Careful: That Flow-Down Clause is Loaded (or, “How Incorporation by Reference” Can Leave Marks in Unintended Places)

We all do it. We all use multipart agreements, or structure transactions where multiple parties are agreeing to the same set of terms and conditions, or seek to bind remote parties to a unified set of obligations, because it makes sense to do that from any number of perspectives. In construction, the practice has existed beyond memory: use of “incorporation by reference” or “flow-down” clauses to impose consistent contractual obligations down the chain of privity is so common as to be remarkable only in its absence.  When done lazily, however, problems can result, particularly in the areas of dispute resolution, as illustrated by recent court decisions concerning arbitration clauses that were “incorporated by reference”.

Continue reading Careful: That Flow-Down Clause is Loaded (or, “How Incorporation by Reference” Can Leave Marks in Unintended Places)

Massachusetts Pay Equity Law: Don’t Ask, Don’t Ask… (or, This Is Not Your Father’s Job Interview)

On August 1, 2016, Massachusetts Governor Charlie Baker signed “An Act to Establish Pay Equity in the Commonwealth,” a bipartisan bill which outlaws gender-based wage discrimination. Beyond the obvious, this law (which takes effect July 1, 2018) has significant ramifications for employers in Massachusetts, including those in the construction industry.  Continue reading Massachusetts Pay Equity Law: Don’t Ask, Don’t Ask… (or, This Is Not Your Father’s Job Interview)

New York Governor Vetoes Public Contract Notice Bill Requiring Prejudice Before Forfeiture

One of our previous alerts provided notice of a bill passed by the New York State legislature requiring any contract awarded for public work include a provision that the contractor’s failure to give a notice within 180 days of the time prescribed in the contract would not invalidate any claim unless the public entity could demonstrate that it was materially prejudiced by the failure to provide notice. The new year, however, brought news from Albany when it was learned that the Governor, Andrew Cuomo, vetoed the bill with a message that included the following justification:

Appropriate notice provisions in public works contracts permit public owners to manage projects more efficiently. They also ensure that information is promptly provided to stakeholders if necessary to evaluate a change order or to resolve a problem on a project.

The Governor further commented that such a bill would fundamentally change well-established law and eliminate a public owner’s ability to mitigate project delays, adhere to plan work schedules and – quoting here – “would require public owners to accept and pay for work that was unnecessary and otherwise unauthorized.” Throwing more gas on the fire, the memo in support of the veto further stated that, “[m]oreover, litigating whether a public owner has been materially prejudiced will undoubtedly lead to increased claims and costs. For these reasons, I am therefore constrained to veto this bill.”
The Governor, evidently in an attempt to placate the trade groups and other organizations in support of the bill as well as the majority of the legislature, suggested that the Council of Contracting Agencies conduct a review of the notice and “forfeiture” – his words – provisions and to issue a report with their proposed recommendations in September of this year. The committee purpose apparently is an attempt to create uniform notice provisions throughout the state public contracts. However, it does not appear that uniformity in notice provisions was the prime driver of the proposed bill but, rather, their forfeiture aspects.

New York Governor Issues Executive Order to Close Wage Gap In State Contracts

On January 9, 2017, New York Governor Andrew Cuomo signed Executive Order 162 requiring state agencies and authorities to include a provision in state contracts “requiring contractors to agree to include detailed workforce utilization reports, in addition to the equal employment opportunity information” that is currently required to be included in such reports. The new reports must contain the job title, salary and other data, including the gender, race, and ethnicity of each employee working on the state contract. If the contractor cannot identify the particular workers on the state contract, the report must then contain the job titles and salary data “of each employee in the contractor’s entire workforce.”

Executive Order 162 applies to “all State contracts, agreements, and procurements issued and executed on or after June 1, 2017.” The new reporting requirement applies to both contractors and subcontractors. Contractors and subcontractors will be required to report the information on a quarterly basis for all prime contracts with a value in excess of $25,000. Contractors with contracts of more than $100,000 must report monthly.

The New York State Department of Economic Development will set forth procedure in which the information will be reported. The New York State Department of Labor will analyze the data and make recommendations to eliminate any detected wage disparity.

Upon signing the Order Governor Cuomo stated: “At these stormy times of instability and confusion, New York must serve as a safe harbor for the progressive principles and social justice that made America.”

Executive Order 162 can be found here.

Jose A. Aquino (@JoseAquinoEsq on Twitter) is a special counsel in the New York office of Duane Morris LLP, where he is a member of the Construction Group and of the Duane Morris Cuba Business Group. Mr. Aquino focuses his practice on commercial litigation with a concentration in construction law, mechanics’ lien law and government procurement law. This blog is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this blog are those of the author and do not necessarily reflect the views of the author’s law firm or its individual attorneys.

New York Construction Industry Welcomes New Agreement On Extension Of 421-A Tax Abatement Program

Almost a year after it expired, the Building and Construction Trades Council and the Real Estate Board of New York (REBNY) reached an agreement to restore the 421-a tax exemption program. The New York State legislature still has to approve the agreement.

The new agreement will require developers to pay construction workers an average hourly wage of $60 (including wages and benefits) for projects in Manhattan with over 300 units south of 96th Street. In Brooklyn and Queens, the average hourly rate for workers, including wages and benefits, will be $45, and the wage and benefit obligations will apply to buildings located in Community Boards 1 and 2 within one mile of the nearest waterfront bulkhead. Projects with 50 percent or more affordable apartments are excluded from the wage and benefits requirement.

The agreement will also extend the maximum time developers will pay zero in property tax with the 421-a program from 21 years to 35 years. In exchange, affordable apartments with rent limitations must remain that way an additional 5 years to 40 years.

To assure compliance with the wage and benefits obligation of the program, developers will have to hire independent monitors to audit certified payrolls. The independent monitors will certify to the New York City Department of Housing Preservation and Development within 120 days of the receipt of the final Certificate of Occupancy that the compulsory wages and benefits have been paid.

Under the new agreement, developers may opt out of the 421-a wage and benefits requirement by entering into a Project Labor Agreement (PLA). If a developer chooses to enter into a PLA, the developer can still take advantage of all other elements of the 421-a program.

“The deal reached today between these parties provides more affordability for tenants and fairer wages for workers than under the original proposal. While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers,” Governor Andrew Cuomo said in a statement.

Rob Speyer, chair of REBNY, said: “We are pleased to have reached an agreement that will permit the production of new rental housing in New York City, including a substantial share of affordable units, while also ensuring good wages for construction workers.”

Jose A. Aquino (@JoseAquinoEsq on Twitter) is a special counsel in the New York office of Duane Morris LLP, where he is a member of the Construction Group and of the Duane Morris Cuba Business Group. Mr. Aquino focuses his practice on commercial litigation with a concentration in construction law, mechanics’ lien law and government procurement law. This blog is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this blog are those of the author and do not necessarily reflect the views of the author’s law firm or its individual attorneys.


Duane Morris’ Charles Fastenberg to Present Lorman Educational Services Webinar on “Understanding New York Public Contracts and Procurement Regulations”

Duane Morris special counsel Charles Fastenberg of the firm’s New York office will present the Lorman Educational Services webinar, “Understanding New York Public Contracts and Procurement Regulations,” on Thursday, October 6, 2016, from 1:00 p.m. to 2:30 p.m. (Eastern time). This webinar will provide insights for contractors and vendors so they are aware of unanticipated issues they may face when submitting bids for contracts.

For more information, please see the event posting on the Duane Morris website.

“Illegal But Equitable” To the Rescue?

At the continued urging of a New York City official, and to meet certain deadlines, a contractor performed substantial quantities of work for the City before the contract was signed, and without the contract even having been publicly bid. The work, which was satisfactorily performed, called for the construction of “close to home” housing facilities for youths adjudicated as delinquents by the Family Court. At the point at which approximately two thirds of the price had been paid to the contractor, the contract – – by this time signed – – could not be registered with the Comptroller’s office because it had not been publicly bid and thus was “illegal.” Consequently, the contractor’s then pending requisitions for approved work could not be paid.[i]

The contractor discontinued its work and filed an action against the City for breach of contract based on non-payment of the pending requisitions. However, the action was dismissed on the ground that the contract was illegal and unenforceable for not having been publicly bid; and the contractor’s related claims, including quantum meruit, were dismissed on related grounds. Notwithstanding its dismissal of the claims, the court noted that in urging the contractor to perform the work without a public bidding of the contract, the City “acted unlawfully and treated… [the contractor] unfairly.”[ii]

The “illegal but equitable” provision of the New York City Administrative Code, §7-206, provides a possible remedy in this scenario. Section 7-206 provides that a claim against the City may fully or partially be paid if the Comptroller first certifies that the claim “is illegal or invalid, but that it is equitable and proper that such claim be paid in whole or in part.” While payment under the “illegal but equitable” theory is discretionary with the designated City officials, §7-206 nevertheless should be considered where an irregularity in the formation of a contract with the City impedes payment for the work provided.[iii]

[i] Michael R. Gianatasio, P. E., P.C. v. City of New York, 2016 N.Y.Misc. LEXIS 3110 (Sup. Ct., N. Y. Co., Aug. 26, 2016)

[ii] The City had designated a private party – – the manager of the youth housing facilities that were being built — as the entity that would enter into the construction contract with the contractor. This, arguably, would have dispensed with the need for public bidding and the other formalities that are required for contracts entered into with a governmental body. However, the City itself mistakenly signed the contract, thus triggering the need for public bidding and other public contract requirements.

[iii] See also Prosper Contracting Corp. v. Bd. of Educ., 73 Misc.2d 280 (Sup. Ct., N. Y. Co., 1973), aff’d, 43 A. D.2d 823 (1st Dep’t 1974), recognizing a contractor’s equitable position in a similar fact pattern.

Duane Morris Attorneys Contribute to Construction & Engineering Law 2016

Charles Lewis and Jeffrey Hamera have authored a chapter on USA Construction Law in the recently published book, International Comparative Legal Guide to: Construction & Engineering Law 2016

Construction & Engineering Law covers common issues in construction and engineering laws and regulations – including making construction projects, supervising construction contracts, common issues on construction contracts and dispute resolution – in 29 jurisdictions.

The USA chapter includes the following sections: 1. Making Construction Projects; 2. Supervising Construction Contracts; 3. Common Issues on Construction Contracts; 4. Dispute Resolution.

To read the full text of the chapter online, please visit the ICLG website.

Is a Public Contractor Entitled to an Administrative Review Before Being Debarred? Not Necessarily

A vendor to the City of New York was terminated from its existing contracts and disqualified from future contracts following internal City correspondence and a front page article in the New York Times indicating alleged irregularities in the vendor’s procurement of certain City contracts. The vendor filed an action in federal court claiming, among other things, deprivation of its liberty interest without due process under the 14th Amendment and seeking injunctive relief. The ground for the liberty interest claim was that the City in effect debarred the vendor on the spot, without initiating the administrative reviews that are called for by the City’s own procedures. The procedures in question were designed specifically to provide “due process” to vendors whose eligibility for City contracts is in question.[i]

The district court granted the vendor’s request for injunctive relief, but the Second Circuit reversed. The Second Circuit held that even though no administrative review had been undertaken prior to the debarment, the vendor nevertheless was afforded due process since it could have filed an Article 78 proceeding in state court challenging the debarment after the debarment was effectuated; that this is an adequate “post-deprivation” remedy. Where the deprivation of constitutionally protected rights is random or unauthorized, and a pre-deprivation remedy is not available, a post-deprivation remedy, if “meaningful,” may suffice.[ii]

[i] See Hellenic Amer. Action Neighborhood Action Committee v. City of New York, 933 F. Supp. 286 (S.D.N.Y.), rev’d 101 F.3d 877 (2d Cir. 1996), cert. dismissed, 521 U.S. 1140 (1997).

[ii] Where the deprivation or debarment is not “random” or “unauthorized,” but is pursuant to established procedure, a “post-deprivation” remedy may not be sufficient. See A.F.C. Enterprises, Inc. v. NYC School Constr. Auth., 2001 WL 1335010, * 14-16 (E.D.N.Y., Sept. 6, 2001). In view of the holding in Hellenic that “due process” had been provided, the Second Circuit did not reach the issue whether the plaintiff’s liberty interests had been violated.

No-Prejudice Standard For Application Of Public Construction Contract Notices Now Required by New York

New York’s State Legislature has just passed a bill that would require a no-prejudice standard be applied in determining the application of notice provisions in public construction contracts. [1]

The bill amended current statutes [2] so as to require that unless the public owner can show they have suffered material prejudice as a result of a contractor’s (or/and subcontractor’s) failure to provide timely notice, rights are not barred. If the required notice is received more than 180 days after the time required under the contract, the burden to establish no-prejudice shifts to the contractor/subcontractor.

The Legislature Memo prepared to explain and support the bill referred to current notice provisions as one-sided and unfair “gotcha” provisions. The Memo further contended that some public owners were getting “free work” when contractors or subcontractors are barred from pursuing claims due to non-compliant notices.

Another significant element of the bill appears in the definitional section where it is provided that a “public owner’s actual knowledge of the events in question shall preclude a claim of material prejudice due to any lack of notice.” Some city and state contracts often specifically provide that actual knowledge cannot relieve contractors of the strict requirements of the notice provisions.

The bill will not become effective, however, until 180 days after it is signed by the Governor and becomes law and then only as to contracts awarded after that date.
The text of the bill is here .

1. The bill is A10136 and S6906 which passed on June 18, 2016.
2. The bill amends the Public Authorities Law, the General Municipal Law, the Public Service Law and the State Finance Law.