Welcome to the winter edition of Snell & Wilmer’s Under Construction newsletter. We hope your new year is off to a great start and the holiday season was warm and joyful.
In this newsletter, we explore a variety of topics and discuss issues related to current construction trends and legal news that may be relevant and helpful to you and your business.
We are pleased to offer information regarding sound construction trial practice, applicable 2024 labor and employment updates for the construction industry, and a timely reminder from the Utah Court of Appeals concerning statutory deadlines as well as clarity on what is considered lienable work in Utah. This edition also covers new Colorado legislation that seeks to eliminate the “significant public impact” requirement under the Colorado Consumer Protection Act (“CCPA”), a recent Washington State Supreme Court decision that underscores the significance of safety protocol provisions in construction contracts, and useful tips for Arizona contractors and owners regarding mechanics’ and materialmen’s liens.
We hope you will find these articles informative and enlightening. Please let us know if we can address a specific construction issue in a future newsletter. We hope 2024 is profitable, busy, and safe for you, your company, and your family!
Jim Sienicki, Editor
For lawyers, serving as a juror is somewhat of a leprechaun moment. But as of January 1, 2023, in Arizona, the Arizona Rules of Civil Procedure no longer permit trial counsel to exercise peremptory challenges — meaning lawyers cannot freely strike whichever jurors they believe are adverse to their position. So, despite being an attorney and having participated in construction litigation (both for plaintiffs and defendants), I was seated as a juror in a nearly month-long construction trial.
Construction litigation is a deceiving niche for trial practice. As a law clerk, I watched civil trials in federal court, and none of them required the same step-by-step dismantling as construction litigation. As a juror, I initially found myself trying to intuit the answer — who is responsible for what? How should the project have been constructed? But in practice, the lawyers demonstrated that construction is guided by a peculiar set of norms, specific standards, and contractual boundaries, not all of which are obvious to the average (or not-so-average) juror.
From this experience, not only did I learn some practical tips for lawyers (which I’ve included), but there’s a lot a client can do to help the lawyers along the way.
For Clients consider the following:
Hire good people.
Some of the most persuasive witnesses throughout trial were those who were out on the job every day doing the work. Although experts are helpful, and at times necessary, to provide key testimony and to complete your case, your employees know their jobs inside and out. When your people are hardworking and honest, that candor comes through on the witness stand. This also works in reverse. When you hire shady characters, the jury will notice.
Draft carefully from the outset.
Scopes of work are everything. As a juror, a scope of work functions as a rubric: did you meet the expectations of the contract? If we know exactly what was agreed to, it is much easier to parse out which portions of the contract, if any, went unfulfilled. It should go without saying that all scopes of work should be memorialized in writing and signed by both parties.
Scopes of work benefit everyone. As the party doing the work, an accurate scope of work can protect you from later liability. On the other hand, if you are the one contracting to have the work done, scopes of work serve as a checkbox to ensure you’re getting what you paid for.
As an additional consideration, contractors should also take care to note in their contracts potential issues that are outside their scope of work. This delineation is often difficult to make, but the upfront work can benefit everyone in the long run.
When I was a juror, a significant portion of the contested issues occurred on the perimeter of the contractor’s work. So, for those of you drafting the scopes of work, consider who is responsible for any issues performed at the juncture of your specialty. For example, in a roofing project, delineate who is responsible for the adjacent stucco walls, the roof drains, or the scuppers. Or in a landscaping project, allocate responsibility for water damage at the bottom of the stucco, or the cracked concrete on the sidewalks.
While these juncture components may seem intuitive to an experienced employee or business owner, they are not intuitive to a jury. This becomes especially complicated when your business could perform the necessary work at the junctures but, for whatever reason, did not contract to do so. Not delineating — or excluding — these portions of work from your scope can leave a project looking unfinished through no fault of your own. A disclaimer in your contract that the company has not agreed to complete any work at the exterior of the project, including [insert areas here] can help a jury confidently allocate responsibility for allegedly unfinished work.
For lawyers consider the following:
Spell it out — literally.
At the beginning of trial, I struggled with terminology. The lawyers were so well-versed in the issues that they used the jargon freely — and assumed the jury knew what they meant. Your jurors are laypeople, and even when they aren’t, they’re starting from scratch. I’m a visual learner, so for me, it would’ve been helpful to see the words along with a photo of what was being described. If the jury does not understand you, you are less likely to persuade them.
Bring physical exhibits.
One of my favorite parts of trial, especially a long one, was physical exhibits. Every now and then the lawyers would produce a demonstrative item akin to a sample sheet in a sales meeting. The physical exhibits helped bring the defects to life, meaning we could better envision the construction issues at stake. If your trial has to do with defective caulking, bring in a caulking sample and let the jury touch and feel the difference. It sparks engagement and understanding. Similarly, experts that can stand up, draw, point, circle, and break apart the stages of a construction matter can be more persuasive and help the jury follow along.
Construction litigation is a team effort. On the front end, clients can help prevent issues by preparing a good contract, keeping good people close, and being meticulous about scopes of work. In the event of litigation, lawyers can help by slowing down and teaching the jury about your specialty from the ground up. [BACK TO TOP]
The New Year often means new labor and employment laws for the construction industry, 2024 is no exception. Federal agencies have been especially active. The Federal Acquisition Regulatory Council, the National Labor Relations Board, and the U.S. Department of Labor have all issued new rules that directly or indirectly target the industry. California, too, has singled out the construction industry with a new, restrictive independent contractor law. Businesses in the industry should be wary and may want to review their existing contracts and practices for compliance with the new rules and laws.
New FAR Rule Requires Project Labor Agreements for Large Federal Projects
On December 22, 2023, the Federal Acquisition Regulatory Council (“FAR Council”) issued a new final rule1 requiring federal agencies to use project labor agreements (“PLA”) on “large-scale” federal construction projects, which have an estimated cost of at least $35 million. PLAs are pre-hire collective bargaining agreements negotiated between construction unions and construction contractors that establish the terms and conditions of employment for construction projects. In other words, with few exceptions, contractors on large federal projects are now required to enter into collective bargaining agreements.
The new rule follows President Joe Biden’s February 4, 2022, Executive Order on Use of Project Labor Agreements for Federal Construction Projects (Order 14063). That Order introduced the PLA requirement for large-scale federal projects and directed the FAR Council to propose regulations implementing the Order’s provisions, which it did in August 2022. The Order also directed the FAR Council to invite and evaluate public comments on its proposed regulations before issuing a final rule. The FAR Council’s December 22, 2023 final rule made only minimal changes to its proposed regulations.
Under the new rule, all parties involved in a large-scale construction project must negotiate and set the terms and conditions governing the project by way of a PLA. That means that all subcontractors must become a party to the PLA negotiated by the prime contractor.2 The new rule also requires PLAs to meet various requirements, such as including dispute resolution procedures and providing guarantees against strikes and lockouts.3 There are exceptions to the PLA requirement, including where “market research indicates that requiring a PLA on a project would substantially reduce the number of potential offerors to such a degree that the Government could not meet its requirements at a fair and reasonable price.”4 However, contractors must apply for exceptions, which the government will have discretion to grant or deny.
The new rule went into effect on January 22, 2024. It will almost certainly face legal challenges from construction industry groups. But unless and until those challenges find traction in the courts, contractors on large-scale federal projects should assume their work will be governed by a PLA and plan accordingly.
NLRB’s New Joint-Employer Rule to Impact Contractor-Subcontractor Agreements
On October 26, 2023, the National Labor Relations Board (“NLRB”) issued a new final rule for determining whether two entities are joint employers for purposes of enforcing the National Labor Relations Act. Currently scheduled to take effect on February 26, 2024, the new rule drastically expands the scope of joint employment and imposes collective bargaining obligations.
Under the NLRB’s new rule, an entity is a joint employer of another entity’s employees if it has the “authority to control essential terms and conditions of employment, whether or not such control is exercised, and without regard to whether any such exercise or control is direct or indirect.”5 The NLRB lists seven “essential terms and conditions of employment” that it will review in making a joint-employer determination:
Significantly, the right to control any one of these terms and conditions is “sufficient to establish status as a joint employer, regardless of whether control is exercised.”7 And, an entity need not exercise direct control over one or more of these terms and conditions of employment to be deemed a “joint employer.” It is enough to have the right to exercise such control (“reserved” control), even if it can only be exercised through an intermediary (“indirect” control).8 The new rule is a departure from the NLRB’s prior final rule, issued in April 2020, which required proof of “direct and immediate” control over workers.
The new rule also expressly requires a contractor to collectively bargain on behalf of all workers it jointly employs.9 Specifically, it requires a joint employer to “bargain collectively with the representative of those employees,” but only with respect to “any term or condition of employment that it possesses the authority to control or exercises the power to control (regardless of whether that term or condition is deemed to be an essential term or condition of employment under the rule).”10 The implications of this requirement are significant. Not only can one joint employer be liable for unfair labor practices committed by the other, but it must collectively bargain on behalf of the other’s employees.
It is important to note that the NLRB’s new joint-employer analysis is limited to enforcement of the National Labor Relations Act and has not yet been adopted by other federal agencies, such as the U.S. Department of Labor. Nonetheless, the new rule will likely impose collective-bargaining obligations and find joint-employer liability in far more situations than the NLRB’s prior rule.
Contractors should review their contracts for language granting them the right to control the terms and conditions of workers’ employment, even if such control is through an intermediary such as a subcontractor or staffing agency. Such language may create an increased risk of being jointly liable for unfair labor practices and impose collective bargaining obligations.
New DOL Rule Makes Hiring Independent Contractors Riskier
On January 10, 2024, the U.S. Department of Labor (“DOL”) published a final rule that imposes a new, six-factor test (see below) for determining whether workers are “independent contractors.”11 The final rule takes effect on March 11, 2024, and will generally make it more difficult for businesses to classify workers as independent contractors, rather than employees.
The DOL’s new rule assigns equal weight to each of its six factors, and no one factor is determinative. The purpose of the test is to determine whether, as a matter of “economic reality,” a worker is economically dependent on a potential employer for work or in business for themselves based on the “totality of the circumstances” of each individual case. If they are economically dependent, they are an employee. Otherwise, they may be classified as an independent contractor.
The DOL’s new rule rescinds the prior 2021 independent contractor rule which considered a multi-factor test to determine whether a worker was economically dependent on an employer but gave greater weight to two “core elements'': the nature and degree of control over the work and the individual’s opportunity for profit and loss. The prior 2021 independent contractor rule also did not consider a worker’s investment or whether the work was integral to the employer’s business as separate factors.
The DOL’s new rule includes the following six factors:
Notably, this list of factors is non-exhaustive. Other “additional factors” may be considered so long as they “in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.”13
Because it assigns equal weight to all six factors, the new rule will make it more difficult for companies to classify workers as independent contractors. In anticipation of the new rule’s March 11, 2024 effective date, companies would be wise to evaluate their independent contractor agreements by applying all six factors to workers subject to those agreements. The risks of misclassification include potential damages and penalties for failure to pay wages, failure to withhold payroll taxes, failure to provide benefits, and workers’ compensation issues, among others. Accordingly, companies may want to seek counsel to assist with this evaluation.
California Limits the Use of Independent Contractors in the Construction Industry
As most businesses operating in California well know, the state imposes some of the nation’s strictest independent contractor laws. A new law, Assembly Bill 1204 (“AB 1204”), now specifically targets the construction industry by limiting the number of independent contractors a business may use on a given project.
AB 1204 prohibits a “specialty contractor” from entering into a contract “for the performance of work on the same single project or undertaking with more than one subcontractor in the same license classification” as the specialty contractor unless the subcontractor “employs persons who are classified as employees to perform work in that license classification on the single project or undertaking” or the specialty contractor is a “signatory to a bona fide collective bargaining agreement.”14 A “specialty contractor” is defined as an entity that holds any one of over forty specialty contractor license classifications, including electrical, drywall, concrete, carpentry, flooring, solar, landscaping, sheet metal, and roofing.15 This means, for example, that a business holding an electrical contractor license cannot hire more than one electrical subcontractor on a project unless it (a) determines that such subcontractors will use employees on the project, or (b) hires those subcontractors pursuant to a collective bargaining agreement.
The California Contractors State License Board may take disciplinary actions against specialty contractors that violate the new law.16 Specialty contractors may want to evaluate their subcontractor agreements for compliance with AB 1204 and, when in doubt, seek counsel for assistance.
Utah's lien statute is intricate, unique, and oft amended by the legislature. And how Utah courts have interpreted the definitions and deadlines in the lien statute are frequent subjects of trial court best efforts and, inevitably, appellate opinions. Staying current on the lien statute and the courts' rulings on the same is crucial for Utah contractors to preserve their lien rights. The Utah Court of Appeals’ recent ruling in Busico v. Carver, 2023 UT App 162, serves as a reminder of the consequences of failing to meet the technical requirements of the lien statutes. The statute at issue here is the requirement for a contractor to file a pre-lien notice on the subject property within 20 days of commencing work.
Busico, the owner of a condominium, contracted with Complete Construction to perform construction work after a sewer line backed up and flooded their home. Complete Construction submitted an estimate to the Busicos for the proposed project in early October, and after the Busicos' insurance provider agreed to pay for the repair work, the Busicos' directed Complete Construction to begin its work on November 2. On November 5, Complete Construction sent a subcontractor to the condo to "sanitize the floors." Between November 6 and 20, the subcontractor "pressure steam cleaned" some of the flooring in the condo and also used "hospital grade disinfectant" to sanitize the areas that had been impacted by the sewage backup. On November 20, Complete Construction purchased flooring materials for the project and began installing the new flooring the next day.
Between November 21 and November 30, the Busicos grew frustrated with Complete Construction’s work. On November 30, nearly two months after providing an estimate, Complete Construction filed a preliminary lien notice on the Utah State Construction Registry. Shortly thereafter, the Busicos terminated its contract with Complete Construction. After the Busicos declined to pay Complete Construction for some of the work it had performed, Complete Construction recorded a notice of construction lien. The Busicos filed a complaint a few months later, and Complete Construction counterclaimed to foreclose on the construction lien. Relevant here, the trial court ruled against Complete Construction on its lien foreclosure claim, finding that Complete Construction did not file its preliminary within 20 days of when it commenced "providing construction work on the real property" as required by Utah Code Ann. § 38-1a-501(1)(a). The trial court found that the "construction work" included the scheduling and estimating that occurred on October 4 and November 2. As a result, the preliminary notice that Complete Construction filed on November 30 was untimely.
On appeal of the question of the timeliness of the preliminary notice, the Court of Appeals upheld the lower court's ruling, but on different grounds. The Court of Appeals declined to rule on whether "scheduling" and "estimating" fit within the current definition of ‘construction work” because the preliminary notice was untimely filed under different language from the same statute that plainly applied. The legislature amended the lien statute in 2011 to expand the definition of "construction work" to mean "labor, service, material, or equipment provided for the purpose and during the process of constructing, altering, or repairing an improvement." Utah Code Ann. Section 38-1a-102(11)(a) (emphasis added). The Court of Appeals noted that the term "repair" in ordinary usage, means to "put something that is damaged, broke, or not working correctly, back into good condition or make it work again" or to "remedy" or "restore to sound condition after damage or injury." The Court of Appeals found that the cleaning and disinfection efforts that occurred beginning on November 5, which also included removing some of the affected carpet and flooring, qualified as construction work for purposes of the statute. "By removing damaged flooring and spraying various surfaces down with high-grade disinfectant, Complete Construction was attempting to ameliorate the damage done by the swage backup, thus putting the condo back into good condition and restoring it to is previously habitable state. By doing so, Complete Construction was therefore providing 'labor' and 'service' 'during the process of … repairing' the condo, which was enough to constitute work under Utah Code § 38-1a-102(11).” Thus, it did not matter to the Court of Appeals whether work had commenced in early October or early November. The pre-lien notice was filed more than 20 days after either event.
Complete Construction argued that this type of repair was "remedial" in nature, and that under Utah case law did not fit the definition of "construction work." The Court of Appeals noted that prior court opinions found that "ordinary maintenance," "minor repairs," and "cleanup work" are not lienable. But Complete Construction relied on cases that were interpreting versions of the statute that predated the 2011 amendment. The contractor was out of luck.
This case serves as a reminder for contractors and counsel alike: (1) the need to stay current on the latest updates on the deadlines and definitions in, and case law interpreting, the lien statutes, and (2) the uncompromising and sometimes harsh consequences of not meeting the intricate and unique requirements of the Utah lien statutes. [BACK TO TOP]
A new proposed bill has the potential to significantly impact the viability of consumer protection claims brought against Colorado homebuilders. Consumer protection claims brought by homebuyers against homebuilders in Colorado have historically been premised on contractual waivers of implied warranties as well as the terms contained within express contractual warranties. These claims have largely been unsuccessful against homebuilders based on the failure to meet all five factors set forth by statute and judicial precedent.
However, the stage is set for change as a new bill aims to remove arguably the most prohibitive requirement for establishing these claims, and if passed, may result in additional exposure to homebuilders, including the threat of punitive damages, treble damages, costs and/or attorney’s fees for successful consumer protection claims.
The Colorado Consumer Protection Act (“CCPA”), codified as Colorado Revised Statutes § 6-1-101, et seq., is a statutory scheme adopted by the legislature providing for both public and private rights of action to deter and punish businesses that engage in unfair or deceptive trade practices with the public. Currently, an individual or entity asserting a CCPA claim must show that: (1) the defendant engaged in a deceptive or unfair trade practice; (2) the deceptive or unfair trade practice occurred in the course of the defendant’s business, vocation, or occupation; (3) the deceptive or unfair trade practice significantly impacts the public as actual or potential consumers of the defendant’s goods, services, or property; (4) the plaintiff suffered an injury in fact to a legally protected interest; and (5) the deceptive or unfair trade practice caused actual damages or losses to the plaintiff. Hall v. Walter, 969 P.2d 224, 234 (Colo. 1998).
However, new legislation proposed on January 10, 2024 aims to broaden the scope of conduct covered by the CCPA by altering one of the foregoing requirements, and if passed, will take Colorado from having one of the more restrictive consumer protection acts to one much more liberal in application. The proposed bill, HB24-1014, seeks to eliminate the judicially created requirement in the seminal case of Hall v. Walter that an individual or business establish that the deceptive or unfair trade practice “significantly impacts the public” before remedies may be available under the CCPA. Noting that this requirement is nowhere in the text of the CCPA, the bill proposes that evidence that a person has engaged in an unfair or deceptive trade practice in and of itself constitutes a significant impact to the public. The bill aims to eliminate the decades old judicially created limitation and would have Colorado join most other states that do not impose such a limitation with the purpose of better protecting consumers by discouraging unfair competition. To that end, HB24-1014 proposes a revision to CCPA § 6-1-105 as follows:
''Unfair or deceptive trade practices. (2) Evidence that a person has engaged in an unfair or a deceptive trade practice: (a) is prima facie evidence of intent to injure competitors and to destroy or substantially lessen competition; and (b) is sufficient to establish a significant impact to the public.''
Notably, if passed in its current form, HB24-1014 will create opportunity for more aggressive enforcement by government officials as well as significantly more private litigation under the CCPA against homebuilders. This amendment will likely impact Colorado homebuilders across the state in the form of additional construction defect lawsuits involving CCPA claims that carry heightened exposure for homebuilders. Moreover, it may discourage companies from building homes in Colorado.
Although the impact of HB24-1014 remains to be seen, Colorado businesses should continue to watch for developments with the proposed legislation. An initial hearing to discuss this bill before the House Judiciary Committee is currently scheduled for Wednesday, February 7, 2024. In the meantime, there may be revisions companies can make to their contract documents that may help to better safeguard them against potential CCPA claims. [BACK TO TOP]
By Laurie Hager
Under Washington common law, property owners owe a duty of reasonable care to “invitees” (essentially, persons invited onto the land by the owner), which requires owners to inspect for dangerous conditions and to make such repair, safeguards, or warnings as may be reasonably necessary for the protection of invitees under the circumstances. On December 7, 2023, in the case Eylander v. Prologis Targeted U.S. Logistics Fund, LP, the Washington Supreme Court held that a property owner can contractually delegate such duty of care to its contractor controlling a construction project site on the property. The Court’s ruling underscores the importance of the safety protocol provisions often found in construction contracts, and the reasonable delegation of the Owner’s duty of care to the contractor.
Prologis Targeted U.S. Logistics Fund and Management LLC (collectively, “Prologis”) retained a roofing contractor, Commercial Industrial Roofing Inc. (“CIR”) to perform roofing maintenance and repair work on the roof of Prologis’s warehouse. The Court noted that Prologis selected CIR based on a positive recommendation from another property manager, and that CIR held itself out as a roofing company with the appropriate expertise, including compliance with safety laws and standards.
In the roofing contract between Prologis and CIR, CIR agreed to comply with laws requiring safety precautions, to provide CIR’s own safety program specific to the job site, and to post the safety plan on-site before performing the roofing work. CIR complied with its contractual safety plan and posting requirements. Because the roofing contract provided that CIR had discretion concerning its safety plan, CIR did not share the safety plan with Prologis. CIR did, however, share the plan with its employees. Jeffry Eylander (“Eylander”) was an employee of CIR who signed off on the CIR safety plan.
Eylander had a fatal accident when he was cleaning the edge of the roof at the Prologis job site. His CIR foreman warned him that he was getting too close to an unguarded sky light on the roof. Unfortunately, however, Eylander tripped and fell through the skylight while walking backward. Eylander fell 30 feet to the concrete floor and died as a result of the impact. The personal representative of Eylander’s estate (“Eylander’s Estate”) sued Prologis for wrongful death.
Eylander’s Estate argued that Prologis’s sole basis of liability arose from a landowner’s common law duty of reasonable care to “invitees,” as described above. The Washington Supreme Court held that Prologis satisfied its duty of care to Eylander by reasonably delegating its landowner duty of care regarding the roofing area to CIR.
There are two components of the Court’s ruling. For the first component, the Court reasoned that Prologis’s duty to render the roof area safe was expressly delegated to CIR under the roofing contract, which specifically required CIR to solely manage its own safety program. For the second component, the Court held that Prologis exercised reasonable care in making that delegation, by selecting a competent contractor that held itself out as having the requisite experience to manage the dangers posed by the roofing job site.
The outcome may have been different if CIR did not present itself as a safe roofing contractor, or if the contract provisions did not so expressly delegate the duty of care to CIR, or if the accident had happened to someone who was not employed by CIR and, therefore, may not have been covered by the safety plan.
Regardless of other possible outcomes under different hypothetical scenarios, the Eylander decision underscores the importance of construction contract provisions that relate to safety programs. Owners and contractors should consider whether to include provisions in the contract that obligate the contractor to become familiar with the laws and regulations regarding safety requirements, visit the jobsite and determine potential dangers, address potential dangers in safety programs, distribute and post the safety programs for all affected workers, and coordinate with other contractor trades as necessary. [BACK TO TOP]
Arizona contractors have a powerful tool to ensure payment: the mechanics’ and materialmen’s lien. This article provides actionable suggestions and tips that contractors and owners may want to consider.
As a refresher, mechanics’ liens are a statutory tool to enforce a contractor’s payment rights. If a contractor complies with the statutory requirements (some of which are highlighted below), the contractor can record a lien with priority from the time labor is commenced on the project, unless a deed of trust or mortgage is recorded within 10 days after the labor was commenced. It means that (in theory) the contractor can foreclose on the lien to collect on unpaid amounts they have earned. This is a very effective way to motivate an owner (or the owner’s lender) to pay a balance due as they could otherwise lose the building, structure, or improvement. Practically it is uncommon to actually foreclose on the lien. Instead, the owner (or its lender) will likely ensure that the disputed amount is paid or will “bond around” the lien so that the project is not at risk of foreclosure.
With that context in mind, there are numerous pitfalls that contractors and owners can encounter. For example, as powerful as the tool is, it is critical that contractors comply with the statutory requirements. To that end, contractors should be sure they are:
Failure to comply with the statutory requirements may cost contractors dearly. While every deficiency in complying with the statutory requirements may not necessarily be fatal to a lien, and must be analyzed on an independent basis, proper controls up front can avoid such an issue.
On the other hand, Owners can take steps to minimize the risk of liens on their projects. Owners can:
In conclusion, mechanics’ and materialmen’s liens are a frequent issue with which both sides of the relationship need to comply. Even though the statutes describe how the process should work, oftentimes reality does not align with the statute’s requirements. Both owners and contractors are well served by refreshing their processes to ensure they comply with all of the statutory requirements. [BACK TO TOP]