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January 2020

Letter from the Editor

Welcome to this winter edition of our Under Construction newsletter. We hope your holidays brought you some much needed rest and relaxation and that your 2020 is off to a wonderful start for you, your family, and your company.

In this issue, we start off with an article that looks at the impact of social media in the workplace and addresses whether employees can be disciplined for their use of social media to complain about their employer or terms and conditions of employment.

Next, we have five tips for navigating mediation of the toughest construction disputes. In this article, mediation is compared to playing a game of poker, and advice from this article may help you maintain a poker face, and obtain better results at mediation.

Our next article provides an overview of a relatively new P3 ConsensusDocs template. ConsensusDocs have been developed through a collaborative effort of organizations to provide an efficient and simplified way to approach contracting between entities involved in the design and construction process to deliver projects.

The Arizona Court of Appeals recently published a decision that serves as a helpful reminder that while the ROC and the Residential Contractors’ Recovery Fund can be useful to resolve certain disputes, they are not the right solution for every problem. Our next article examines this new decision and its ramifications.

Since it is necessary that our California general contractors and subcontractors understand their obligations on skilled and trained workforce projects, our final article examines new requirements in California addressing skilled and trained workforce compliance procedures in this new year.

We hope you will find these articles informative and enlightening. Please let us know if you want us to address a specific construction issue in a future newsletter. We hope you have a profitable, busy and safe 2020!

Regards,
Jim Sienicki

Employees’ Use of Social Media to Complain About Working Conditions

by Gerard Morales

Employers often confront the question of whether employees can be disciplined for using social media, such as Facebook, to communicate with other employees about complaints regarding terms and conditions of employment. Frequently some of those communications are expressed in terms that are offensive and disparaging about the employer and/or specific supervisors.

In deciding whether employees may be disciplined for such communications, the National Labor Relations Board (NLRB or Board) evaluates whether the communication posts are sufficiently disloyal, reckless, or maliciously untrue to lose the protections provided to employees by the National Labor Relations Act.

The Board has held that where the purpose of the employee communication is not to disparage the employer’s products or services or undermine its reputation, but, rather, to seek group action to pressure the employer to act with respect to problems regarding the terms or conditions of employment, the employee communications are protected. Therefore, the employer would commit an unfair labor practice if it disciplines the employee for such communication posts in social media. [1]

In situations where the employee’s offensive outburst takes place at a meeting with supervisors, the Board considers the following factors to determine whether discipline is justified by the outburst:

1) The place of the discussion;
2) The subject matter of the discussion;
3) The nature of the employee outburst; and
4) Whether the outburst was provoked by the employer’s unfair labor practices. [2]

Tips for Mediation of the Toughest Construction Disputes

by Rick Erickson

Settlement of a complex construction dispute at mediation can mean the end to sleepless nights for our clients. Resolution at mediation avoids the unpredictable risks and inordinate costs of seeing a dispute through to the merits. But mediation often can be as daunting as seeing it through to the end. Parties play poker with the odds of winning and losing, uncertainties abound, and the mediator has no power to decide the parties’ fate.

There are ways, nevertheless, to enhance meaningful negotiations and valuable use of the mediator’s time to settle the case. Judicial Arbitration and Mediation Services, Inc. (“JAMS”) defines mediation very simply as “a process wherein the parties meet with a mutually selected impartial and neutral person who assists them in the negotiation of their differences.” Whether the mediator is privately retained or retained through JAMS, the American Arbitration Association (“AAA”) or another forum, mediation of a construction dispute typically arises out of form contracts requiring mediation before binding dispute resolution. See, e.g., AIA Document A201–2017 General Conditions of the Contract for Construction § 15.3; ConsensusDocs 750 Standard Agreement Between Constructor and Subcontractor § 11.3.2. Alternatively, mediation is sometimes agreed upon after the dispute arises, even if not required by the underlying contracts.

Most, if not all, mediation forums and contracts require confidentiality. See, e.g., AAA Construction Industry Arbitration Rules and Mediations Procedures M-11 (“The mediator shall maintain the confidentiality of all information obtained in the mediation, and all records, reports, or other documents received by a mediator while serving in that capacity shall be confidential.”) The confidentiality of mediation allows clients to vent emotionally without consequence, experts to opine freely, attorneys and clients to engage privately (ex parte) with the mediator, and key witnesses to talk informally, all without disclosing to the opposing party the anticipated plan for a hearing or trial on the merits.

However, many times, despite the benefit of confidentiality, the complexities underlying a construction dispute and the often huge divide in negotiable terms or settlement amounts makes a resolution seem very difficult. The parties may be then tempted to waive the mediation requirement altogether and head straight to a binding decision on the merits instead. The parties may feel it makes no sense to spend time and money on mediation they feel is destined to fail. After all, if the parties are approaching mediation, it usually means they are already at an impasse after exchanging offers and finding they cannot resolve the dispute on their own.

The best mediators are, nonetheless, well trained and experienced to turn impossible and stubborn into practical and reasonable. Their reputation as mediators depends on wins—getting cases settled. There are many mediators who can propose creative solutions that the parties and counsel may not think of themselves. Investing in mediation may also pay off in other ways, such as receiving an independent evaluation of the case by the mediator, discovering key records and facts, and identifying the best available evidence or testimony to prove core issues at arbitration or trial.

Once mediation is pursued in a hotly contested case, consider these tips to get the most out of mediation, even when the parties show up determined to have it their way and seem stuck in an unresolvable impasse:

1. Prepare for a Haircut.
No one really leaves a successful mediation feeling victorious. Despite the relief of being done with the expense of litigating the merits seemingly without end, the settlement terms may be less than the parties’ bottom line. Prepare clients for the mediation process and provide a frank evaluation of the risks. This will prepare clients for the many hours of touch-and-go negotiations that may exhaust and frustrate all involved. Prepare clients for insulting offers, hours without hearing from the mediator, surprise flips in anticipated testimony by key witnesses and experts, and ostensibly impractical terms in proposals from the mediator. Most of all, clients should understand that both sides may leave unsatisfied with the mediation result. If expectations are too high and no one is discussing the pain from compromising, settlement odds go way down.

2. Budget More Than Less Time to Negotiate.
Mediation is often about momentum. If the parties are getting close in terms of agreement, often, the worst approach is to take a break. The best mediators will capitalize and press when the parties are finding their way to compromise and conciliation. It is important, therefore, to consult with the mediator on how much time they need based on the claims, counterclaims, third-party liabilities and other issues that will consume time. If you need extra time, start earlier and stay later to maintain momentum and prevent buyer’s remorse from setting in. If absolutely needed, allow for and schedule an extra day, even if that means paying for a day the parties may not ultimately need or use. Many mediators will cut the parties a break if they overestimate time and days required. It is more difficult, however, to ask the mediator for another day or more time at the last minute.

3. Put Your Mediator to the Task.
The best mediators are expensive for a reason. Make them earn their fees. Ask them to show their neutrality right away. Have them find a way to circumvent the deal breakers. Help them to soften the toughest personalities involved. Respect their experience to really focus both sides on the risks in going forward. Allow the mediator to identify the weak and strong links in proving the facts credibly. Call them ahead of the mediation to suggest a meaningful plan, but listen to and heed their advice on preparations and strategy. Give them all the tools they need to achieve the result your client wants. If the mediator does their job well, the case is much more likely to settle, but all parties have to see the mediator as a team player and not a biased enemy.

4. Let Your Expert Take the Lead.
Mediation may be the point in dispute resolution when the parties have heard enough from the lawyers on the facts. Mediation may be an opportune time for the lawyers to say less. Like juries, judges and arbitrators who prefer proof over legal argument, a mediator may find more settlement value in hearing more directly from the key witnesses. Especially if the merits will depend on a technical interpretation of the facts and expert testimony will carry the day, favorable expert opinions should become a focal point at the mediation. Take the time to consult with your expert(s) on their role at the mediation, budget for them to attend and present their opinions to the mediator, and consider whether the opposing party and counsel should also hear directly what the expert has to say in your client’s favor. Your expert’s work product may either contribute to a settlement or will transcend to the expert’s presentation later on at a hearing or trial. It will likely be money well spent, either way.

5. Get Angry Out Early.
By the time parties agree to mediate, they may have already spent considerably for depositions, written discovery and document production and to posture their cases on the merits. The costs leading up to and including mediation are generally a thorn to all players who believed they would profit from the project. Tempers may flare in construction disputes because the project leaders (architects, project managers and executives, etc.) take claims personally, and some feel genuinely cheated from taking any losses on the project. Trust the mediator to manage tempers and comments fueled by angry circumstances. Sometimes, mediators start with a joint caucus including all party representatives and counsel to allow for an opportunity to clear the air of issues that anger the parties. The mediator may agree that particularly heated matters should be unleashed at the beginning, if at all, so the parties can focus better on productive negotiations for the rest of the day. Other times, having the parties start mediation together can backfire if comments become acerbic and obstructive.

Overview of the ConsensusDocs® 900 Public-Private Partnership (P3) Agreement and General Conditions

by Jason Ebe

Many of our readers are aware of the ConsensusDocs family of construction industry contract templates from prior articles in this newsletter as well as our seminars to clients and industry groups. These templates have been developed through a collaborative effort of organizations representing a wide cross-section of the design and construction industry, including, for example, Construction Owners Association of America, Construction Financial Managers Association, Associated Builders and Contractors, Associated General Contractors of America, American Subcontractors Association, Construction and Lean Construction Institute. ConsensusDocs recently published its ConsensusDocs® 900 Standard Public-Private Partnership (P3) Agreement and General Conditions template (“CD 900”). Public Private Partnerships are a long-term approach to procuring public infrastructure where the private sector generally assumes a major share of the risks in terms of financing and construction, from design and planning, to long-term maintenance. This CD 900 facilitates a simplified approach to contracting between public agencies and private entities to deliver P3 projects. Whereas many manuscript contract templates may range from several hundred to over one thousand pages in length for a multi-million dollar project, this relatively short CD 900 (16 pages plus exhibits) may be a good starting framework for a smaller scale P3 project.

The anticipated parties to this agreement are identified as the project owner, also called the “User,” and the Concessionaire. Nonparty participants include the General Contractor or Design-Builder, Design Professional, and O&M Contractor. The layout and feel of the CD 900 is similar to other ConsensusDocs templates. In addition, as is common for these documents, the CD 900 establishes a team relationship and ethics, stating that each party agrees to act on the basis of good faith and fair dealing, and to perform with integrity, avoiding conflicts of interest.

The template identifies a number of suggested exhibits, without providing templates for these exhibits, for such topics as: initial funding agreements; basis of design/User’s program; unavailability events; O&M noncompliance events; equity members; schedule; financial model formulas; insurance and bond requirements, and federal requirements. The extent to which each of these needs to be developed will depend on the nature and complexity of the P3 project. By identifying these exhibits to be developed at a later date, the template provides placeholders for further thought and negotiation without unnecessarily expanding the agreement length.

Article 3 of the CD 900 sets forth the Concessionaire’s comprehensive services to develop, design, construct, finance, operate and maintain the project. The document provides that the Concessionaire may procure design-build services using the ConsensusDocs 415 Design-Build Agreement and operations and maintenance services using the ConsensusDocs 910 O&M Agreement. Article 3 also includes terms relating to financing and risk sharing.

Later articles of the CD 900 provide terms for User’s responsibilities, source of funds, term, handback, payments, changes, force majeure, risk of loss, insurance, bonds, indemnity, default, suspension, termination, and dispute resolution. Similar to other ConsensusDocs templates, the CD 900 provides terms intended to provide a commercially reasonable and balanced risk allocation to encourage a ‘win-win’ relationship among project participants and stakeholders.

Finally, as indicated in the template itself, the document has important legal and insurance consequences, and is not intended as a substitute for competent professional services and advice. Consultation with legal counsel and insurance advisors is encouraged.

The Registrar of Contractors and the Residential Contractors’ Recovery Fund: One Size Does Not Fit All

by Creighton Dixon

The Arizona Court of Appeals recently published a decision examining the Registrar of Contractor’s (“ROC”) handling of a homeowner’s claim involving the Residential Contractors’ Recovery Fund (the “Fund”). The decision, Gordon v. Arizona Registrar of Contractors, 247 Ariz. 146 (App. 2019), is a helpful reminder that while the ROC and the Fund can be useful to resolve certain disputes, they are not the right solution for every problem.

Though the Homeowner and ROC were the named parties, the dispute with the ROC was rooted in the Homeowner’s relationship with InHouse Home Warranty (“InHouse”). InHouse sold home warranty policies, and it was licensed by the ROC, as well as Arizona’s Department of Insurance. InHouse’s contractor’s license specifically covered air system repair, and InHouse would otherwise coordinate with independent contractors to fix other work.

The Homeowner bought a home warranty policy from InHouse. Under the policy, InHouse was obligated to cover repairs on a variety of household systems. Eventually, InHouse stopped answering the Homeowner’s calls for service, and the Homeowner in turn filed a complaint with the ROC. The Homeowner’s complaint alleged that InHouse worked outside the scope of its contractor’s license, aided and abetted an unlicensed contractor, operated as an insurance company without a license, and failed to respond to new requests for service. Notably, the Homeowner did not include any complaints about the actual workmanship. After InHouse failed to respond, the ROC issued a default decision and order revoking InHouse’s contractor’s license.

This is when the dispute began between the Homeowner and the ROC. After succeeding against InHouse, Homeowner sought to recover from the Fund. For those unfamiliar with the Fund, the Fund is described by the ROC’s website as “a form of financial protection provided by licensed Arizona residential contractors to residential homeowners.” Essentially, it provides money that can be used to complete or repair work, provided the residential homeowner meets the legislative requirements.

However, in this case, the ROC found that the Homeowner could not recover from the Fund because the “home warranty policy” was not a construction contract. The Homeowner appealed the decision first to the Superior Court, and then to the Arizona Court of Appeals. Both courts affirmed the ROC’s decision. The Court of Appeals determined there were three independent reasons to deny the request to recover from the Fund: (1) as the ROC had noted, the “home warranty policy” was not a construction contract; (2) the Homeowner was not a “person injured” as required by the relevant statute because the issues in his complaint (e.g. unnecessary labor and high cost) were not related to the type of damage the Fund is meant to address (e.g. incomplete work); and, (3) the Homeowner did not “suffer damage compensable by the Fund.”

This case is a helpful reminder that the Fund cannot solve every problem parties may face against a contractor. Here, there were at least two reasons the square problems of the Homeowner did not fit into the round solutions the Fund was intended to address. First, the “home warranty policy” was essentially insurance, not a construction contract. Parties should consider this distinction (and the specific contours of their own disputes), as not every “contract” meets the statutory requirements to recover from the Fund. Second, the problems the Homeowner had with InHouse did not meet the requirements to recover from the Fund. In Gordon, there were no workmanship issues to address. Other bars to consider include the statutory prohibition preventing commercial property owners from recovering from the Fund. See A.R.S. § 32-1132.01(A) (“An award from the residential contractors’ recovery fund is limited to residential real properties. The Fund may not issue an award covering damages to commercial property.”). Overall, Gordon is a timely reminder that the ends you are looking for (e.g. money, directive to complete the work), do have an important role in determining your means. Take the time to consider if the Fund can award the remedy you want.

Reminder: Update Your California Skilled and Trained Workforce Compliance Procedures for 2020

by Michael J. Baker

As we begin the new year, it is a good time to look at requirements that change from year to year. In this article we look at certain public works requirements in California. Many public works contractors are already aware that over the last few years, California has enacted legislation authorizing different project delivery methods and in the process began incorporating escalated requirements, as a percentage of the workforce, a “Skilled and Trained” ("S&T") workforce requirement. This S&T workforce requirement mandates that contractors working on specific types of projects authorized by the applicable delivery method, employ a certain percentage of apprenticeship program graduates for those engaged in construction apprenticeship occupations. The primary project delivery methods included in the S&T workforce requirements are Lease-leaseback for school projects, Best Value, and Design-Build.

According to California law, all workers employed in an apprentice occupation working on covered projects must be either a “skilled journeyperson” or an apprentice that is registered in an approved apprenticeship program. A “skilled journeyperson” is defined by statute as a worker who either: (i) Graduated from an apprentice program for the applicable occupation that was approved by the Chief of the Division of Apprenticeship Standards of the Department of Industrial Relations (“Chief”), or located outside California and approved for federal purposes pursuant to the apprenticeship regulations adopted by the federal Secretary of Labor; or, (ii) has at least as many hours of on-the-job experience in the applicable occupation as would be required to graduate from an apprenticeship program for the applicable occupation that is approved by the Chief. Starting January 1, the workforce S&T percentage requirement increased to 60%.

General contractors working on these qualified projects must submit monthly reports which demonstrate compliance with the S&T workforce requirements. If a general contractor fails to submit a monthly report, the awarding body can withhold payment until a complete report is submitted. However, if the general contractor’s failure to submit a complete report is due to a subcontractor’s failure to submit the required information, the awarding body will be limited to withholding an amount up to 150% of the value of the monthly billing for that subcontractor. Similarly, if the monthly report demonstrates non-compliance by the general contractor or any of its subcontractors, the awarding body will again be limited to withholding an amount up to 150% of the value of the monthly billing for the non-compliant contractor or subcontractor. There are other penalties and requirements which can be determined by reviewing the applicable law and regulations governing the project. Be aware, general contractors will be liable for penalties issued against their subcontractors if the general contractor had knowledge of the subcontractor’s failure to comply or if the general contractor fails to comply with statutory requirements.

It is necessary that general contractors and subcontractors understand their obligations on S&T workforce projects, and have procedures in place for compliance. The start of the new year is an excellent time to review your current procedures for compliance and to assure you will be in compliance with the 2020 requirements. We predict in the future that the California legislature is likely to expand the law to cover more projects as well as the lowering of the dollar value threshold of a project for which these S&T workforce requirements will be imposed.

_____________
Notes:

[1] See Valley Hospital, 351 NLRB 1252 fn. 7 (2007), and cases cited therein  [back]

[2] Atlantic Steel Co., 245 NLRB 814 (1979) [back]

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