Supplemental Conditions

Details Matter: The Importance of Strictly Following Public Bid Statutes

Posted in Construction Law

Contractors bidding on public contracts know that failing to strictly following all of the technical aspects contained in the instructions to bidders can mean the difference between a winning and losing bid.  In the span of two weeks, I was involved with two cases that underscored the importance of this axiom.  Both cases involved New Jersey’s public bid laws.  While these cases show the importance of following a specific section of New Jersey’s public bid statute, the take away – that details matter – is universal.

The case involved a sewage authority project.  I represented the second low bidder.  The first low bidder submitted a bid package that was complete except for one technical aspect.  It failed to list the name of its electrical subcontractor on the “Subcontractor List” form provided by the authority in the bid package.  Both the instructions to bidders and Section 23.2 of the New Jersey Local Public Contracts Law required that the contractor list the names of its electrical, plumbing, and mechanical subcontractors.  The apparent low bidder listed the name of its plumbing and mechanical subcontractors but not the electrical subcontractor.  Notwithstanding our objections, despite the omission of the name of the electrical subcontractor, the authority decided to award the contract to the apparent low bidder.

Therefore, we challenged the award of the contract to the apparent low bidder in Court by seeking an injunction.  We argued that the instructions to bidders and the New Jersey Public Contracts Law were clear: if a contractor fails to list the name of its electrical subcontractor it is a fatal bid defect, which the local contracting agency cannot waive. The apparent low bidder argued that its failure to list the name of its electrical subcontractor caused no prejudice to the local agency (and ultimately the taxpayers) because the name of its electrical subcontractor was identified elsewhere in the bid package.

The trial court held that the apparent low bidder’s failure to list the name of the subcontractor on the bid form was a fatal non-waivable bid defect and concluded that the authority’s decision to award the contract was in error. Throughout its opinion the trial court emphasized that strict compliance with the bid statutes and instructions to bidders is required in order for a bid to be deemed responsive.  Importantly, the trial court noted bids containing technical defects should still be rejected even when there is an increased cost to the taxpayers because “the overriding interests in insuring the integrity of the bidding process is more important than isolated savings at stake.”

New Jersey Supreme Court Issue Important Decision for Homeowners and Contractors

Posted in Construction Law

The lack of insurance coverage for a contractor’s faulty workmanship is the bane of both homeowners looking to recover damage for defective work and contractors seeking to defend against such claims.  In many states, like Pennsylvania, courts hold that faulty workmanship is not an “occurrence” that is covered by a standard commercial general liability insurance policy.  In other words, courts hold that CGL policies cover damage to other property not part of the construction project itself.

This is problematic for both the homeowner and the insured.  For the homeowner, the lack of a policy providing indemnification sometimes means the homeowner is left trying to collect against a defendant, who is otherwise but has little to no assets against which to collect a judgment.  For the contractor, the lack of a policy providing coverage means that assets are at risk and it could be forced to spend significant sums in attorneys fees defending the case.

In Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court held that a contractors standard CGL policy covers consequential damages caused by defective workmanship, even if the consequential damages are to the project itself.  At issue in Cypress Point Condominium Association, was language contained in a standard ISO CGL policy that is used in as the standard language in a majority of policies.  The case arose out of a dispute between the insured contractor and its insurer over whether damage caused by leaking windows and facades was covered under the contractor’s CGL policy.  The Court held that such damages are covered holding:

“because the result of the subcontractors’ faulty workmanship here—consequential water damage to the completed and nondefective portions of Cypress Point—was an “accident,” it is an “occurrence” under the policies and is therefore covered so long as the other parameters set by the policies are met.”

The importance of this holding is significant.  First, homeowners stand a much better chance of collecting on a damage claim against a contractor found liable for defective work.  Second, contractor’s can expect coverage from their carriers in almost all defective construction claims.


NLRB Issues Decision with Significant Impact on Construction Industry

Posted in Unions

On July 11, 2016, the National Labor Relations Board issued a decision stating that unions can include both sole employees and joint employees into a single bargaining unit without the consent of both employers.  The case, Miller & Anderson, Inc., called upon the Board to revisit its holding in Oakwood Care Center, which held that a union could not seek to hold an election of a bargaining unit of solely and jointly employed individuals without the consent of both employers.  The decision has a significant impact on any contractor using temporary staffing services.

In Miller & Anderson, the sheet metal workers petitioned to represent a unit of employees solely employed by Miller & Anderson and those Miller & Anderson had leased through a construction industry staffing agency known as Tradesmen International.  The Regional Director dismissed the petition for an election based on the Board’s holding in Oakwood Care Center, which would required both Miller & Anderson and Tradesmen to consent to the election – which they did not.

The union appealed and the Board overturned the Regional Director and returned to the law that existed under its decision in M.B. Sturgis, Inc.  In doing so, the Board held that employer consent is not required for a bargaining unit of sole and joint employees so long as the employees maintained a traditional community of interest.

The decision is problematic for several reasons.  First, in the 16 years the standard has gone from no employer consent being required, to employer consent being required, and now back to employer consent not being required.  The is prejudicial to both employers and unions that seek to represent their employees because there is simply no certainty on what they law is or will be. The Regional Director’s dismissal was not overturned because he applied improper law, it was overturned because the NLRB did not like the law that existed, so the Board decided to change it by fiat.

Second, the decision will create tripartite bargaining between unions and two employers that have little common interests.  Because employers only have a duty to bargain but not to enter into an agreement with an union, it is unlikely that any workers will actual become represented by the union.

Third, make no mistake about it, this is a huge win for labor and will lead to many backdoor unionization of merit shop employers who use temporary employees, especially contractors will smaller full time employees.  For example, after Miller & Anderson, the unions can sneak salts onto a merit shop employers project.  If that contractor only had two full time employees and it leases three employees that happen to be covert union salts, the contractor will lose a union election no matter what it does.

Indicted Union Representatives Try Again to Revive Enmons

Posted in Unions

The Boston Globe reports that the Massachusetts AFL-CIO has filed a friend of the court brief seeking to have the indictment of five members of the Teamsters Union in Boston dismissed.  The Teamsters members are facing federal charges that they extorted non-union contractors and owners that employed non-union contractors.  The Massachusetts AFL-CIO is arguing that under the Supreme Court’s 1972 decision in U.S. v. Enmons the Teamsters alleged conduct was in furtherance of a legitimate union objective and, therefore, no illegal.

The move is a Hail Mary for unions.  Under Enmons, unions used to enjoy broad immunity from criminal prosecution for activities that would land anyone else in jail.  However, Federal Courts have repeatedly walked back the breadth of Enmons and recent prosecutions in New York and Pennsylvania show that Enmons does not provide unions protection from extortion claims when they seek to intimidate non-union contractors and real estate developers into giving work to union affiliate firms.

We should expect a decision from the federal court in Boston in a few months.  Hopefully, the court reaches the same result as the courts in New York and Pennsylvania.

Union Contractors Need to Read This

Posted in Unions

Earlier this year, I wrote about the indictment of the owners of a union construction company that was improperly operating a double breasted (a union firm and a related non-union firm) operation.  That indictment alleged that the owners of the union firm failed to pay union members fringe benefits and wages when the union employees worked for the non-union firm.  As I said in that post, it should be concerning that these allegations led to a criminal indictment because usually these types of allegations were dealt with in civil suits brought by the union.

This past week the U.S. Attorneys Office in Chicago announced the indictment of executives of a construction company for, among other things, failing to pay fringe benefits owed to union health, welfare, and pensions funds. This type of wrongdoing was also usually dealt with a civil lawsuit brought by the union health and welfare funds against the contractor that owed the money to the funds.

Union contractors with obligations to health and welfare funds need now need to worry that failing to pay the union funds could result in more than a simple collection action in federal court.  These two cases signal it could mean jail time.


Posted in Construction Law

Today, in a precedential opinion, the Third Circuit Court of Appeals, affirmed the District Court’s dismissal of a complaint against my client that alleged that a multi-family building was constructed in violation of the Federal Housing Administration’s (FHA) design and accessibility requirements for disabled persons.  A copy of the Opinion can be found here ( Opinion of 3rd Circuit. ) An adverse decision would have meant that my client could have been exposed to making several million dollars in alterations to its building.

A disabilities rights group filed a complaint against my client in the United States Federal District Court alleging that a multi-family (100+ units) building was constructed in violation of the FHA’s requirements for accessibility by disabled persons.  The project was a multi-million dollar renovation of an old abandoned warehouse into a state of the art apartment building.  The building was original constructed in 1912.  Although FHA and Department of Justice guidelines made clear that the FHA’s requirements did not apply to any building originally constructed before 1988, even if the property was original built and occupied for commercial purposes.  We filed a motion to dismiss the complaint which the District Court granted.  The rights group then appealed.

As the Third Circuit points out in the its opinion, there was no controlling case law on this issue, even though the FHA’s guidelines had existed for nearly 25 years.  The Third Circuit has now filed that void and issued a precedential opinion that says the FHA’s requirements indeed do not apply to building originally constructed before 1988 for any reason and then converted into residential use.

While the Court’s decision likely saved my client significant sums of money, it likely saved apartment developers and other building developers even more.


Jury Verdict Obtained in “Landmark” Case Against the City of Philadelphia

Posted in Public Contracts

Yesterday, in a case that attracted wide spread media attention (stories here and here), a jury in federal court ruled that the City of Philadelphia violated my client’s first amendment free speech rights when a Philadelphia City Councilperson blocked the sale of two city owned vacant lots to him in retaliation for my client challenging him for office.  The decision has been declared a landmark decision and the first of its kind.  It is humbling that the jury agreed with my argument and ruled in favor of my client.

The case involved an official custom and practice in Philadelphia known as Councilmanic Prerogative, which requires anyone wishing to acquire land owned by the City of Philadelphia to first obtain permission from the City Councilmember in whose District the property is located.  It then requires the same City Councilmember to introduce legislation approving the sale.  Obviously, this practices gives City Councilmembers a vast amount of power of land sales in their respective district.  If the City Councilmember does like you, you cannot acquire a parcel of land owned by the City.

In my case, my client was the highest bidder for two lots at a public auction for City owned land.  At the time, my client was was in a pitched election campaign against the City Councilmember in whose District the land was located. When it came time for the City Councilmember to introduce legislation approving the sale, the City Councilmember did something he has never done before (nor since) he refused to introduce the legislation.  After a two day trial, the jury agreed that the City Councilmember refused to introduce the legislation in retaliation against my client for engaging in protected political speech.

Some have asked if the jury’s verdict does away with Councilmanic Prerogative.  It does not.  However, it does mean that the City of Philadelphia can be held liable when it is used in an unconstitutional manner.

Of course, not everyone that is thwarted in an attempt to obtain City owned land happens to be a political candidate. But, the breadth of the jury’s verdict is not limited to that.  The First Amendment protects both our right to free speech and not to speak at all.   Although controversial, donating money to a campaign or using money for political purposes is a form of speech.  Conversely, not giving money to a political candidate or cause is also free speech.  In other words, you cannot be treated differently because you chose to remain neutral or disinterested.

Sadly, in the City of Philadelphia, the birth place of freedom, unequal treatment because of political affiliation and support is common place.  Campaign contributors have a better chance of obtaining City owned land from City Councilmembers because the Citycouncilmembers support them.  Under Councilmanic Perogative, if you have no support, you cannot obtain any land.

After yesterday, that is no longer possible.  If a Philadelphia City Councilmember treats a person that is NOT a campaign contributor differently than the way they treat someone that DOES contribute, then they have violated that non-contributor’s First Amendment right not to speak.  And, if they do the City will be liable for damages.

City of Philadelphia Slapped for Unconstitutional Behavior

Posted in Construction Law

Sadly, the City that gave birth to the Constitution repeatedly runs rough shot over the liberties it affords individuals and businesses.  In the latest rebuke to the City of Philadelphia’s malfeasance towards the Constitution, the United States District Court for the Eastern District of Pennsylvania, has ruled that the City’s publicly owned gas utility, Philadelphia Gas Works, violated landlords’ due process rights by slapping liens against properties for unpaid gas service debts incurred by tenants.

In a Memorandum decision dated March 17, 2016, Judge Curtis Joyner ruled that PGW’s process of filing liens against residential and commercial properties did not afford landlords adequate process to challenge the liens before the lien was filed.  As Judge Joyner rightly pointed out, it is well settled that before the government can deprive an individual or business of property, it must afford an adequate opportunity for an individual or business to challenge the proposed property deprivation.  Simply put, the Court found that PGW had not done this when it placed liens on landlord’s properties.

In the past few years, the Eastern District has been a staunch defender of the Constitution from City’s assaults on it. The decision striking down PGW’s unconstitutional lien scheme follows several similar cases involving the City of Philadelphia, including:

  • Bullard v. City of Philadelphia, 847 F.Supp. 711 (E.D. Pa. 2012).  In a case handled by my firm, the Eastern District granted summary judgment to a real estate developer whose property was demolished without affording the developer to contest the decision to demolish the property.  The Court ruled, like in the PGW case, that the City had violated the developer’s due process rights.
  • Sourovelis v. City of Philadelphia, 103 F.Supp.3d 694 (E.D. Pa. 2015).  In this case the Eastern District allowed to proceed a claim that the Philadelphia District Attorneys Office’s civil asset forfeiture program violated the due process rights of individual property owners.
  • Cradle of Liberty Council, Inc. v. City of Philadelphia.  In this highly publicized case, a federal jury returned a unanimous verdict against the City for violating the freedom of association rights of the Boy Scouts.  The City was required to pay the attorneys fees that the Boy Scouts incurred and also damages to the Boy Scouts.

If violating the Constitution is not bad enough, the taxpayers of the City of Philadelphia (which is already broke) are left on the hook to pay the attorneys fees that the City incurs in defending these actions and in paying settlements. Maybe the City will eventually learn that following the Constitution is free.

Is the Philadelphia Proposed Affordable Housing Impact Fee Constitional

Posted in Construction Law

WHYY is reporting that affordable housing advocated in the City of Philadelphia are demanding that City Council impose an impact fee of $4.80 a square foot on all new market rate developments and rentals that would go towards funding the City’s Housing Trust Fund.  The story reports that City Council members and Mayor Kenney have committed to considering the impact fee for expanding the Housing Trust Fund.

If City Council were actually foolish enough to pass such legislation, it would hopefully face a constitutional challenge.  Under established Supreme Court precedent, the demanded impact fee there has to be a nexus between the new construction and affordable housing.  In other words, the City would have to show that new construction is causing a decrease in affordable housing options in the City.  Moreover, the demanded fee would have to bear some proportionality to the impact it seeks to mitigate.

While leftist politicians and affordable housing advocates frequently complain that new developing is pricing long time residents out of certain neighborhoods,  like all straw man arguments, there is little to no empirical evidence to support such a claim.  Furthermore, the story does not mention how the affordable housing group arrived at the $4.80 figure it asks Council to impose and whether it bears any proportionality to the alleged impact on affordable housing that new development causes.

Councilman Johnson Tries to Shut Down Skynet

Posted in Construction Law

terminatorIn the Terminator movie franchise, the government develops a software system called Skynet.  The purpose of Skynet is to prevent human error in starting a nuclear holocaust. Instead, Skynet becomes self-aware and when programmers try to shut it down it perceives the human race a threat and tries to exterminate us and then it creates a bad-ass cyborg that looks like Arnold Schwarzenegger to help do that.

Registered Community Organization (RCO’s) are like Skynet less cyborgs and actual intelligence (artificial or otherwise). Like Skynet, the government (Philly City Council) created RCO’s for altruistic purposes.  However, rather than preventing nuclear war, RCO’s were created to prevent real estate developers from developing projects inconsistent with the character of the surrounding neighborhood (which, ironically, many RCO’s often treat like a nuclear apocalypse). Just like Skynet, the originally well intended RCO’s have taken on a life of their own and often terminate many job creating construction projects.

The out of control nature of RCO’s was recently on full display at a community meeting in Point Breeze where members of the RCO hurled anti-Semitic remarks towards developers proposing a project in the neighborhood.  In response, Councilman Kenyatta Johnson, whose district covers Point Breeze, contacted the Human Relations Commission (which is a public body that handles complaints related to discrimination in housing and employment but who the Councilman — perhaps not surprisingly — thinks are the thought and speech police).  He also said he would be introducing a bill establishing an RCO “code of conduct.”   

Councilman Johnson’s decision to reign in RCO’s is ironic because he has been a chief antagonistic in stoking the anti-gentrification flames through the RCO’s.  Only now, those same RCO’s have gotten out of control and threaten to kill their creators.  In fact, he recently joined with the very RCO he is now chastising, Concerned Citizens of Point Breeze, in appealing a project located in Point Breeze.  Essentially, he wants to kill the monster he has created.

Irony aside, real estate developers should cheer Councilman Johnson’s bill, however probably not for the reasons he thinks.  Apparently, the Councilman has now gone on record that RCO’s “have an official relationship with the City of Philadelphia, so we must ensure that they operate with a level of decency and order.”  This is good to know because as state actors or agents of the government both the United States and Pennsylvania Constitutions would apply to them and so do fun things like procedural and substantive due process rights (to name a few).  (I note that if the Councilman reported a group for making anti-Semitic remarks to a Commonwealth agency, I doubt he spends much time thinking about the Constitution).  When those two minor documents apply, RCO’s can then be sued and held liable for violating the rights contained in those documents.

Alas, the Councilman’s bill might not get too far.  The problem – ironically – the pesky Constitution.  The same document that provides for procedural due process rights also prevents the government from regulating the speech related conduct of organizations like RCO’s.  Unless of course Councilman Johnson’s bill wants to clarify that RCO’s are indeed official government organizations.  In that case, regulate away.