In a recently published case dealing with issues of first impression, the California Court of Appeal Second Appellate District in Los Angeles held that the disgorgement penalty under Business and Profession Code § 7031(b) must be made within one year of completion or cessation of the performance of the project, and that time is not extended by the discovery rule. Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc., 2020 WL 5035826 (Cal. Ct. App., Aug. 26, 2020). BPC § 7031(b) permits a party who uses the services of an unlicensed contractor to recover any and all money paid to the contractor for its work—regardless of the quality of the work (indeed, even if the construction was flawless). The purpose of this harsh forfeiture provision is to deter unlicensed contractors from performing construction.Read More
COVID-19 has highlighted some of the existing problems in the construction market such as fragmentation, low profitability and often low satisfaction for both owners and contractors (due to time and budget overruns and lengthy claims procedures and disputes). In this article, we consider the choice of the procurement method for large construction projects and issues and risks raised by COVID-19.
Owners often procure major construction projects on a fixed price, lump sum turnkey contract whereby the contractor is responsible for all engineering, procurement and construction (EPC) aspects of the development by a specified date (subject to a limited number of circumstances which will provide the contractor with relief). Under this arrangement, the EPC contractor directly engages the supply chain and takes responsibility for building and delivering the project so that the owner simply has to ‘turn the key’. Any changes or variations that the owner may require to the original scope provided to the EPC contractor will be at the owner’s risk and therefore it is important to have a high degree of certainty and detail as to the scope of works, and often a detailed design provided by the owner to assist the EPC contractor in providing an accurate price.
The EPC has many advantages for the owner, including that it places lower management burden on them. It provides a single point of responsibility for the project to the owner and gives the owner and any lenders a high degree of certainty as to the time and cost of the development. Since the owner has recourse against a single contractor rather than having to pursue multiple contractors and suppliers, the dispute resolution process is usually less complicated. The EPC contractor should therefore seek to pass down all main obligations from the EPC contract onto its subcontractors to mitigate its liability position.
In return for taking on a high amount of risk as to time and cost, contractors may reflect this in their pricing and may include a substantial risk premium in the contract price. Owners can mitigate this to some degree by procuring EPC contracts in competitive tenders where the lowest price is often the decisive factor. That, in turn, often results in EPC contracts carrying a risk of change orders / variations which can become very costly to the owners if agreed or potentially catastrophic to those contractors who haven’t included a sufficient risk premium when submitting a low price proposal, leading to a focus on cost control by the contractor.
In these unprecedented times, the risk of force majeure events, effects of a change in law, risk of supply chain disruptions and the risk of integrating the performance of the entire supply chain have posed a particular challenge for contractors. As a result, contractors may become more reluctant to take on some of these risks and may seek to exclude or set parameters around their liability for such risks or owners may see tenders with higher risk premiums.
Where the owner wishes to retain greater control over the project, the owner may opt for an EPCM contracting structure.
The EPCM or ‘engineering, procurement and construction management’ contract is a construction management agreement whereby the EPCM contractor is responsible for advising the client on the design and procurement of the project but also for overseeing and managing all construction and supply contracts. An EPCM contract can therefore be seen more as a professional services contract in contrast to EPC contracts which are design and construction contracts. The EPCM contractor does not perform construction work. It is the owner who directly enters into numerous contracts with various contractors and suppliers.
EPCM has many advantages for owners, including greater flexibility allowing projects to be tailored to current conditions as owners can modify the design or procurement plan mid-project and negotiate directly with the relevant contractors or suppliers. This can mean early engagement of certain packages prior to finalising the scope of work which may result in an earlier completion date.
The overall price of the project under an EPCM arrangement may be lower as most of the risk priced for in EPC contracts sits with the owner and the owner is able to negotiate with the supply chain itself.
EPCM also has disadvantages. The administrative burden of the owner directly negotiating and contracting with each of the contractors or suppliers is far greater than under EPC and significant demands are placed on the owner’s skills and resources (although the EPCM contractor may be able to ease this burden). Interface risk and coordination between each contractor or supplier needs to be managed and this often sits with the owner. Where a dispute arises, this is also more complex for the owner due to difficulties in allocating fault and risk amongst multiple contractors, rather than having a single point of responsibility as under EPC contracts.
However, from our experience, most of these disadvantages can be reduced by way of proper implementation strategy, planning, contracting and management.
Both EPC and EPCM have advantages and disadvantages but can be beneficial when used in the right circumstances. The objectives, scope of work and risk profile should be clearly understood in choosing which method to use as the cost implications of choosing the incorrect form can be substantial for both parties.
Construction news outlet Construction Executive has again recognized K&L Gates LLP among the top 15 firms in the publication’s rankings of the 50 leading law firms throughout the United States with dedicated construction practices.
The survey, “The Top 50 Construction Law Firms,” considered practice-specific revenue; number of lawyers in the practice; percentage of firm’s total revenues derived from its construction practice; number of states in which the firm is licensed to practice; and the year in which the construction practice was established to develop the rankings. The busiest areas of practice were also discussed; dispute resolution, construction defects, and contract documents and administration are dominating the share of legal work for firms surveyed.
K&L Gates has one of the most diverse and technically skilled construction law practices in the world, with its lawyers working with clients throughout each phase of the industry, from the early stages of finance, development, and design through implementation, construction, and project close-out. The group often partners with lawyers across practice areas such as mergers and acquisitions, labor and employment, real estate, intellectual property, and immigration to fully serve clients across the firm’s platform.
On 13 May 2020, New Jersey and New York announced that construction in both states would resume, but projects that are reopening must adhere to detailed and specific guidance. This alert addresses the new requirements for construction operations in New Jersey and New York.
CLICK HERE to read more.
COVID-19 has made its way into various industries throughout the world, and Pennsylvania’s construction industry is no exception. All commercial construction activities throughout the Commonwealth, with a few limited exceptions, have been halted indefinitely to assist in mitigating the ongoing spread of the coronavirus. Similarly, construction supply chains in Pennsylvania, the U.S., and abroad have either limited supply or halted material production altogether, which may result in severe construction delays throughout Pennsylvania once construction projects are cleared to continue. Given the current (and likely ongoing) state of flux faced by Pennsylvania’s construction professionals, it is important that contractors familiarize themselves with the state-specific legal concepts currently at play and consider practical efforts to help curtail the economic impact of COVID-19.
CLICK HERE to read the full alert.
Another industry felt the impact of coronavirus (COVID-19) on Monday, March 16, when, amid growing concerns over the spread of COVID-19, Boston Mayor Martin J. Walsh announced a two-week halt to all construction projects in the City of Boston. Boston’s construction ban went into effect on Tuesday, March 17, and will last at least two weeks. Although the implementation of COVID-19 prevention measures has increased across the nation in recent days, Boston’s construction ban is the first of its kind in the United States. This alert discusses the impacts of the construction ban, as well as the broader implications of the ban in Boston and for the rest of the nation.
To read the full alert, please click here.
For more information and resources on COVID-19, please click here.
K&L Gates is pleased to have been named the “Best Firm to Handle the Construction Project of the Future” by Above the Law.
“The construction industry has been around for centuries, but that doesn’t mean it hasn’t adapted to the changing times. The Construction and Infrastructure Group at K&L Gates draws from vast past experience to focus on ensuring that construction projects are sustainable for the next generation. The firm’s lawyers specialize in niche areas like integrating technology and IP into construction projects and incorporating clean energy and green initiatives. When you’re planning a construction project for a better tomorrow, K&L Gates is thinking ahead.”
For the full article, please click here.
Effective July 1, 2019, Pennsylvania has joined 20 other states in adopting the Revised Uniform Arbitration Act (RUAA) as the most current law governing agreements to arbitrate in Pennsylvania. The RUAA was originally promulgated by the Uniform Law Commission in 2000, which replaced the original Uniform Arbitration Act (UAA) enacted by the Commission in 1956. Recognizing the need to replace an outdated UAA, Pennsylvania adopted the RUAA as a more thorough and robust arbitration law to meet the needs of modern disputes. Now, the RUAA provides specific guidance on various aspects of arbitration, including but not limited to the initiation of arbitration proceedings, impartiality of arbitrators, arbitrator immunity, discovery proceedings, and sanctions.Read More
Washington, D.C. – Construction news outlet Construction Executive has recognized K&L Gates LLP among the top five firms in the publication’s inaugural rankings of the 50 leading law firms throughout the United States with dedicated construction practices. With nearly 150 lawyers in its construction practice, K&L Gates also ranks first among included firms by number of construction lawyers.
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.Read More