Tax Warning to all Federal Contractors

The Federal Contracting Law Blog reports that in January President Obama signed a presidential memorandum instructing the IRS to audit all federal contractors. The audit will prevent companies that owe back taxes from obtaining more federal work.

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

An Ounce of Prevention: Consistent Contract Drafting Can Prevent Litigation in Multiple Forums

Opinions regarding whether arbitration of project disputes is better than litigation really are like noses—everyone has one and they all seem to be different. There are certainly benefits and drawbacks to both forms of dispute resolution. But prudent contractors should decide which forum is appropriate based on the project and make sure all contracts within that project are consistent. Otherwise, you run the risk of having to fight the same battle in both litigation and arbitration at the same time.

For example, in a current case involving a local residential community, the general contractor entered into subcontracts that contained arbitration clauses that either gave the general contractor the election of dispute resolution forums or were ambiguous regarding dispute resolution. At the same time, the general contractor issued purchase contracts to the homeowners that require arbitration for dispute resolution, but some of the contracts allowed consolidated arbitration—more than one homeowner can participate in the arbitration proceedings—and some contained non-consolidation clauses—every arbitration must be separate and distinct.

When some of the homeowners brought claims for alleged construction defects in their homes, the error of the general contractor’s failure to maintain consistent contracts was uncovered. Some of the cases are in a consolidated arbitration, but more than 60 are lined up for separate non-consolidated arbitrations. And even more subsequent purchasers—who have no contract with the general contractor—have brought claims in Superior Court.

Additionally, the homeowners are arguing that, based on their contracts with the general contractor, the subcontractors are not allowed to participate in their arbitrations. The general contractor, on the other hand, claims that the subcontractors will be bound by the arbitrator(s)’ rulings, which could spawn yet more separate litigation in another county.

All of this could have been avoided by good planning at the contracting stage. Contractors—and their lawyers—should keep a close eye on the dispute resolution forums in their contracts. If the contract is silent on this issue, then that means any dispute will be traditionally litigated through the courts. If there is a valid arbitration agreement, then any disputes will likely be arbitrated.

To prevent being dragged into both arbitration and litigation at the same time, make sure all of your contracts on every project are consistent regarding the dispute resolution forum. If one contract has an arbitration clause, make sure all your contracts contain a consistently-similar provision. Conversely, if the "upstream contract" makes no mention of arbitration (meaning litigation would be the dispute resolution forum), keep your "downstream contracts" silent as well.

As with any construction project, the key is good advance planning. An ounce of prevention will help avoid being sued in multiple forums later should disputes arise.

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

Putting the ‘Pay’ Back into Paycheck

Are you using Textura? If not—and you execute or require lien waivers on your projects—then you might want to consider it. Textura is considered the bill-pay site of the construction industry, and uses the internet to remove the physical—and painfully repetitive—exchanges of paper that take place when contractors receive paychecks and issue lien waivers. Basically, it eliminates the inefficiencies of the construction payment and management process by replacing the mountains of paper payment documents with an internet-based computer program. Using the computer program, it electronically connects everyone involved in the payment process, including owners, general contractors, and subcontractors. According to http://www.texturallc.com/, it reduces the process of filling out forms, obtaining signatures, and transporting documents that used to take days, into a few simple clicks on the computer.

Textura claims to serve more than 25% of the top 400 contractors in the United States, thousands more subcontractors, and a growing list of owners. More than 20,000 firms are using it to get paid faster and save as much as 20,000 per project.

Some industry insiders also believe that Textura may eventually become a new kind of social network. Textura’s chairman and CEO, Patrick Allin, says that “Textura has the potential to explode like Facebook.” And already, a dozen general contractors and 6,000 subcontractors are using it as such.

Just something to keep in mind if you’re interested in getting paid faster, saving thousands of dollars in back-office costs, or networking with thousands of other contractors—all through your computer.

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

VA HOSPITALS IN ARIZONA TO RECEIVE SOLAR PANELS

REC Solar—a San Luis Obispo, CA solar company—has announced that it will provide the means to renewable energy at Veterans Affairs hospitals in Arizona and two other states.

VA hospitals in Phoenix and Tucson will join facilities in California and Nevada as REC installs about 1.7 megawatts of solar panels on the roofs. That is enough electricity to power about 3,600 homes.

The REC/VA projects will result in about 60 jobs in the three states, but if successful, could be the beginning of a trend—similar to cell phone towers—where solar panels are placed on the expansive roofs of local facilities in order to serve people in those areas and create many more job opportunities in the local market. To some, this is a more attractive proposition then creating solar fields of solar panels in rural areas and wiring it into urban areas.

REC Solar expects the work to be done by the end of spring. The system will be the largest for the Department of Veterans Affairs.

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

TEN POINTS TO KEEP IN MIND IN TODAY’S CONSTRUCTION MARKET

10. Know with whom you’re contracting, and make sure they are financially viable (or at least that they have bonding or insurance companies that are).

9. Prevent costly personnel ambiguities by having well-defined, fair, written, and well-communicated employment policies in place before problems arise.

8. The best defense to an OSHA investigation is to prevent an OSHA investigation.

7. Don’t agree to any indemnity provision unless you’re willing to financially be on the hook for another party’s negligence.

6. On the other hand, if you negotiate indemnity from another party, make sure the indemnity provision in the contract is actually enforceable.

5. Do not include heavy-handed and/or punitive liquidated damages provisions in your contracts–courts will not enforce them.

4. Remember that old emails never die–if you wouldn’t put something on paper, don’t send it in an email.

3. Limitations of liability are serious–if you use them in your contracts, use them correctly to ensure enforceability.

2. Have good billing practices. Know your lien deadlines and stick to them!

And #1...drumroll please....

1. Read your contracts. Understand your contracts. Enforce your contracts!

For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.

What's New at the ROC

By Jessica A. Jackson

I recently attended a seminar highlighting what we can expect to see changing at the Arizona Registrar of Contractors (“ROC”) in the near future. The Chief of the ROC’s Legal Department, Jessica Fotinos, spoke about some changes within the agency that is likely going to have an impact on contractors and those in the construction industry.

Because the ROC is a state agency, budget issues are a big motivator behind some of the changes that we may see at the ROC. For example, the ROC’s recovery fund is severely depleted due to reduced funding by the state, and one of the legislative changes would give the Director of the ROC the authority to order an assessment against each licensed contractor to keep the recovery fund intact. This would mean even more fees for Arizona contractors in tough economic times.

Not all of the proposals regarding budget issues are reactive, however. The ROC has examined several areas within the agency that seem to be running inefficiently, and has come up with a few changes that will hopefully result in some cost-savings to the agency in the long run. Aside from cutting back on mailing everything via certified mail to save costs, a mediation and/or arbitration option is being explored at the recovery fund stage. Ms. Fotinos explained that approximately 20% of all claims paid out of the recovery fund are less than $2,000 per claim. To speed up the recovery fund review process, a mediation and/or arbitration program is being explored for claims under a certain dollar amount so that the agency becomes more efficient at processing these claims.

The ROC is also evaluating the types and scope of existing license classifications. Apparently the ROC spends a lot of time reviewing what the appropriate license classification should be on a project-by-project basis. To eliminate these inefficiencies, we can expect to see more policy statements issued by the ROC explaining how to select the appropriate classifications. We may even see amendments to the classifications themselves.

Lastly, Ms. Fotinos mentioned that a big concern at the ROC is the number of complaints they receive from contractors regarding how the agency reports complaints filed against a contractor on the website. The ROC said that they are currently examining a more accurate way of reporting complaints on the website so that they can be as clear as possible in conveying to the public the status and resolution of the complaint.

Please contact Jessica Jackson at jjackson@holmwright.com or (480) 477-8593 for additional information.