In my last post I discussed suing a local government for a substantive due process violation. In this post, I discuss a the right to procedural due process.

The Fourteenth Amendment of the United States Constitution protects prohibits the government from depriving an individual or business of life (in the case of an individual), liberty, or property without due process of law.  Unlike the somewhat abstract and subjective concept of substantive due process, procedural due process is direct and objective. Generally, if an individual or business maintains a property or liberty interest, a local government must afford that individual or business notice that the government intends to deprive them of a liberty or property interest and a reasonable opportunity to be heard to contest the proposed deprivation.  Unless there is an emergency, the notice and opportunity to be heard must be given before the government deprives an individual or business of a liberty of property interest.  This is known as a pre-deprivation hearing.  Because of the clear contours of the right, procedural due process violations are typically easier to prove than substantive due process violations.

The first step in determining whether a procedural due process violation has occurred is to determine whether an individual or business has been deprived of a liberty or property interest.  Besides the obvious, what classifies as a liberty or property interest is a question of state law and, therefore, varies from state to state.  (An obvious property interest would be ownership in a building. In a case, that I brought against the City of Philadelphia for demolishing my client’s building without notice or an opportunity to contest the proposed demolition, the federal court easily found that a procedural due process violation occurred. Bullard v. City of Philadelphia (E.D. Pa., 2012))  Other not so obvious things that courts have concluded amount to a liberty or property interest include: zoning permits, building permits, business licenses, a contractor’s pre-qualification to bid on government contracts, and the general beneficial use of land.

The second step is determining whether a party have been given notice and an opportunity to be heard.  The notice the government provides must only be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Actual notice is not required.  The opportunity to be heard requires the government to provide an party to present objection to the proposed deprivation before it occurs.

While this may seem obvious and well-settled, local government actors frequently revoke licenses or cancel permits without a pre-deprivation hearing.  It happens quite frequently in cities like Philadelphia, despite being chastised by both state and federal courts for doing it.

A revoked permit or suspended business license can significantly damage a business even if done for a short period of time.  If its done with first having a hearing, an affected business could recover damages for a constitutional violation.

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.

Previously, I have written and warned about the Department of Labor’s Office of Federal Contract Compliance (“OFCCP”), which I like to call the most powerful federal agency you have never heard of.  The OFCCP purpose is to enforce federal affirmative action regulations applicable to contractors and subcontractors performing work funded, in whole or in part, with federal funds.  While OFCCP has been around for years, its level of enforcement activity was low.  That changed with the election of President Obama’s and his policy of taking executive action through regulation wherever and whenever possible.  Beginning in 2010, OFCCP enforcement activity, primarily in the form of affirmative action “audits,” has exploded.  This week the OFCCP issued a notice of proposed rule, which, by its own admission, will cost the federal contractors $50,000,00.

What is the Proposed Rule?

OFCCP is proposing to make changes to 41 CFR § 60-1.7.  Currently, that regulation requires federal prime and subcontractors to file an annual EEO-1 report, which requests information related to the race, ethnicity, and gender of employees.  The regulation was promulgated under Executive Order 11246.  That Order was signed by our last great Regulator – in –Chief, Lyndon Johnson in 1965.  It was signed during the Civil Rights Era when institutional racism was a reality.  The purpose of the Order was to prohibit discrimination in employment based upon race, creed, color, or national origin (but not sex, which apparently was still ok in 1965).  The Order authorized the Department of Labor to issue regulations to promote the goal of ended discrimination in the hiring of individuals by federal contractors.

                OFCCP proposed change will extend the reporting requirements intended to snuff racial discrimination in employment, a real problem in 1965, to include the requirements intended to snuff out “wage discrimination,” which a straw man problem is made up by the Administration.  The proposed rule would require federal contractors and subcontractors with more than 100 employees and federally funded contracts of greater than $50,000 to annually report to the OFCCP an “Equal Pay Report.”  The report would require contractors to disclose to the OFCCP:

(a)    The total number of workers by race, ethnicity, and gender;

(b)   Total W-2 earnings of all workers broken down by race, ethnicity, and gender; and

(c)    The total hours worked in each job category by race, ethnicity, and gender.

According to the OFCCP, the information on the report would be kept “confidential” (just like the tax returns of non-profit tea party organizations) and would not be used as the basis for an enforcement action.

What is Wrong With the Proposed Rule?

First and foremost, an overwhelming majority of employees of federal contractors, especially construction contractors, have wages regulated by the Davis Bacon act.  Therefore, there is no disparity in pay based on race, ethnicity, and gender.

Second, the OFCCP does not explain how it expects federal contractors to capture the data necessary to complete the report.  W-2 reports do not contain the race, ethnicity, and sex of the employee.  Moreover, the federal law prohibits an employer from asking an employee about his or her race, ethnicity, national origin, or gender.

Third, OFCCP goes beyond the power granted to it by Executive Order 11246.  OFCCP states that the legal authority for the proposed rules is Executive Order 11246. However, the Executive Order says nothing about regulations concerning wage discrimination.

In an earlier post, we talked about how L&I already has the authority to prevent tragedies like the Market Street building collapse, yet it chooses not to use that authority.  Yesterday, the Plan Philly posted a story about L&I doing just the opposite – requiring something they have no authority to require.

The story involves a town home development at 3rd & Reed Streets in the Pennsport section of Philadelphia known as Constitution Court.  The developer apparently obtained a height variance from the zoning board.  However, neighbors claimed that the development as constructed was 22 inches higher than allowed by the dimensional variance. Therefore, neighbors alerted the Department of Licenses and Inspections who apparently measured the structure and found that it was indeed higher than the variance permitted.  What L&I did next is where things get concerning to not only real estate developers but anyone interested in the rule of law.  It issued a “stop work order” and demanded that the developer remove 22 inches in height from the structure, which the developer plans on doing by jacking the framed out structures and removing 22 inches from the base — at great expense no doubt.

Why is this a concern to the rule of law crowd?  Because under Philadelphia Code (otherwise known as the Law) L&I lacks neither the authority to issue a stop work order because a building is higher than permitted by zoning nor to order the height of the structure reduced.  Under Philadelphia Code, L&I can only issue Stop Work Orders “directing that erection, construction, alterations, installation, repairs, removal, demolition and other activities cease immediately” when: (a) there is a “dangerous or unsafe condition due to inadequate maintenance, deterioration, damage by natural causes, fire, or faulty construction that it is likely to cause imminent injury to persons or property; or (b) work is being performed “contrary to accepted construction practices or in a dangerous or unsafe manner which imperils life, safety or property, constitutes a fire or health hazard, or will interfere with a required inspection.”   As you can see, neither (a) nor (b), cover a situation when a building is out of zoning compliance.

Moreover, the Code is completely silent on whether L&I has the authority to require alterations to a structure for it to comply with a dimensional variance.  Even if it did, there would still be a little issue with something called “due process” which is right granted by the 14th Amendment to the Constitution.  But apparently not to Constitution Court.

 

Daily News reporter Jenny DeHuff has a story about how the $50 million Dilworth Plaza renovation project has been delayed 10 months and that the City is paying the general contractor an additional $5 million because of the delay.  According to Mayor Nutter’s spokesman the reason for the delay is:

“We understand that the project managers and their contractors found some stairwells and other things that were not in the original plans, and that required more time.”

This simply never should have happened. A construction contract should ALWAYS include an “existing conditions” clause requiring the contractor to visit the site and to make itself familiar with the existing conditions, it should require that the contractor immediately alert the owner of conditions that conflict with what is shown on the drawings, and state that the owner makes no warranty as to the accuracy of the as-built drawings. While it is true that a contractor is entitled to compensation for “latent” or hidden defects, stairwells are not latent and are pretty obvious.  In Pennsylvania, as in most other states, failure to resolve such patent conflicts prior to entering into a government contract results in the claim being waived.

It is almost incomprehensible that the owner-contractor agreement would not contain an existing conditions clause or some similar language requiring the contractor to visit and inspect the site and to accept it in its current condition. Perhaps the City of Philadelphia and Center City District are suddenly flush with cash and giving away $5 million is no big deal or perhaps the City does not know what should have been in its contract.

(Update 12/4/13:  If the City of Philadelphia SCR – standard contract requirements were used, then the contract for Dilworth Plaza would have included an “existing conditions” clause.  The City SCR states that “Bidders shall examine the in detail the Project site and shall acquaint themselves with the conditions affecting the work under the contract and the overall Project, and, when applicable, the conditions of walls and foundations of overlaying and adjacent structures, the character of the paving, and the soil and subsurface soil.  The Bid shall be prepared with due regard to the provisions of the Contract Documents and to the conditions existing or to be anticipated at the Project site.”

The SCR also state “If a Bidder discovers or encounters any ambiguity or discrepancy in the Contract Documents in the course of preparing its Bid, the Bidder shall promptly notify the Department of the ambiguity or discrepancy prior to the date and time for receipt and opening of Bids. The City, so advised, may, at its sole discretion determine whether such ambiguity or discrepancy exists and whether any corrective action is necessary.”

Moreover, paragraph 84 of the SCR seems to directly address the issue that caused the City to fork over $5 million.  It states:  “Completeness of Data. The term “structures” used in these Standard Contract Requirements shall apply to all surface, underground, and above-ground structures of whatever character within the Project site or immediately adjacent thereto, including buildings situated in or adjacent to the excavation. Where these structures are shown or indicated on the Plans, the information provided is in accordance with the information in the possession of the Department, but is approximate only. Such data are not warranted or guaranteed by the Department to be either complete or correct, and the Contractor shall and must assume, and adjust its Bid to account for, all risks resulting from conditions in the field that differ from the approximation shown.”

So, either the City’s SCR’s were not used or the City chose to ignore them.  Either way, the question is why?)