Construction Law

Legal issues, news, and regulations concerning the construction industry

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Don’t Dump Stuff in the River
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Congratulations to our Doha Construction Team – “Property & Construction Team of the Year”
3
Collateral Warranties: A Reminder of Their Importance
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Presentation Available: Mega Project Management
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New Planning Framework for the Western Sydney Aerotropolis
6
Court Places Assets in the Freezer
7
EPA to “Veto” Its Own Veto Authority under the Clean Water Act?
8
Nominated or not – basic rules of subcontracting in Poland
9
Western Sydney Aerotropolis: the call for private investment
10
California Supreme Court Provides Clarity to California’s Prompt Payment Exception

Don’t Dump Stuff in the River

By David L. Rieser

So, you are managing a major construction site in downtown Chicago. It’s been raining and you have thousands of gallons of silty water which you need to get off site. You can: (a) store it in tanks and then truck it to a waste water treatment facility; (b) discharge it to the local sewer under proper sewer authority; or (c) pump it into the river in full view of thousands of commuters walking over the bridges from the local train stations.

Most of us would agree that (c) would be the least optimal choice, but an editor for the Chicago Tribune took a very graphic picture of a construction worker doing exactly that, holding a pipe spewing thousands of gallons of grey silty water into the river and creating an extremely obvious and damning plume. He posted it to Twitter where it was seen by employees of the Illinois EPA and the Illinois Attorney General’s Office, who promptly sued the construction companies and the site owner for violation of federal and state clean water laws.

While this will no doubt create headaches for the defendants, this is, as they say, a teachable moment. First, construction companies must have a plan for managing stormwater. There is a General Permit issued by EPA under the Clean Water Act for construction activity, which lays out a number of requirements and best practices. There have been a number of cases brought against companies for violating this permit, generally for obvious issues, which could have been avoided with better management and focus. The conditions of these permits are available, and there are any number of environmental professionals who would be glad to work with construction companies to make sure these issues are addressed.

Second, even if there is a plan, it is management’s responsibility to train and work with the employees to make sure it’s implemented. It’s easy to look at this picture and blame the guy with the hose, but he had supervisors who either directed him or didn’t give him enough direction, other supervisors on site who weren’t paying attention to what he was doing, and still other supervisors who didn’t sufficiently stress that not dumping stuff in the river was as important as any other job on site.

Third, whatever the above steps might cost, it will be cheaper than dealing with this lawsuit. Fines under the Illinois Environmental Protection Act can run up to $10,000 per day, per violation. The actual amount of Illinois fines can fluctuate greatly, but they have generally been going up, and I doubt that Illinois will be talked into giving a slap on the wrist for this one. Had the federal government brought this action, the defendants would be looking at a minimum of $37,500 per day, per violation. In some particularly ugly circumstances, intentionally dumping stuff in the river can lead to criminal penalties, including jail.

So the bottom line is: Don’t do this. Plan for managing stormwater, train your employees and subs to implement the requirements, and supervise the site to make sure it is being done right.

Congratulations to our Doha Construction Team – “Property & Construction Team of the Year”

K&L Gates is proud to annouce that our Doha-based Construction & Infrastructure team was recently named the “Property & Construction Team of the Year” by the Qatar Business Law Forum. Members of our Doha office are pictured below accepting the award, which was presented on 13 November 2018.

 

 

 

 

 

 

Collateral Warranties: A Reminder of Their Importance

By Kevin Greene and Daniel Cartmell, K&L Gates, London

The judgment of O’Farrell J in Swansea Stadium Management Co. Ltd v Swansea City and County Council ([2018] EWHC 2192 (TCC)) provides guidance on collateral warranties and acts as a warning for any potential claimants to be mindful of any limitations of time in which to commence proceedings under them.

The facts of the case are fairly straightforward. The City & County of Swansea (the “Council”) is the freehold owner of the Liberty Stadium, home to Swansea City Football Club and the Ospreys.  The Council leased the Stadium to Swansea Stadium Management Company (the “Claimant”), which is the management company for the Stadium.  Interserve Construction was employed by the Council to design and construct the Stadium under a JCT Standard of Form of Building Contract with Contractor’s Design 1998 Edition (subject to certain bespoke amendments) (the “Building Contract”). Read More

New Planning Framework for the Western Sydney Aerotropolis

Clive Cachia, Kirstie Richards

What has happened?

The NSW Government has played its hand in setting out the priorities for the proposed development of the Western Sydney Aerotropolis by releasing the draft Stage 1 Land Use and Infrastructure Implementation Plan (Draft Stage 1 Plan).

Further to our earlier updates on the development of the Western Sydney Airport (see here and here), the Aerotropolis will serve as Western Sydney’s new economic hub to support the massive public and private investment needed to construct and operate this once in a lifetime infrastructure development.

The Draft Stage 1 Plan provides clarity on the proposed re-zonings and sequencing of development for the Aerotropolis. The NSW Department of Planning and Environment (DP&E) is seeking feedback on the Draft Stage 1 Plan until 2 November 2018. See link for details on how to make a submission on the Draft Stage 1 Plan.

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Court Places Assets in the Freezer

By Sandra Steele and Michael O’Callaghan, K&L Gates, Sydney

The Supreme Court of Western Australia has recently made a freezing order in the matter of Trans Global Projects Pty Ltd (In Liquidation) (TGP) v Duro Felguera Australia Pty Ltd (Duro) [2018] WASC 136.

This decision sheds light on:

  • the factors that the Court will consider in granting a freezing order (i.e. an order whereby the assets of a company are “frozen” so that the company cannot dispose of or deal with those assets)
  • the circumstances in which a Court will issue a freezing order to enforce an arbitral award.

In short, the Court ordered that AUD20 million of Duro’s assets be frozen as Justice Tottle was persuaded that there was a danger that a prospective judgment based on an arbitral award against Duro would be wholly or partly unsatisfied because there was danger that the assets of Duro would be removed from Australia (or disposed of, dealt with or diminished in value). The Court made this determination notwithstanding Duro’s cross claims against TGP.

Read the full alert on K&L Gates HUB.

 

EPA to “Veto” Its Own Veto Authority under the Clean Water Act?

By Ankur K. Tohan, Cliff L. Rothenstein, Endre M. Szalay, and Tad J. Macfarlan

On June 26, 2018, in one of his final acts as Administrator of the U. S. Environmental Protection Agency (“EPA”), Scott Pruitt issued a memorandum [1] that has set in motion a process to amend the regulations that govern the agency’s exercise of its “veto” authority under Section 404(c) of the Clean Water Act. [2] The memo directs EPA staff to prepare a proposal, within six months, that would potentially curtail EPA’s authority to effectively bar development projects that require a Section 404 dredge-and-fill permit from the U.S. Army Corps of Engineers.

As background, Section 404 of the Clean Water Act authorizes the Corps (and state agencies with delegated permitting authority) to issue permits authorizing the discharge of dredged or fill material into regulated waters at “specified disposal sites.” [3] However, the statute provides EPA the authority to “prohibit” or “withdrawal” the specification of any area as a disposal site when it determines that a proposed discharge will have an unacceptable adverse effect on water supplies, fisheries, wildlife, or recreational areas. [4] This is commonly known as EPA’s “veto” authority because the EPA can effectively veto a project that would otherwise be authorized under Clean Water Act permits issued by the Corps by prohibiting construction in areas for which there is no reasonably available alternative disposal site. EPA currently administers its veto authority through regulations that were last amended nearly four decades ago, in 1979. [5] To date, EPA has used its final veto authority only 13 times. [6]

The new memo grows out of concerns surrounding EPA’s prior use of its veto authority before a Section 404 permit application had been filed—i.e., a “preemptive” veto—or after a permit had already been issued—i.e., a “retroactive” veto—rather than in the midst of the permitting process. [7] Recent examples include EPA’s proposed preemptive veto of a high-profile copper and gold mining project near Bristol Bay, Alaska in 2014 (which remains pending), [8] and its 2011 retroactive veto of a coal mining project in Logan County, West Virginia. [9] Both of these cases spawned substantial litigation [10] and caused many observers (including former Administrator Pruitt) to question whether in the future “the mere potential of the EPA’s use of its section 404(c) authority before or after the permitting process could influence investment decisions and chill economic growth by short-circuiting the permitting process.” [11]

In response to these concerns, former Administrator Pruitt’s Memo directs EPA staff to prepare and provide to the White House Office of Management and Budget a proposal within six months (before the end of 2018) that would consider and seek public comment on the following changes:

  • Eliminating EPA’s authority to veto a project before a permit application has been filed.
  • Eliminating EPA’s authority to veto a project after a Section 404 permit has been issued.
  • Requiring EPA regional administrators to obtain approval from EPA headquarters before initiating the Section 404(c) veto process.
  • Requiring the completion of environmental review under the National Environmental Policy Act before preparing and publishing a proposed veto determination.
  • Requiring EPA to publish and seek public comment on final veto determinations before those determinations take effect.

While former Administrator Pruitt is no longer in office following his July 5 resignation, all indications are that the new Acting Administrator, Andrew Wheeler, will forge ahead with the rulemaking process initiated by his predecessor. Administrator Wheeler has publicly expressed his commitment to the regulatory agenda pursued by Pruitt prior to his departure and he has strong ties to the mining industries which, of all industries, were most negatively impacted by EPA’s application of the agency’s veto power under the Obama administration.

The coming weeks should serve as a valuable window into whether Administrator Wheeler will indeed move forward with a new 404(c) rulemaking. In a letter dated July 19, Senator Tom Carper (D-Del.) and Representative Peter DeFazio (D-Ore.) urged Wheeler to “immediately and publicly revoke” Pruitt’s memorandum. [12] The letter requests that by August 15, 2018, Administrator Wheeler respond to several 404(c)-related questions, including his “view on the proper exercise of EPA’s section 404(c) authority, and how this view is consistent with the Congressional history and judicious use of this authority by your agency in the past.” [13]

Assuming Administrator Wheeler stays the course set by his predecessor, the upcoming rulemaking process will provide a critical opportunity for EPA leadership and the regulated community to shape the Clean Water Act regulatory landscape for years to come. Persons and industries with interests tied to high-profile, capital intensive development projects—such as oil and gas, mining, and large scale water supply/impoundment projects—should give particular consideration to participation in the rulemaking process, as it is these types of ventures that are most likely to be negatively impacted by a surprise veto under EPA’s current regulatory regime.

The anticipated rulemaking limiting EPA’s Clean Water Act veto authority is already generating considerable controversy, so interested stakeholders should consider weighing in with EPA even before any proposed rule is released. K&L Gates has a team of lawyers and policy professionals in Washington, D.C. and beyond that is positioned to assist with such efforts.

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Nominated or not – basic rules of subcontracting in Poland

By Dominika Jędrzejczyk

It is difficult to imagine a complex infrastructure project without the participation of subcontractors. In Poland, where large projects are often contracted to foreign companies, local subcontractors play an important role. This was also the case prior to the EURO 2012 football championships, when subcontractors were heavily engaged in the construction of roads and railways necessary to secure access to the newly built football stadiums. However, the EURO 2012 also resulted in a wave of bankruptcies and liquidations of Polish subcontractors, who suffered due to payment withholding, warranty deposits, contractors’ bankruptcies and lack of financial liquidity along the supply chain.

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Western Sydney Aerotropolis: the call for private investment

By: Clive Cachia                     

As the fastest growing region in Australia, the development of Western Sydney has been a national focus. Publicly, the Australian Government has committed up to AUD5.3 billion in public equity funding towards the construction of Sydney’s second international airport, the Western Sydney Airport. Touted as the Western Sydney Aerotropolis, the surrounding region of Western Sydney Airport will need significant private investment of at least AUD20 billion to develop an integrated transport, logistics, defence, advanced health, food agtech and education precinct surrounding the runway and terminal facilities.

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California Supreme Court Provides Clarity to California’s Prompt Payment Exception

By Timothy L. Pierce and Heather L. Frisch

The California Supreme Court issued an opinion on May 14, 2018 in United Riggers & Erectors, Inc. v. Coast Iron & Steel Co. that resolves a split in authority regarding whether Civil Code Section 8814 excuses prompt payment of retention by an owner or prime contractor if a good faith dispute of any kind exists between the parties or only when there is a dispute over the work for which the retention is due. The Court held that a contractor is only entitled to withhold retention when there is a dispute arising out of the work on which the retention is based.

In United Riggers, the prime contractor, Coast Iron & Steel Co. (Coast Iron), entered into a contract with the owner, Universal Studios, and in turn subcontracted a portion of the work to United Riggers & Erectors (United Riggers). United Riggers submitted its final bill that included additional costs for increased expenses due to Coast Iron’s alleged mismanagement and outstanding change order requests. Coast Iron accepted the work completed by United Riggers, but disputed the additional costs. Coast Iron then used this dispute as justification to withhold the entire final payment, including the retention payment for the accepted work.

United Riggers filed suit against Coast Iron for, among other things, its failure to make prompt payment of the retention monies it had received from Universal according to California Civil Code Section 8814. Notably, by the time the bench trial took place, Coast Iron had paid the outstanding retention to United Riggers. This action did not moot the statutory claim because violation of the prompt payment statute can result in a monetary penalty and payment of attorney’s fees under Civil Code Section 8818.

Coast Iron argued that the Court should adopt the broad view of the statute held in Martin Brothers Construction, Inc. v. Thompson Pacific Construction (2009) that held any bona fide dispute between the parties can justify the withholding of retention. In particular, Coast Iron pointed out the lack of any express limit on the nature of the dispute contained in the Section 8814 exception. On the other hand, United Riggers argued for the narrow interpretation of Section 8814 held in East West Bank v. Rio School District (2015) which restricts justification for withholding retention payments to disputes related to the security purpose of retention. East West Bank highlighted the underlying purpose of the prompt payment statutes was “to ensure timely payment of the retention as soon as its narrow justifications have been served.”

The Court considered the legislative history of Section 8814 and held that its narrow interpretation of the prompt payment statute aligns with the statute’s underlying purpose to ensure timely payment of undisputed amounts to contractors while still allowing the retention to fulfill its security purpose. Retention may be withheld when: (1) the subcontractor’s construction-related performance is the subject of a good faith dispute, (2) the liens or other demands from third parties expose the direct contractor to double payment, or (3) when payment would result in the subcontractor receiving more than the minimum amount both sides agree is due. Under United Riggers, withholding retention is not justified because of a dispute whether additional amounts beyond the retention might be owed such as pending requests for change orders.

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