This post was authored by Jon Schaefer, who is a member of Robinson+Cole’s Environmental, Energy + Telecommunications Group. Jon focuses his practice on environmental compliance counseling, occupational health and safety, permitting, site remediation, and litigation related to federal and state regulatory programs.

On July 20, 2023, the Occupational Safety and Health Administration (OSHA) published a notice of proposed rulemaking to clarify the personal protective equipment (PPE) standard for the construction industry.

Currently, the PPE standard for the construction industry, unlike for general industry or maritime, does not state clearly that PPE must fit each affected employee properly. OSHA’s proposed change would clarify that PPE must fit each employee properly to protect them from occupational hazards. In the notice, OSHA expressed concern over the use of standard-size PPE to protect physically smaller construction workers properly, as well as access to properly fitting PPE, as these have long been safety and health concerns in the construction industry, especially for smaller-stature workers. The proposed rule clarifies the existing standard (29 CFR 1926.95).

While OSHA does not expect the change will increase employers’ costs or compliance burdens, it is reasonable to expect that employers will incur some costs to put in place new protocols, acquire new PPE, and confirm compliance. At the end of the day, OSHA is making it clear that they expect each employee on a construction worksite to have appropriate and properly fitting PPE.

OSHA is accepting comments, and hearing requests, on the proposed rulemaking through September 18, 2023. Comments must be submitted using the Federal eRulemaking Portal and reference Docket No. OSHA-2019-0003.

Most bond forms in use today, including the standard form AIA A312-2010, contain express condition precedents that trigger a surety’s obligations under the bond. Under a performance bond, the bond obligee is required to provide formal notice to the surety that the principal has materially defaulted and that the surety must begin to perform under the terms of the bond.  This principle is grounded in the idea that the surety should have an opportunity to address the default and investigate the claim so as to mitigate its own liability. Failure to provide sufficient notice will discharge the surety of its obligations under the bond.

The critical importance of providing a performance bond surety with notice of a principal’s default was the basis of a recent decision by the Rhode Island Supreme Court.  In Apex Development Company, LLC v. Department of Transportation, 291 A.3d 995 (R.I. 2023), the Court affirmed the grant of summary judgment for the sureties due to the failure of the owner of the project to provide any formal notice of default.  Here, the Rhode Island Department of Transportation (RIDOT) filed a third-party complaint against the sureties for indemnification after a landowner alleged that RIDOT trespassed and damaged its property during the reconstruction of a portion of the I-95 highway.  The sureties filed a motion for summary judgment arguing that the bond only applied to direct construction costs and not to third-party damages.  The sureties further argued that the bond became null and void upon substantial completion of the project, and even if it did not, the sureties’ obligation under the bond was discharged because of RIDOT’s failure to give notice of the alleged contractor default to the sureties.  RIDOT argued that the sureties’ interpretation was too narrow because the public works bond was more expensive than other bonds, and it also covered all the contractor’s responsibilities under the contract, including indemnification. The lower court granted the sureties’ motion for summary judgment, which the Supreme Court affirmed. It reaffirmed the principle that the purpose of a bond is to guarantee the work in question was to be completed and not intended to compensate for indirect losses or for indemnification.  Moreover, the Court also found that the obligations of the sureties under the bond is conditional. Specifically, “[i]n order to trigger surety’s obligation to perform under a bond, it must first have notice of the principal’s default or breach.” In this case, RIDOT failed to meet these conditions as it never notified the sureties of the claims arising out of the contractor’s alleged trespass and, thus, the sureties were discharged from all obligations under the bond.

Most subcontracts include a flow through provision (also called flow down and incorporation clauses) stating that the subcontractor and contractor are bound by the same obligations as set forth in the prime contract between the contractor and owner.  Many jurisdictions interpret such provisions narrowly, as illustrated in a recent case out of New York.  In Amerisure Insurance Company v. Selective Insurance Group, Inc., 2023 WL 3311879, the U.S. Court of Appeals for the Second Circuit affirmed the District Court’s interpretation of a flow through clause in a construction subcontract. The Amerisure case involved a dispute over insurance coverage for a personal injury to a subcontractor’s employee on a construction project.  The owner of the project sought defense and indemnity from the general contractor (GC) and its insurance company, who in turn sought coverage for the owner as an additional insured under the subcontractor’s policy.  The GC based its argument for coverage on the flow through provision in the subcontract.

The prime contract required the GC to procure commercial liability insurance including the owner as an additional insured for claims caused by the GC’s negligent acts or omissions.  The subcontract likewise required the subcontractor to procure commercial general liability insurance but required only that the GC be named as an additional insured.  However, the subcontract also included a flow through clause, binding the subcontractor to the terms of the prime contract and assuming toward the GC all the obligations and responsibilities that the GC assumed toward the owner. However, the subcontract did not expressly require that the subcontractor name the owner as an additional insured, and in order for the owner to qualify as an additional insured under the subcontractor’s insurance policy, the subcontractor must have agreed in the subcontract to name the owner as an additional insured.

The District Court rejected the GC’s argument that the flow through clause in the subcontract incorporated all the GC’s obligations, including the GC’s obligation to provide additional insurance coverage to the owner.  The Court examined the flow through clause under both Virginia and New York law, reaching the same conclusion for each.  It relied on a New York case for its rationale, Persuad v. Bovis Land Lease, 93 A.D.3d 831 (2d Dep’t 2012), which provides “under New York law, incorporation clauses in a construction subcontract, incorporating prime contract clauses by reference into a subcontract bind a subcontractor only as to the prime contract provisions relating to the scope, quality, character and manner of work to be performed by the subcontractor.”  The Court concluded that because the subcontractor did not expressly assume an obligation to name the owner as an additional insured, the flow through clause would not apply to an additional insured obligation, and therefore the owner was not an additional insured under the subcontractor’s policy.

Contracting parties need to be conscious of overreliance on flow through clauses. In jurisdictions like New York, which narrowly construe these provisions, only the obligations pertaining to the scope of work are likely to flow down to a subcontractor.  Disputes involving flow through provisions typically involve important risk management provisions such as insurance, indemnification, and arbitration, which are not necessarily considered to pertain directly to the scope of work.  The better approach to ensure an obligation flows down to a subcontractor, regardless of the jurisdiction governing the contract, is to make sure the subcontract itself specifically includes what the parties agree on.

A common provision often deleted from the standard form AIA documents is the provision in the AIA A201 General Conditions requiring an Initial Decision Maker (IDM) for claims between the contractor and owner. In the A201, the contracting parties have the option of naming their own IDM for the project. If an IDM is not selected (which is typically the case) the architect serves this role by default. While it is in all parties’ best interests to resolve disputes quickly and efficiently, using the architect as the IDM is not the best way to achieve such a resolution.

Several reasons work against using the architect as the IDM. Contractors typically don’t trust architects to be impartial in resolving disputes because the architect is paid by the owner. Most architects don’t have the temperament or any training to facilitate dispute resolution. An architect’s “initial decision” could even drive the parties further apart and lead to further issues later in the project. The architect may also be perceived to be part of the problem that led to the dispute in the first place. Also, many architects simply prefer to avoid serving the thankless role of an IDM altogether. Lastly, inserting the architect into the dispute resolution process as a required IDM adds an additional unnecessary step to dispute resolution, which can delay the overall procedure.

Rather than serving as an IDM, an architect is better suited to facilitate a resolution in a different capacity, as part of a “settlement team.” The architect is readily familiar with the project and can offer insight on and analysis of the facts that led to the dispute. The architect can point out strengths and weaknesses to both sides without taking a position one way or the other.  Moreover, disputes can be resolved or reduced without direct payment of additional compensation and the architect is well-suited to propose and/or evaluate such potential resolutions.

Not all projects and parties are the same and what may work to resolve disputes on one project may not work for another. However, the concept of a team approach to settle disputes (more like that expressed in the Consensus DOCS 200) should at least be considered for every contract. As a general proposition, if a claim cannot be resolved informally, a construction contract should require authorized representatives for the owner and contractor to meet with the architect at an initial settlement meeting.  Such a meeting should be held promptly and made a condition precedent before moving onto mediation or arbitration/litigation. The parties should be required to analyze and exchange their best, good-faith settlement offers, along with the backup supporting their positions, prior to the initial settlement meeting.  Copies should be submitted to the architect as well. The sooner each party seriously examines their respective claims, the more likely a resolution can be reached. Additional provisions can also be added to the contract to incentivize the process.

 If all the issues are not resolved at the initial settlement meeting, either party can immediately move forward with the next step toward dispute resolution. Much of the work required for the next step should already be completed and the parties can quickly line up a qualified mediator to help resolve the dispute short of litigation or arbitration.

New York recently enacted legislation known as Carlos’ Law, which increases penalties for corporate liability for the death of, or serious injury to, an employee.  The bill, S.621B / A.4947B, was named after Carlos Moncayo, a construction worker killed in a trench collapse on a New York City construction project.  Moncayo’s employer repeatedly flouted safety rules and ignored warnings of dangerous conditions on its construction site before failing to properly support the trench that collapsed and killed Moncayo.  Moncayo’s employer was convicted for his death, but the penalty was light.  The company was sentenced to pay only $10,000, the maximum penalty at the time for any company convicted of a felony in New York State. The legislature responded with Carlos’ Law, which increases accountability for “employers,” and expands the scope of “employees” covered.

The corporate criminal law, NY Penal § 20.20(2)(c)(iv), imposes liability on an employer when “the conduct constituting the offense is engaged in by an agent of the corporation while acting within the scope of his employment and on behalf of the corporation, and the offense is . . . in relation to a crime involving the death or serious physical injury of an employee where the corporation acted negligently, recklessly, intentionally, or knowingly.”  An “agent” of an employer is any “director, officer or employee of a corporation, or any other person who is authorized to act on behalf of the corporation.” § 20.20(a). An “employee” now includes any person providing labor or services for remuneration for a private entity or business within New York State without regard to an individual’s immigration status, and includes part-time workers, independent contractors, apprentices, day laborers and other workers. § 10.00 (22).  The penalties for criminal corporate liability for the death or serious injury of an employee now include maximums of $500,000 when centered on a felony, and $300,000 when centered on a misdemeanor. § 80.10(1)(a) and (b).

Construction costs in New York City are already exorbitant due, in part, to current laws and regulations.  Carlos’ Law will increase costs for all construction projects in New York.  Insurance costs will rise to cover the increased risks on all employers, the vast majority of which already consistently enforce and pay for strict safety procedures and protocols for their employees.  These increased costs may put smaller companies out of business and may lead to less overall construction work in the state.  Another concern is the impact on liability insurance coverage for victims.  Insurance companies may be able to disclaim coverage for an injured worker if a criminal proceeding is brought against the employer.  This could reduce an injured worker’s ability to recover damages.  While the increased criminal fines paid to the state sounds good, how much of a fine will go to increasing safety for victims and their families?

When it passed, the legislature represented that Carlos’ Law will have no fiscal implications for state and local governments. (legislative memo in support). This is difficult to believe considering that increased insurance costs on employers typically get passed on to, and paid by, both private and public construction project owners.  There is little doubt that Carlos’ Law will increase construction project costs; hopefully, an increase in worker safety follows suit.

In All Seasons Landscaping, Inc. v. Travelers Casualty & Surety Co., No. DBD-CV21-6039074-S, 2022 WL 1135703 (Conn. Super. Ct. April 4, 2022) the plaintiff, a subcontractor on a state project, commenced a lawsuit against the surety who issued a payment bond on the project two years after the subcontractor last performed any original contract work on the project.  The defendant surety moved to dismiss the action based on the one-year statute of limitation in Connecticut General Statute § 49-42.  The plaintiff countered that it complied with that deadline because it also performed warranty inspection work after the contract was completed and within the limitation period in section 49-42. The issue of whether warranty work or minor corrective work can extend the limitations period in section 49-42 had not previously been addressed by a Connecticut court.

Section 49-42(b) governs the limitation period on payment bond claims on public projects.  It provides in relevant part that “no … suit may be commenced after the expiration of one year after the last date that materials were supplied or any work was performed by the claimant.”  Section 49-42 provides no guidance on what “materials were supplied or any work was performed” by the claimant means, nor is there any direct appellate-level authority in Connecticut on this issue.  What is clear under well-established law in Connecticut is that the time limit within which suit on a payment bond must be commenced under Section 49-42 is not only a statute of limitation but a jurisdictional requirement establishing a condition precedent to maintenance of the action and such limit is strictly enforced.  If a plaintiff cannot prove its suit was initiated within this time constraint, the matter will be dismissed by the court as untimely.

Without any state appellate authority, and since section 49-42 was patterned on the federal Miller Act (40 U.S.C. §§ 270a – 270d), the court looked to federal precedents for guidance.  The federal court decisions applying the Miller Act, which has similar language as section 49-42, have consistently held that warranty work or minor corrective work will not toll the statute of limitations in the Miller Act.  The statute of limitation begins to run when the original contract work is completed.  Remedial or corrective work or materials, or inspection of work already completed, falls outside the meaning of “labor” or “materials” as these terms are used in the Miller Act.  Thus, correction or repair work, even if such work is requested by an owner, does not toll or affect the time constraint to file suit.  The All Seasons Landscaping court adopted this “bright-line” rule for all payment bond suits under section 49-42 in Connecticut.

Interestingly, the deadline for filing suit on payment bond claims on public projects now appears to be more restrictive than the caselaw governing the time limit for filing a mechanic’s lien on a private project.  Connecticut General Statutes § 49-34 requires a mechanic’s lien to be filed in the land records within ninety days after the “performing of services or furnishing of materials.”  Well-established caselaw allows this ninety-day lien period, even after the original contract work has been completed, to start over from the date the owner requests any additional work, even trivial warranty or corrective work, to be performed.

Business relationships often begin before parties execute a written agreement containing the terms and conditions by which the relationship will be governed.  With little more than a Letter of Intent (“LOI”) or Letter of Award (“LOA”) one party is typically pressured to begin investing time and money to start preliminary work on a project.  If such LOI or LOA contains nothing more than an agreement to agree later, the performing party should minimize its investment until the later agreement is executed.  A recent court decision in New York confirmed the danger to the performing party under “agreement to agree” provisions. 

In Permasteelia North America Corp. v. JDS Const. Group, LLC, 2022 WL 2954131 (N.Y. Sup. CT. 7/22/22), the plaintiff subcontractor allegedly performed $1.9 million worth of preliminary work under nothing more than a LOA with an agreement to agree provision.  Issues arose, and the parties never entered any later written agreement.  The general contractor refused to pay the plaintiff anything for its preliminary work. In response, the plaintiff filed suit against the general contractor asserting four counts: foreclosure of its lien, breach of contract, unjust enrichment, and account stated.  All four counts were based on an alleged oral “handshake deal” for subcontract work for the project.  The general contractor’s LOA stated that neither party would be bound “unless and until the parties actually execute a subcontract.” During discovery, the plaintiff admitted that neither party intended to enter into any contract until its potential terms were negotiated, reduced to writing, and signed. Moreover, the plaintiff only offered one set of meeting minutes and a few project agendas to support its alleged “handshake deal.” Once these necessary undisputed facts were confirmed, the defendant moved for summary judgment on all four counts.

The court readily granted the defendant’s motion on all counts based on clear and well-settled New York law.  Where an agreement contains open terms, calls for future approval, and expressly anticipates future preparation and execution of contract documents, there is a strong presumption against finding a binding and enforceable obligation.  An agreement to agree, in which material terms are left for future negotiations, is unenforceable unless a methodology for determining the material terms can be found within the four corners of the agreement, or the agreement refers to an objective extrinsic event, condition, or standard by which the material terms may be determined.  The defendant’s LOA only called for anticipated future preparation and execution of a subcontract, which is not enforceable.  As a result, plaintiff will recover nothing for the work it allegedly performed under the LOA.

In New York, agreement to agree provisions negate the enforceability of anything other than a subsequent fully executed contract.  Under such provisions, one party avoids legal expenses and the risk of an uncertain outcome of a lawsuit based on an oral agreement, and the other party risks nonpayment with no legal recourse to get paid, as happened in the case noted above.

Below is an excerpt of an article published in High Profile on April 4, 2023

After a public hearing held on March 6, House Bill No. 6826, An Act Concerning Liability for False and Fraudulent Claims was voted out of committee by a wide margin, and then added to the House Calendar on March 28. This bill expands the scope of Connecticut’s current False Claims Act by eliminating the limitation that it only applies to state-administered health and human services programs. It would expand potential liability and penalties under the act to allow both private citizens and the attorney general to bring False Claims Act allegations in any context, including construction projects involving state funds. Read the full article.

On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (IIJA) (Public Law 117-58).  The IIJA includes the Build America, Buy America Act which declares that “none of the funds made available for a federal financial assistance program for infrastructure may be obligated for a project unless all of the iron, steel, manufactured products, and construction materials used in the project are produced in the United States.”  The Office of Management and Budget (OMB) released its initial guidance on how to implement the new law and define certain terms in the Buy America Act on April 18, 2022.  The OMB provided additional guidance on February 9, 2023.  Such guidance is contained in a new 2 CFR Part 184 amendment which is poised to broaden the scope of the Buy America Act requirements on federally-funded infrastructure projects to include an ever-growing list of construction materials.

OMB’s initial guidance in 2022 defined “construction materials” as articles, materials, or supplies incorporated into an infrastructure project that consist of one or more of the following materials: non-ferrous metals, plastic and polymer-based products, glass, lumber, or drywall.  OMB has defined “infrastructure project” as “any activity related to the construction, alteration, maintenance, or repair of infrastructure in the United States regardless of whether infrastructure is the primary purpose of the project.”  OMB also defines the term “infrastructure” to cover all public infrastructure work as broadly as possible.

OMB’s most recent guidance added three more types of construction materials to be covered under the Buy America Act: composite building materials, fiber optic cable, and optical cable.  Each of the eight materials are provided a standard for the material to be considered “produced in the United States.”  In addition, OMB seeks feedback on whether to include three more construction materials: coatings (paint, stain, and other coatings applied at the work site); brick and engineered wood products; and a catchall request for any other construction materials which may need to be covered.

Lastly, OMB’s guidance also includes a procedure by which federal awarding agencies can waive the Buy America Act requirements.  There are three types of potential waivers: a public interest waiver, a non-availability waiver, and an unreasonable cost waiver.

Wherever they end up, the Buy America Act requirements must be included in all the terms and conditions for all federal awards with infrastructure projects, including all subawards, contracts, and purchase orders for the work performed or products supplied under the award.  Given the technical complexity of many federal projects, the more construction materials covered, the more difficult it will be to ensure compliance with the act.  While more funding for infrastructure projects is needed, the additional strings within which to be entangled are not.  As a result, federal government projects will become increasingly more complicated and expensive to bid on and to perform.

Over the past several years, modular construction has been on the rise and this method of construction has been used in the creation of health care facilities, education facilities, and apartment buildings. With the increased demand for housing, the popularity and use of modular construction has grown even more rapidly throughout the industry. In response to modular construction’s growing popularity, in 2020, the ConsensusDOCS Coalition released the first industry-standard contract document in this area—the ConsensusDOCS 753 – Standard Subcontract for Prefabricated Construction.  On February 2, 2023, the ConsensusDOCS Coalition announced the publication of the ConsensusDOCS 253 Prime Agreement and General Conditions for an owner to procure prefabricated construction materials and components. This is the industry’s first standard prime-level contract document to address the unique features and legal implications created by the prefabrication process. The ConsensusDOCS 253 provides best practices and risk allocation when the owner purchases the prefabricated components directly from the prefabricator.

ConsensusDOCS 253 follows the risk allocation principles of the ConsensusDOCS 200 Standard Owner/Constructor Agreement and General Terms and Conditions, allowing an Owner to contract directly with the Prefabricator with an “off-the-shelf” standard agreement. The contract document presumes the scenario wherein an Owner purchases a prefabricated component made at the prefabricator’s site which is then delivered and installed at the worksite. The contract document includes:

  • Industry standard definitions for Fabrication Site, a prefabricated Component, and a prefabricated Storage Area;
  • Guidance for users to delineate work to be performed off-site versus at the worksite in an exhibit;
  • Provisions specifying adequate storage areas that must be provided for prefabricated components;
  • Notice provisions for inspections of the Prefabricator’s site which allows Prefabricator’s protection of sensitive proprietary information;
  • Provisions acknowledging that a Prefabricator’s fabrication methods may be confidential;
  • Provisions addressing warranty issues when a Prefabricator acts as a manufacturer versus providing other materials and equipment that are incorporated in the Work;
  • Provisions addressing several scenarios regarding the risk of loss of a prefabricated component during different stages of transportation and delivery; and
  • Option for upfront payment to account for the large capital outlays needed to make prefabricated components.

For more information on the ConsensusDOCS 253 Standard Agreement and General Conditions Between Owner and Prefabricator, please visit ConsensusDOCS.