Monthly Archives: August 2015

NEED TO BE A “CONTRACTOR” TO BE PROTECTED BY WORKERS COMPENSATION IMMUNITY

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imagesPreviously, I discussed the concept of “statutory employer” in the framework of workers compensation. Again, this concept is based on language in Florida Statute s. 440.10(1)(b) that provides:

 

 

In case a contractor sublets any part or parts of his or her contract work to a subcontractor or subcontractors, all of the employees of such contractor and subcontractor or subcontractors engaged on such contract work shall be deemed to be employed in one and the same business or establishment, and the contractor shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment.

 

 

The recent case of Slora v. Sun ‘N Fun Fly-In, Inc., 40 Fla. L. Weekly D 1966a (Fla.2d DCA 2015) discussed the meanings of the term “contractor” and “contract work” as used in this section:

 

The statutory terms “contractor” and “contract work” plainly and unambiguously posit a party performing work pursuant to a contract with another. Thus, to be immune from tort liability as a contractor, a defendant’s primary obligation in performing a job or providing a service must arise out of a contract.

Slora, supra (quotation and citation omitted).

 

In this case, a company operated airshows for the general public.  To put on these airshows, the company had to fill out various forms and get approval from the Federal Aviation Authority. The Federal Aviation Authority required security to be provided at airshow events.  The company put on an airshow and hired a security company to provide the security services for the event.  During the airshow, however, an employee of the security company got hurt.  This employee sued the company that put on the airshow for her injuries.  The company argued it should be immune from such claim under workers compensation immunity that provides that contractors that comply with Florida Statute 440.10 are immune from tort liability (absent an intentional tort). 

 

The trial court agreed with the company and granted summary judgment in its favor finding it was immune from liability and could not be properly sued by the injured employee of the security company. The appellate court reversed based on the meanings of “contractor” and “contract” as used in Florida Statute s. 440.10.  Particularly, the appellate court held that there was no evidence that the Federal Aviation Authority contracted the company to put on the airshow event (or that the company undertook an implied obligation to the Federal Aviation Authority).  Thus, if the company was not contracted by the Federal Aviation Authority, it could not be a “contractor” as used in the statute since it was not performing work pursuant to a contract with another.  And, if the company was not a contractor per the statute, the company could not be immune from tort liability under workers compensation law.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

THE (j)(5) and (j)(6) DAMAGE TO PROPERTY EXCLUSIONS IN CGL POLICY

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UnknownThe case of Essex Ins. Co. v. Kart Const., Inc., 2015 WL 4730540 (M.D.Fla. 2015) is an insurance coverage dispute.  In this case, a fire started after a contractor’s welding operations to the metal exterior of a tower that damaged components of the tower.  (In addition to the welding, the contractor was responsible for fire prevention measures to, among other things, monitor the welding during the welding and for a couple of hours after the welding.)

 

The contractor had a CGL policy.  The CGL carrier denied coverage.

 

The policy contained the (j)(5) and (j)(6) exclusions:

 

j. Damage To Property

“Property damage” to:

…

(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.

 

The Middle District of Florida gave a great explanation regarding the application of the (j)(5) and (j)(6) exclusions in a CGL policy:

 

(j)(5)

In sum, Section (j)(5) excludes from coverage damage to “that particular part” of the real property on which the insured [contractor] is operating at the time of the accident [the moment of the accident]…..

Kart Const., supra, at *6.

 

(j)(6)

 

Unlike the “operations” under Section (j)(5), the “work” under Section (j)(6) need not occur at a specific time (e.g., the moment of the accident) for the exclusion to apply. Section (j)6) excludes damage to a “particular part of … property” if the insured [contractor] “incorrectly performed” work (at any time) on that part and the “incorrectly performed” work caused, or contributed to, damage to that part.

 

 

In sum, under Section (j)(6), the policy might exclude the damage to the tower if Kart [the contractor] incorrectly performed fire-prevention work on the tower (that is, incorrectly removed debris from the tower or incorrectly wet the tower) and that incorrect work caused, or contributed to, the tower’s damage.

Kart Const., supra, at *6, 7.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

REFERRAL SOURCES CAN CONSTITUTE LEGITIMATE BUSINESS INTEREST TO SUPPORT NON-COMPETE AGREEMENT

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imagesI previously discussed the validity of non-compete agreements as well as tips for drafting such agreements.

 

Recently, in Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 40 Fla.L.Weekly D1929a (Fla. 4th DCA 2015), the Fourth District Court of Appeal discussed the requirement of a “legitimate business interest” pursuant to Florida Statute s. 542.335, which governs the enforcement of non-compete agreements. Specifically, the court was looking at whether referral sources constitute a legitimate business interest.  The reason being is that there needs to be a legitimate business interest to enforce a restrictive covenant such as a non-compete agreement.  The statute gives examples of legitimate business interests (e.g., trade secrets, confidential business information that does not qualify as trade secrets, substantial relationships with specific prospective or existing customers, patients or clients, etc.) but is NOT limited to the criteria or examples set forth in the statute.  See Fla.Stat. 542.335(1)(b) (“the term ‘legitimate business interest’ includes, but is not limited to:…”).

 

As it pertains to what constitutes a legitimate business interest, the Fourth District held:

 

Section 542.335, however, clearly states that the legitimate business interests listed in the statute are not exclusive. This allows the court to examine the particular business plans, strategies, and relationships of a company in determining whether they qualify as a business interest worthy of protection.

 

 

***

In sum, we hold that referral sources are a protectable legitimate business interest under section 542.335, Florida Statutes.

Infinity Home Care, supra.

 

If you are drafting or enforcing a non-compete agreement, it is important to consult with counsel.  This way your legitimate business interests can appropriately be protected as you move to enforce the non-compete agreement—the restrictive covenant—by moving for injunctive relief.  This case, however, supports the argument that the legitimate business is broader than the criteria and examples in the statute and based on the business’s “plans, strategies, and relationships.” 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

 

 

 

 

GENERAL UNDERSTANDING OF CONSTRUCTION PROJECT DELIVERY METHODS

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UnknownEver hear the expression, “there are many ways to skin a cat?”  Of course you have!  Well, this expression can apply to construction as there are many ways to build a project to accomplish the same objective–to deliver a completed project.  

 

The various ways projects are delivered are oftentimes referred to as construction project delivery methods.  Such delivery methods can be the traditional method of design-bid-build to the much more sophisticated and collaborative delivery mthod of integrated project delivery (“IPD”) to the method aimed at delivering needed public projects (such as infrastructure) known as the public private partnership (“P3”). 

 

 

 

Below is a basic presentation illustrating the following construction project delivery methods:

1)   design-bid-build

2)   design-bid

3)   construction manager at-risk

4)   integrated project delivery (“IPD”) and

5)   public private partnership (“P3”).

 

 

 

Check out the presentation to get a general understanding of the highlights of each of these project delivery methods.

 

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2015/08/project-delivery-methods.pdf”]

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

LIQUIDATING AGREEMENTS OR PASS-THROUGH AGREEMENTS

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UnknownA liquidating agreement is probably a more popular agreement between a general contractor and subcontractor when it comes to federal construction projects, but it is a type of agreement that can universally apply.   This is the type of agreement that memorializes a subcontractor’s pass-through claim to the owner where the subcontractor’s claim is pursued in the name of the general contractor or by the general contractor.   Because liquidating agreements pertain to a general contractor passing-through a subcontractor’s claim to the owner, they are oftentimes called pass-through agreements.

 

“Generally, a liquidating agreement or pass-through agreement grants the general contractor a release of its liability to the subcontractor after the general contractor prosecutes the subcontractor’s pass-through claims against the owner and conveys any recovery to the subcontractor.”  Rad and D’Aprile Inc. v. Arnell Const. Corp., 2015 WL 3619210, *6 (N.Y. 2015).  Specifically, a liquidating agreement between a general contractor and a subcontractor is designed to limit (or liquidate) the general contractor’s liability to the subcontractor to the amount the general contractor recovers from the owner.  See id.

 

 “Liquidation agreements have three basic elements: (1) the imposition of liability upon the general contractor for the subcontractor’s increased costs, thereby providing the general contractor with a basis for legal action against the owner; (2) a liquidation of liability in the amount of the general contractor’s recovery against the owner; and, (3) a provision that provides for the pass-through of that recovery to the subcontractor.” Rad and D’Aprile, supra (citation omitted). 

 

The benefit of a liquidating agreement or pass-through agreement is that it limits the general contractor’s liability to the extent the general contractor receives payment from the owner for the subcontractor’s claim. There are considerations that need to be ironed out when entering into a liquidating agreement or pass-through agreement including, without limitation:

 

1)   Attorney’s fees – if the subcontractor pursues the pass-through claim in the name of the general contractor, the subcontractor will bear all of the attorney’s fees.  Conversely, if the general contractor pursues the claim, it will likely want the subcontractor to share in attorney’s fees on a pro rata basis of the subcontractor’s recovery, if any, to be reduced by incurred fees.

2)    Cooperation  – if the subcontractor pursues the pass-through claim in the name of the general contractor, the subcontractor may need certain cooperation from the general contractor.  If, however, the general contractor pursues such claim, it will want the cooperation of the subcontractor so that the subcontractor is actively involved in proving the pass-through claim.

3)    Settlement – if the general contractor pursues the pas-through claim, it will want complete authority to settle the claim without input from the subcontractor. This means that the subcontractor’s claim would be paid based on a pro rata portion of that settlement.

4)    Role of General Contractor – the agreement should clarify how far the general contractor is willing to pursue the subcontractor’s claim.  In other words, is simply passing-through the claim to the owner good enough such that the parties are bound by the owner’s determination of the claim.  Or, does the general contractor need to continue to pursue the claim through litigation, arbitration, or through a Board of Contract Appeals?  This needs to be ironed out.

5)    Release  – the general contractor will want a complete release from the subcontractor such that the general contractor’s (and its payment bond surety’s) only liability to the subcontractor is the amount recovered from the owner relative to the subcontractor’s pass-through claim.

 

Liquidating agreements or pass-through agreements are an efficient vehicle in certain circumstances to resolve disputes between a general contractor and subcontractor where the parties jointly focus on the recovery from the owner.  With that said, the parties should work with counsel to ensure the liquidating agreement accurately reflects their interests moving forward with the pass-through claim.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

ILLUSTRATION OF HOW BANKRUPTCY CAN IMPACT CONTRACTOR – SUBCONTRACTOR DISPUTE

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UnknownThe case of Ground Improvement Techniques, Inc. v. U.S., 2015 WL 4603693 (Fed.Cir. 2015) is an interesting case that highlights the impact of a contractor filing for bankruptcy during a construction dispute. 

 

In this case, a subcontractor was terminated for default on a federal project.  The subcontractor sued the prime contractor for wrongful termination and during the course of the litigation filed for Chapter 11 bankruptcy. Once the subcontractor filed for bankruptcy, its claims against the prime contractor became an asset of the bankruptcy estate.  The subcontractor’s Reorganization Plan in the bankruptcy stated it will assign its rights and claims in its litigation against the prime contractor to certain secured creditors.  The subcontractor’s secured creditors then continued the litigation against the prime contractor, obtained a judgment, but then the prime contractor filed for bankruptcy. During the administration of the prime contractor’s bankruptcy estate, the subcontractor was ordered to submit a certified claim in the name of the prime contractor to the contracting officer (per the Contract Disputes Act).  The subcontractor received no response (to its pass-through claim) and filed a lawsuit against the federal government in its name.

 

There were two issues raised in this action against the federal government.

 

First, the subcontractor was no longer the real party interest that possessed claims relating to the project by virtue of its bankruptcy.  Such rights and claims had been assigned to its secured creditors that became the real parties in interest. When the subcontractor filed for bankruptcy, its assets, inclusive of its claims, became part of the bankruptcy estate.  The subcontractor’s Reorganization Plan stated it will assign such rights and claims to its secured creditors; thus, the Reorganization Plan clearly transferred the subcontractor’s claims to its secured creditors meaning the subcontractor no longer owned the very claims it asserted against the federal government.

 

Second, and unrelated to the bankruptcy, the subcontractor could not sue the federal government because it was not in privity of contract with the government. “Because a subcontractor ordinarily lacks privity with the government, the Court of Federal Claims generally lacks jurisdiction over claims brought by a subcontractor against the government….”   Ground Improvement Techniques, supra, at *7.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

 

EXAMPLES OF (RISK SHIFTING & ACCEPTING) PROVISIONS IN A SUBCONTRACT

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imagesIn reading articles posted in this blog, I hope it is impressed upon you to understand the risks you are accepting in your contract and what to do if you encounter a risk, as well as those risks you are flowing down or allocating to your subcontractors.   Construction is inherently risky so you want to know what to do when you encounter certain situations or occurrences, and in certain circumstances, you want to factor the costs associated with certain accepted risks in your contract amount. 

 

When it comes to subcontracts, there are provisions that contractors want to include in their subcontracts that subcontractors need to note:

 

  1. The schedule – the contractor will want to include provisions that any baseline schedule is not written in stone and that it has the discretion to resequence the progress of the work.  This is an understood event since the contractor is responsible for managing the work so subcontractors should account for this contingency.
  2. No damage for delay – the contractor will want to include a no-damage-for-delay provision that provides it is not responsible for any delay-related damages and that the subcontractor’s only recourse for a delay will be an extension of time.  The provision may also state that the contractor’s liability for any delay will be limited by the amount it receives by the owner associated with the delay.
  3. Change orders – There will be a change order issue at some point.  The subcontractor needs to understand the change order procedure so proper notice is given regarding the change order work before proceeding with that work.  And, if the subcontractor is directed to proceed with work (through a change order directive) or there is a dispute as to the amount or time associated with the change, the subcontractor needs to understand that it needs to track and itemize its costs associated with the change.
  4. Claims – If a subcontractor is delayed / impacted or there is an event triggering change order work, as mentioned above, the subcontractor needs to submit timely notice of the event or occurrence.  Otherwise, there may be an argument that this event or occurrence is waived.  The contractor will argue that the notice provision is important so that it can ensure it timely submits notice to the owner pursuant to the prime contract and a subcontractor’s failure to comply with the notice provision prejudiced the contractor.

 

Provided below is an example of contractual provisions that fit within the above four categories.  These provisions may be analogous to provisions in the subcontract you are working under or, if you are a general contractor, may be provisions you want to consider including in your subcontract.  Remember, the objective is to know those risks you are accepting, those risks to flow down or allocate to the subcontractor, and, importantly, what to do if you encounter a risk!!

 

Also, please share any examples of contractual provisions that you have come across that fit within these categories. The more examples the merrier when it comes to understanding the types of risks that are frequently dealt with and allocated between a contractor and subcontractor.

 

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2015/08/Copy-of-subk-contract-considerations.pdf”] 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.