5 Construction Law Trends to Watch in 2015

As we enter the New Year, here is a look at 5 areas that will be a hot bed of legal activity for contractors and their attorneys.

1.   Aggressive Union Activity.

Decreasing membership and market share, will cause Big Labor to ramp up efforts to “persuade” public and private owners to use an all union workforce.  This means increased picketing, bannering, and “ratting” of projects using non-union subcontractors.  On public projects, labor will continue to lobby government officials for the use of union only project labor agreements.  Owners and contractors need to be ready to combat labor’s tactics.

Union shop firms must be aware of their contribution requirements under their CBA.  The 2008 stock market crash (from which union pension funds have never full recovered), increasing vested liabilities from an aging workforce, and decreasing membership have lead many union health and welfare funds to be underfunded.  In fact, union pension funds may be the next big Washington bailout.  In the meantime, unions will aggressively pursue delinquent  contractors for contributions to health and welfare funds.

In Philadelphia (and perhaps around the country), eyes will be on jury’s verdict in the Ironworkers extortion trial involving former Ironworkers head, Joseph Dougherty.  A conviction could lead to a wave of indictments against union leaders that have engaged in similar tactics across the country.

2.  Increased Regulation of Contractors.

President Obama’s policy of creating a regulation nation continues unabated.  In 2014, the Obama administration issued 78,978 pages of new federal regulations many which impact contractors.  Any contractor or subcontractor performing work on a project receiving any form of federal funding assistance must be aware of the regulations that apply to them.

3.  Rising Default Rates.

With the federal reserve signaling the era of free money coming to an end, interest rates will rise.  Rising rates will make borrowing costs higher for both owners and contractors. Increased borrowing costs could lead many contractors to fail, especially firms that saw rapid expansion following the recession.  Owners may increasingly default as projects are increasingly difficult to finance.  Moreover, rising rates should slow the rapid increase in asset values, such as real estate.  This could make development projects less attractive leading to many proposed projects being shelved.  Bottom line for contractors, know you lien and bond rights.

4.  Growing Comfort with Public Private Partnerships.

Cash strapped state and local governments will continue to look to public private partnerships (PPP) as a way to fund infrastructure projects.  The success of high profile (and dollar) PPP projects in Florida, Pennsylvania, and Delaware will likely determine if the use of PPP as a source of infrastructure funding will increase in coming years.

5.  Continued Growth in Health Care and Institutional Construction.

Whether you agree with it or not, our current public policy is that everyone has a right to a college degree and healthcare.  Accordingly, the federal government has heavily subsidized higher education and healthcare.  Increased dollars in the hands of administrators in higher education and healthcare has lead to a building boom in these two sectors.  Eventually the music will stop, but in the near term contractors can expect increased work in these areas.

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L&I Continues to Skirts Its Responsibilities

Has anything changed with the way L&I conducts business in the wake of the Market Street building collapse?  Perhaps not surprisingly, no.

In today’s Philadelphia Daily News, Helen Urbinas shares a story of a neighbor who is plagued by an adjoining home that is in danger of collapse. Despite a report from a structural engineer that concludes

“The front wall is bowing out, flashings are loose and falling off of the wall, the downspout is loose and falling. It’s also not properly connected to the wall or connected to city storm pipes. Brick joints are open for water to flow into them”

L&I refuses to act.  Instead, its inspectors, who you recall are not structural engineers or even trained in spotting what a building in danger of collapse looks like, have stated that there are no structural issues with the home.

If that is not bad enough we have this gem from L&I spokesperson, Rebecca Swanson,

“It’s [the neighbor’s] responsibility to take care of his property. We enforce the code.”

Right, and enforcing the Code includes getting the Law Department to petition the Court for injunctive relief to have the City make the repairs and then place a lien against the property for the cost or even getting permission from the Court to demolish the property.  Apparently, the L&I has done neither.

On a positive note, officials in Harrisburg are apparently not waiting around for the City to change its ways.  Rep. Bill Keller of Philadelphia has introduced legislation that would require L&I inspectors to actually be trained in what to look for in structural failures and would include State oversight of L&I officials to make sure they are completing their training.



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Acts of God and Acts of Incompetence

As the Northeast struggles to regain its footing after Super Storm Sandy, many are asking two questions: (a) When is my power going back on?; and (b) Could any of this been prevented.  While I cannot answer the first question, the answer to the second is yes.

Next to the post-apocalyptic looking devastation on the New Jersey Coast and the fire in Breezy Point, NY, the most shocking thing about Sandy is the havoc  the storm reeked on critical infrastructure systems in New York City.  The reason it is so shocking is much of it was preventable.

While I never served in the military, I find that many military mission planning principals are just as applicable in the civilian world as they are in combat. Two I particularly like are “no plan survives first contact;” and “two is one, and one is none.”  See, even the most sophisticated, best trained, and best equipped military in the history of the world plans for failure.  In fact, even the special operations team who executed the Bin Laden raid – the best of the best of the best – planned for failure.  So, when they lost a helicopter the mission kept going and everyone got out safely.

Apparently, those responsible for critical infrastructure components in NYC never heard of either of these principals.  Generator systems failing at hospitals is simply inexcusable.  Failing electrical substations because of flooding is inexcusable.  Why?  Because their failure was foreseeable.  Let’s start with the generator failures.  It is not as if NYC has not had problems with its electrical grid and blackouts before.  Moreover, it is widely accepted that our electrical grid is junk.  The experts have probably issued more warnings about the need to upgrade our electrical grid than any other infrastructure component.  Therefore, something like a hospital should plan on having to run on generator power for extended periods of time. That means you need to make sure your generator system is redundant.  Your diesel fuel pump to your generator broke? You should have a second one (two is one and one is none).  Rain caused your roof top generator to blow out, plan for it (no plan survives first contact).

What about the subway systems and electrical substations?  Officials have known for years that many of these systems lie in flood plans.  The Army Corp of Engineers has flood plan maps for all of NYC.  They know where flooding is to occur is not based on conjecture or guesses but because it has flooded there before and the geography makes it susceptible to flooding . Maybe not recently, but recently enough for the Corp to let us know it is possible.  Accordingly, critical components should not be placed there and if they are they should be protected from flooding.  Officials should have planned for a flood occurring eventually.  In other words, they should have planned for failure.

In less than ten years we have seen a natural disaster cripple a major American city more because of the lack of planning by officials than mother nature. itself  Perhaps, for all of us, before the next one, they will learn that “no plan survives first contact,” and “two is one and one is none.”


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Fixing Aging Water Systems by Selling Them

In many older former industrial cities, like Philadelphia, water main breaks and, even worse, gas main breaks are common place.  The cause of all of them is the same: the deterioration of components that are nearly a century old.  Now, have you ever wondered why the electrical infrastructure in these same cities do not experience the same failures caused by aging components?  Much of it has to do with the water and gas lines being owned by inefficient, cash strapped government monopolies, and electrical lines being owned by private firms.

As would be elected official hit the stump, nearly all of them recognize the need to fix our nation’s crumbling infrastructure.  However, the question remains, how do we pay for it?

If there ever were public assets ready made to be sold to private entities, water and gas systems are it.  First, they are attractive to private investors who are willing to pay big for them.  Second, the big payments that private industry is willing to pay gives cash poor local governments an immediate large cash infusion they will not find anywhere else.  Third, there is no reason why local governments should be in the gas and water business anymore than they are — or are not — in the electrical generation and delivery business.

It is unanimous that the time to fix and upgrade our aging and failing water and gas systems is now.  The solution should also be unanimous: selling them to private companies.

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The War Against West Virginia

The Obama Administration’s War Against Coal economic impact on the State of West Virginia is well known.  But  has the Obama Administration actually declared war on the entire State of West Virginia?  It certainly seems like it now that the Fish and Wildlife Service has decided to place the “Diamond Darter” on the endangered species list.   Moreover, the Energy Law Blog reports:

The FWS also is considering land use restrictions for the tiny fish, proposing critical habitat designation in an area of West Virginia that has seen increased exploration and production activity during the Marcellus Shale gas boom. If the FWS proposal is finalized, federal agency actions such as issuance of Clean Water Act permits or Federal Highway Administration approvals would require conference or consultation if they may impact species or their habitat.

In other words, it will become harder and more expensive to undertake projects where the habitat of the Diamond Darter may be impacted and, therefore, less attractive for natural gas drilling.  I have never seen a Diamond Darter and would not know one if I saw it, however the picture above which comes from the FWS website it pretty much appears to be a minnow.

We will see what impact this minnow will have on energy development in West Virginia and other areas.

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More Environmental Mandates?

First, I need to thank Philly.com for giving me not one but two stories to comment on today.  Bill Reed at the Inquirer reports that the Pennsylvania State Department of Environmental Protection ban on new sewer hookups is holding up construction of several projects in Bucks County.

According to the story, last month Pennsylvania DEP issued new regulations banning any new sewer hookups in lower Bucks County because of allegations that the pumping station that treats the waste is overloaded.  The Bucks County Water and Sewer Authority disagrees with DEP and states that the system is not overloaded.  As a result:

“The DEP sent the authority a notice of violation in March and banned new hookups on June 26. The ruling prohibits new building permits in Newtown Township and Newtown, Langhorne, Hulmeville, and Penndel Boroughs. It also bans building permits for parts of seven other townships – Bensalem, Bristol, Falls, Lower Makefield, Lower Southampton, Middletown and Northampton – and Langhorne Manor Borough.”

In order to for the ban to be lifted, the DEP is requiring the Authority to upgrade the system’s capacity.  Because the State will not pick up the tab for the cost associated with upgrading the system, like in Chattanooga, the local taxpayers will be on the hook for the cost of the upgrade unless an alternative agreement can be reached.  While I am all for upgrade outdated and inefficient water and sewer systems, we need to come up with a way that this is done other than through environmental fiat.

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This Is What Aging Infrastructure Looks Like

Photo courtesy of nakedphilly.com

My crossfit buddy Chris Brennan over at Philly Clout beat me to the punch this morning with a blog post about today’s massive water main break in Philadelphia intersecting with Mayor Nutter’s call for funding to overhaul aging infrastructre.

Needless to say, the reality of our City’s aging water system hit many Philadelphians smack in the face this morning.

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Could Environmental Groups Force Water and Sewer Systems Upgrades?

The Chattanooga (TN) Times Free Press reports that the City of Chattanooga will be forced to spend hundred of millions of dollars to upgrade its nearly 130 year old sewer system pursuant to a consent decree entered into with the EPA and DOJ.  What lead to the consent decree should be a warning to any municipality struggling with an aging water and sewer system.

The action that lead to the consent decree began in October 2010 as a private “citizen suit” under the Clean Water Act.  A copy of the complaint can be found here: TCWN v. Chattanooga Complaint.  The Tennessee Clean Water Network, who bills itself as “a citizens environmental organization,” brought the complaint against the City.  According to the complaint, Section 505(a)(1) of the Clean Water Act, authorizes citizens to bring private rights of action to enforce the Act.  In general, the Network claimed that the City’s 130 year old sewer and storm water treatment system was inadequate to treat the amount of sewer and storm water the City generated causing pollution into the local waterways and, therefore, violating the Act.  After initially rejecting the Network’s call to action, EPA and DOJ eventually intervened in the action and no doubt contributed to the breadth of the consent decree.

According to the Times Free Press, the consent decree, which is not yet public, will require the City to:

“to revamp the city’s wastewater treatment plant and hundreds of miles of underground sewer lines and alleviate system failures that have plagued the city for nearly a decade.”

Basically, the consent decree acts as a work order “directing what needs to be done to repair and improve the city’s 130-year old sewer system.”  Municipalities should note that the article mentions that similar agreements have been entered into between the EPA and other municipalities in Tennessee.  Additionally, a quick review of the EPA’s website reveals similar decrees have been entered into between the EPA and other municipalities.  Although, I am unaware if any of those decrees are as broad or costly as the Chattanooga  decree or if any of the decrees resulted from a complaint initiated by a private citizens group.

The cost to comply with the decree are staggering and it will be interesting how the City pays for it absent a massive tax increase.  Most municipalities barely have the finances to simply maintain current aging systems let alone undertake an unplanned wholesale upgrade to a system.  Municipalities should be on notice that if even if they lack the political will to make upgrades to aging water and sewer systems activist environmental groups may force them to make them.

On the flip side, should left-wing environmental groups and un-elected officials at the EPA have the power to enact what amounts to an unfunded mandate and force already cash strapped municipalities to make upgrade to systems which may run afoul of the act?

In the meantime, this may be just another reason for municipalities to stop kicking the can down the lane when it comes to water and sewer system upgrades and face the harsh reality that the upgrades will be made voluntarily or at the barrel of a gun.

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How Natural Gas Could Benefit Southeastern Pennsylvania The Most

Forbes Energy Blog has a guest post from Navigant on why exporting liquefied natural gas (LNG) is a good idea for America.  Exporting LNG is also a must for Pennsylvania in maximizing the economic benefits of the Marcellus beyond just the drilling regions.

Southeastern Pennsylvania already has the rough infrastructure to make it a LNG export hub with the existing crude oil refineries along the Delaware River.  Moreover, the Delaware is naturally capable of handling the tankers necessary to transport the LNG.

The good news for the construction industry is if a concerted effort to convert petroleum refineries to LNG refineries were to become a reality billions would need to be invested.  That is also the bad news because with natural gas prices currently very low the investment currently does not make economic sense.  However, as the article points out there are signs that may change and the benefits of exporting LNG may soon be too big to ignore.

The conversion of the petroleum refineries along the Delaware to LNG refineries is something that political leaders in Southeastern Pennsylvania have raised from time to time.  Now is the time they should get serious about it.

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