and engineering designs needed in order for all agencies to be able to sign a single ROD. Requires that the environmental review process be conducted concurrently with the applicable authorization decision processes, and, as such, the lead agency should obtain a written concurrence from all cooperating agencies whose authorization is required for the project at three key milestones: 1) Purpose and Need, 2) Alternatives To Be Carried Forward for Evaluation, and 3) the Preferred Alternative.

Elevation of Delays and Dispute Resolution – Directs agencies to use dispute resolution procedures within applicable laws and to defer to staff who have day-to-day project involvement. Where disputes are anticipated to delay a Permitting Milestone, disputes are to be elevated within the federal agencies.

Exceptions – Provides a number of exceptions to the MOU including the ability of lead agencies to extend the 90 day decision deadline.

© 2018 Bracewell LLP.

This post was written by Kevin A. Ewing, Jason B. Hutt and Christine G. Wyman of Bracewell LLP.

Construction Liens on Leased Commercial Premises

In general, a contractor or supplier is entitled to file a lien against a commercial property if they have performed work or provided materials pursuant to a written contract with the owner. These lien claims must be filed within 90 days of the last date of providing materials or services for the project.

On the other hand, if a contractor or supplier is providing materials or services for a tenant of a commercial property, the rules are different. The differences as to what the lien may attach to are discussed in detail below.

If the tenant of the property entered into a contract for the improvement of the property and the owner directly authorized the improvement in writing, the lien may attach to the real property. The proper way to ensure that a lien may attach to the real property is to have the owner of the property sign off on and approve any contract for the improvement of the real property.

As a contractor or supplier, it is suggested that you obtain the owner’s authorization which would thereby allow you to assert a lien claim against the property itself in the event of non-payment. This can become a very powerful tool on collecting an unpaid balance, as an action to foreclose upon the lien could be brought. This would place a great deal of pressure on the tenant to pay the outstanding balance.

Conversely, if the owner of the property does not sign off on or agree to the improvement to the real property, a lien claim would only attach to the lease hold interest of the tenant. Under these circumstances, the lien claim would not attach to the real property itself, but instead, solely to the lease hold interest held by the tenant.

The question then becomes what would be the value of the lease hold interest.

Depending upon the use of the property by the tenant, the lease hold interest could be quite valuable, or it may be close to worthless. Obviously, if the tenant is fully invested in the property the lien claim may carry substantial value, as it may force the tenant to satisfy the claim. Then again, if the lease hold interest is solely an office or two within a commercial property the lien claim may not possess significant value.

The above provides a general overview as to a lien claim on a commercial property which is occupied by a tenant. It is suggested, as a contractor or supplier, that you have the owner sign off for improvements. This gives you greater leverage when attempting to collect on a lien claim, and also, could force the sale of the property to satisfy same.

This post was written by Paul W. Norris of STARK & STARK.,COPYRIGHT © 2017
For more Construction & Real Estate legal analysis, go to The National Law Review

Soaring to New Heights With Drones: The Rise of UAVs in Construction Projects

The next time you visit a construction site, look up. You may see a drone in flight. The explosion of interest in the unmanned aircraft systems (UAS) industry is driven by their potential for data collection because of the ability to carry many different onboard sensors. In the construction industry, drones are used for inspections, security and surveillance, material delivery, securing investment, augmented reality, and to identify safety issues.

Drones can also be used to improve day-to-day operations by creating time lapses, job-site monitoring, and thermal imaging. Other examples of ways drones can be used in the construction industry include: design, engineering, planning, marketing, volumetrics, asbuilts, construction progress, and site logistics.

Prior to August 2016, there were many legal prohibitions that limited the use of commercial drones. However, 14 CFR § 107 (Part 107) revolutionized the operation of UAS weighing less than 55 pounds and operating for commercial purposes. This regulation affords commercial operators with the opportunity to fly UAS without prior case-by-case approval from the Federal Aviation Administration (FAA), as long as they comply with certain restrictions. Some of the key operating restrictions include maintaining a visual-line-of-sight, operating only during the daytime or twilight hours, not flying over people not directly participating in the drone mission, and maximum speed and altitude limits. Transport Canada, which is responsible for transportation policies and programs in that country, has also recommended similar guidelines, including keeping the drone in visual line of sight and operating the drone during daylight hours. Additionally, there are extensive requirements for commercial operations under Special Flight Operating Certificate (SFOC), but Transport Canada is in the process of revisiting these rules.

Most of the restrictions under Part 107 are waivable, if granted permission from the FAA through an online application process. The Part 107 waiver process incorporates significant flexibility into the regulations. The waiver process is a tool that the construction industry can utilize to maximize the value and use of UAS. Possible areas to request a waiver include nighttime operations, simultaneous operation of multiple aircraft, operation over people, and operation in restricted airspace.

Use of UAVs in the United States is subject to the enforcement authority of the FAA. The FAA has broad enforcement authority and investigatory powers, which require it to regulate aircraft operations in the National Airspace System (NAS) in order to ensure the safety of persons, property, and manned aircraft. The FAA may take enforcement action against anyone who conducts an unauthorized UAS operation or operates a UAS in a way that endangers the safety of the NAS. The FAA works with local and state law enforcement to explain the legal framework surrounding UAS and to seek help in identifying unlawful UAS operators. Specifically, UAS must comply with safety requirements of Part 107. In addition, those who “endanger the safety of the national airspace system” may face penalties, including warning notices, letters of correction, and civil penalties. With regard to the FAA’s investigatory power, it needs only a “reasonable ground” to show a violation of a statute or regulation to initiate an investigation.

Transport Canada overall has conducted minimal enforcement of drone operations. In 2016, it undertook a large educational effort with regard to the safe operation of drones. It does have an online enforcement tool that provides information about “dos and don’ts” for flying drones, as well as details about regulations.

The increased prevalence of UAVs has prompted the courts to review the unsettled area of airspace law. One issue is the private versus public control of airspace. On one hand is the common law principle of property ownership that states that one controls the airspace above their privately owned land. On the other hand are FAA regulations, which claim jurisdiction over all U.S. airspace. Additionally, increased state legislation aimed at drone regulation has created preemption concerns, particularly when the state laws are in conflict with federal laws.

Another risk is that liability arising from drones is not covered in typical commercial liability insurance policies. However, it can be added to both property and liability coverage, which generally protects the insured against damage done by or to its drone. Some regulators propose requiring certain drone users to purchase liability insurance.

In order to keep up with the growth and changing needs of drone use, rulemaking for drone usage will likely continue and expand over the coming months.

Read more legal analysis here.

This post was written by Kenneth D. Suzan of  Barnes & Thornburg LLP.

Mitigation of Construction Defect Litigation- Top 10 Construction Contract Issues

Construction DefectWhen negotiating a construction contract with a general contractor (GC), the owner/developer should be aware of, and address, a number of issues to attempt to mitigate or limit the risk of construction defect litigation for a residential project, including multi-family and for-rent residential apartment and senior housing projects. The standard forms of construction contract—such as the American Institute of Architects (AIA) or ConsensusDocs—are more beneficial to the contractor than the owner in many respects.  A construction contract will need to be reviewed thoroughly and revised to better protect the owner, and in the case of residential construction, should in particular, address the following top 10 key issues:

1) Scope of Work—The scope of work should be well-defined, accurate, comprehensive and identify the basic components of the project. The scope should not be based solely on the drawings and specifications, which are never 100% complete, and the contractor should agree to reasonably infer the scope of work from the contract documents to produce the intended work.  If there is an inconsistency in the contract documents or between the drawings and specifications and contract documents, the contractor should provide the better quality or quantity of the work or materials. The contractor should be required to report any errors, omissions or inconsistencies in the contract documents to the owner.   Contractor’s work should be subject to inspection by the owner, applicable city, county or governmental entities, and any third-party inspectors retained by owner or construction lender for quality assurance and quality control.  Contractor should give advance notice to owner as to specified key system installations—such as soil, foundation, acoustical, exterior, building wrap, HVAC and structural components to allow review and inspection by such third-party inspectors.

2) Change Orders—Don’t allow material “field changes” from the approved plans and specifications.  If there is a question as to the proper way to construct any aspect of the project, such change must be documented through an RFI process by the contractor.  If there are changes or selections not specified in the plans or specifications, any change should be documented and approved by the architect and third-party inspectors, if appropriate.  Any changes should be documented through a written change order.

3) Indemnification—The contract should include a well-written and thorough indemnification and defense obligation by contractor for all construction defect claims and costs, damages, actions, liabilities, judgments and obligations, including investigative and repair costs, attorneys’ fees and costs and consultant fees and costs.  The indemnity and defense should apply to all negligent or willful acts or omissions of contractor. The indemnification and defense obligations should survive the expiration or termination of the construction contract through the statute of repose and limitations (eight years in Colorado).

4) Warranties—Contractor should warrant that its work is free from defects and will be completed in a good and workmanlike manner.  The warranty should commence upon substantial completion of the work and continue through the period of the statute of repose and limitations.  The warranty should include any specific warranty provided to residential purchasers by the owner.

5) Subcontracts—Contractor should incorporate the terms of the GC contract into the subcontracts and provide a copy to the owner.  In particular, the subcontractors should have the same indemnification, defense, warranty and insurance obligations to the GC that GC has toward the owner. Subcontractors should be required to be joined in the same arbitration or litigation action as the owner and any homeowner or homeowners association.

6) Insurance—The contract should specify the insurance required and be reviewed by an expert in residential construction insurance.  An Owner Controlled Insurance Program (OCIP) or Contractor Controlled Insurance Program (CCIP) are preferred. The OCIP or CCIP should be reviewed to determine if it covers design and construction or only construction. If only construction, the design professionals will need to have proper coverage and limits. The OCIP or CCIP should not contain any exclusions for multifamily, condominium or residential use. Insurance coverage should be maintained through the statute of repose and limitations.

7) Dispute Resolution—The contract should specify binding arbitration by a single arbitrator pursuant to the AAA Construction Industry Arbitration Rules or other arbitrator such as DeMars & Associates.  However, if a homeowner or homeowners association brings a lawsuit against the owner, then the GC and the subcontractors should be obligated to join such proceedings at owner’s request to resolve the dispute.

8) Compliance with Laws/Environmental Matters—The GC and subcontractors should be obligated to comply with all applicable laws, rules, codes and regulations, which may include the Americans with Disabilities Act of 1990, and all applicable environmental laws related to hazardous substances, storage and disposal of hazardous materials.  The contract should require that the work be completed free of mold or fungi or unacceptable moisture levels.

9) Construction Lender—Contractor should be required to satisfy requirements of the construction lender including payment schedule, lien waivers, affidavits and inspections.

10) Damages/Attorneys’ Fees—An owner should not waive its right to consequential damages, even if the waiver is “mutual” in the contract.  Such a waiver is not “mutual” because it harms an owner, who has mainly consequential damages, more than the contractor, who has mainly direct damages.  Don’t be fooled by the “mutual” language in the contract.  In addition, owners should consider whether to add a provision to the contract providing the prevailing party in any action under the contract to its costs and expenses, including attorneys’ fees and consultants’ fees and experts’ fees arising out of any claim or action associated with the contract and be applicable to trial or arbitration and appeals.

This article is not intended to be an all-inclusive list of revisions that should be made to a construction contract for the benefit of an owner/developer.  Owners/developers should consult with an attorney well versed in construction contracts.

ARTICLE BY Rebecca Dow of Holland & Hart LLP

Copyright Holland & Hart LLP 1995-2017.

Developer-in-Chief: How the New U.S. President May Affect the Construction Industry

construction industryEven before the start of Donald J. Trump’s presidential campaign, the Trump brand was in lights across the nation. From the original Trump Tower in New York City to the Trump International Hotel in Las Vegas, it is a name, a brand and a font recognized by nearly everyone. Long before his inauguration, the new U.S. president had made himself one of the most visible — if not the most visible — real estate developers in the world.

President Trump may be the new commander-in-chief, but he is unlikely to forget his long history in real estate. While the world prepares to learn how his policies will affect the larger economy, real estate developers and contractors are similarly focused on the impact his policies will have on the construction industry. Is the president’s (likely) pro-development stance cause for excitement in real estate circles, or is caution warranted? In the following, we explore subsets of the construction industry and the potential impacts of the new administration on these sectors and issues.

An additional note: It is no exaggeration to state that Mr. Trump’s presidency and many of his official actions, to date, have been contentious. Our goal is to provide a clear-eyed and nonpartisan review of the new President’s possible initiatives.

Infrastructure

The nation’s infrastructure was a major talking point for both candidates during the presidential campaign. There is no doubt it is aging and requires investment. So perhaps it was no surprise that Mr. Trump had something to say about infrastructure investment during his acceptance speech on the Wednesday after the general election:

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none and we will put millions of our people to work as we rebuild it.”1

This is a statement that will likely excite many contractors. It also appears to be a strategy that will build on former President Obama’s policies. It was estimated that the controversial American Recovery and Reinvestment Act of 2009 (a.k.a. the Recovery Act or “stimulus package”) would ultimately cost $831 billion between 2009 and 2019, the bulk of it consisting of investments in infrastructure, education, health and renewable energy.2 Mr. Trump has estimated that projects launched under his direction will inject $1 trillion into infrastructure investment using federal tax credits to generate private-sector involvement.3

Republicans who often opposed Mr. Obama’s infrastructure spending may now be reluctant to support Mr. Trump in similar efforts. Private-sector involvement may be key to overcoming Republicans’ prior reticence to spend government money or increase taxes. However, if the private-sector involvement turns out to be illusory, his plans may be stymied by Congress (regardless of which party is in control).

Single-Family Homes

The Obama administration was effective in reducing risk in lending practices and protecting consumers via the Dodd–Frank Wall Street Reform and Consumer Protection Act.4 It also helped homeowners in difficult financial situations refinance their mortgages through the Home Affordable Refinance Program (HARP).5 As a result of affordable mortgage rates, employment gains and income improvement, the single-family home industry has steadily recovered from the recession.6

Despite this, homeownership — which was 63.5 percent during the third quarter of 2016 — is at its lowest level since the 1960s.7 Constraints do not appear to be on the demand side of the equation; they are on supply, where builders are faced with shortages of lots, labor and lending.8 

Since demand is high, this may be an area in which the new administration can affect the single-family home industry. Mr. Trump has said, “No one other than the energy industry is regulated more than the home-building industry. Twenty-five percent of the cost of a home is due to regulation. I think we should get that down to about two percent.”9 

Mr. Trump has also made clear his affinity for the residential real estate industry, noting that his father was a home builder: “A home builder taught me everything I know. There is no greater thing you can do. If you can build a home, you can build anything.”10

Taken at face value, Mr. Trump’s statements made on the campaign trail paint a positive picture. Combined with the current state of the industry, it may provide his administration with the opportunity to spur new-home construction. As of this publication, however, no clear blueprint for the industry has been put forward.

Energy

Mr. Trump believes the energy industry is the most heavily regulated industry in the nation. And his stated goals for deregulation will likely affect this industry, as well.

The Obama administration invested heavily in renewable energy.11 Mr. Trump, on the other hand, has appointed several cabinet members with strong ties to oil and gas, and he has been abundantly clear in his support for coal. Does this spell dire straits for the renewable energy industry?12

The answer to this question is, as yet, unclear. At a campaign rally in California, Mr. Trump told supporters, “I know a lot about solar — I love solar. Except there’s a problem with it. It’s got a lot of problems with it. One problem is it’s so expensive.”13 Whether he is correct in his assessment is one question. Whether he will invest in solar power to bring its deemed high price down or  scrap the tax credits the industry relies on is a separate — and still outstanding — question altogether.14  If Mr. Trump does cancel the tax credits, some analysts expect that the industry will turn to the U.S. states or even overseas for the subsidies it relies on.15

Mr. Trump’s prior claims that climate change is a hoax perpetrated by the government of China may suggest where he stands on this issue; if taken at face value, it may indicate that he is less likely to promote the renewable energy industry and more likely to defer to advisors with interests in oil and gas. However, some believe that the industry has sufficient momentum to maintain itself. Economics, instead of presidential policy, are now the driving factor behind the industry and, with companies already investing billions of dollars in renewable energy, the momentum may be too great for Mr. Trump to have a meaningful effect.16 He may not promote it, but he may not be able to stop it, either.

In the more traditional energy sectors, oil and natural gas have seen an increase in production over the past decade as a result of better fracking technology, despite efforts by the Obama administration to slow down the extraction of resources via this controversial method.17 The Trump administration is expected to open up federal land, previously identified by the Obama administration as off limits, for oil and gas production.18 If this becomes the case, the result will likely be a boon for the industry and any construction that comes with it.

Environmental

Environmentalists are preparing for battle against the Trump administration. But how will the president’s perceived negative attitude towards environmental regulations affect the construction industry? Deregulation would no doubt make real estate development less expensive and, therefore, easier and more appealing. And if Mr. Trump opens up federal land for oil and gas production, against environmentalists’ wishes, construction will likely accelerate.

Construction Costs

On the campaign trail, Mr. Trump discussed some of his potential stances on foreign policy, including trade policy and immigration. With respect to trade policy, he has indicated that the United States should withdraw from the Trans-Pacific Partnership (TPP) and renegotiate — or even withdraw from — the North American Free Trade Agreement (NAFTA).19 If these new policies impede trade or place more control on imports, materials prices may increase.20 

Mr. Trump has taken a similarly hard stance on immigration, repeating his plan to erect “an impenetrable physical wall” on the border with Mexico and issuing an executive order limiting entry into the United States of people from certain countries.21 While the latter order is currently less likely to play a role in the construction industry, the former may have a significant impact. Labor is already at a premium and, in an industry that relies heavily on a foreign-born workforce, strict immigration policies may raise wages and increase the cost of construction.22

As with all of the issues listed previously, the construction industry must take a wait-and-see approach to the effects of Mr. Trump’s foreign policy stances. Legal and illegal immigration were strong, regular themes during his campaign and surprises are unlikely in this area, in particular.

Conclusion

It is possible that some of Mr. Trump’s policies and promises will become a boon for the construction industry. Deregulation may reduce project costs and increase the availability of funding for homebuyers and contractors alike.23 Tax cuts for the wealthy may mean that there will be more money to build projects.24 And his promises to spend large amounts of money on infrastructure could result in a flood of projects for contractors.25 

But if Mr. Trump follows through on his immigration policy, the current labor shortage will likely get worse and the costs of available labor will increase.26 Similarly, strained relationships abroad may increase the cost of materials.27

There is certainly reason for hope that Mr. Trump’s real estate experience will spur growth in the construction industry. Although he  has an opportunity to effect significant change,  we may have to wait for several years to see how his policies ultimately reshape the construction industry.

ARTICLE BY David A. Eisenberg of Much Shelist, P.C.
© 2017 Much Shelist, P.C.

1 Donald Trump’s Presidential Acceptance Speech
2 Recovery and Reinvestment Act of 2009
3 Donald Trump Infrastructure Spending
4 Dodd-Frank Wall Street Reform and Consumer Protection Act
5 Home Affordable Refinance Program
6 Home Sales Estimates Historically Soft
7 Ibid.
8 Key Takeaways From the Latest Housing Market Reports
9 Trump Vows to Cut Burdensome Regulations in Address to Home Builders
10 Ibid.
11 Obama Has Done More for Clean Energy Than You Think
12 Renewable Energy Sector Remains Optimistic Amid Trump Policy Outlook
13 Ibid.
14 Ibid.
15 Ibid.
16 Economics Will Keep Wind And Solar Energy Thriving Under Trump
17 Trumps Energy Policy 10 Big Changes
18 Ibid.
19 Donald Trump Trade Policy
20 How Will Trump Affect the Construction Industry
21 Donald Trump Immigration Policy
22 How Will Trump Affect the Construction Industry
23 Ibid.
24 Ibid.
25 Ibid.
26 Ibid.
27 Ibid.

Letters of Intent in Construction Project Negotiations–Pt 2

McBrayer NEW logo 1-10-13

In our last post, we began speaking about letters of intent and their use in negotiating the terms of construction projects. As we noted, letters of intent are not contracts, but courts do sometimes enforce them as binding, depending on what the parties intended by the document. In cases where it is evident that both parties intended to be bound, they may be enforced by a court. In cases where parties did not intend to be bound, they may not be enforced. It depends on the circumstances, though.

In some cases, a court may enforce some parts of a letter of intent, but not others. This can happen in cases where parties did not intend to be bound by specific provisions of the letter, but agreed to deal exclusively with the other party, not to disclose the negotiations, or to deal with the other party in good faith. Certain types of agreements such as these can spur parties to take steps in reliance on the letter of intent, including investing money or passing on other opportunities, and courts may choose to enforce them.

Courts may choose to enforce such agreements even in cases where the letter of intent is clear about its non-enforceability, particularly where the party objecting to enforcement led the other party into taking actions in reliance on the letter. In yet other cases, letters of intent may be unenforceable, but may still be used by a court to help interpret ambiguous terms of a later contract. Any of these outcomes are possible, depending on the case.

As can be seen, it is difficult to point to general rules regarding the enforceability of a letter of intent. In the context of negotiating construction projects and other transactions, then, it is beneficial for parties to work with an experienced attorney to ensure they understand state law on the issue and what exactly they may be getting themselves into. Knowing this information can help a party to limit the possibility of a later dispute over a letter of intent. Working with our firm, clients can be sure that we will provide solid legal advice and practical guidance on business negotiations with their rights and interests in mind.

ARTICLE BY
Business and Corporate Law Practice Group.

OF
McBrayer, McGinnis, Leslie and Kirkland, PLLC