January/February 2015 (Issue 1)

News and analysis for construction professionals, including architects, engineers, product manufacturers, owners, contractors, insurers and sureties. 

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Beware of New Legislation on "Responsible Contractors" that May Impact You 
Elizabeth, a partner with the Meagher & Geer law firm, focuses her practice on the prevention and the litigation of business-related disputes -- especially those involving construction law (representing construction companies, engineers and architects of all types), products liability law and employment law.

On January 1, 2015, the Minnesota legislature's "Responsible Contractor" statute became effective. This statute, found in Minnesota Statute 16C.285, is intended to prevent contractors that have committed unlawful practices from performing public work. The new statute sets up a frame work of steps that a contractor must take to be considered "responsible." Failure to satisfy this statute will stop contractors from bidding on and performing public work. As such, it is imperative that contractors understand this new statute, and how to comply with its requirements. 

 

History of "Responsible Contractor" Definition

Minnesota has always required that contractors bidding for public work to be "responsible." A contractor was typically considered "responsible" if it appeared to have the financial ability to perform the job, and the integrity, skill, and ability to perform satisfactory work.If these basic requirements were met, the government entity would  award a publicly bid contract to the "responsible" bidder with the lowest-cost bid.

 

The new legislation, Minn. Stat.  16C.285, is intended to further define the requirements that a contractor must meet to be a "responsible contractor." This statute is intended to protect government entities, and the public, by preventing the state from awarding non-compliant contractors work on government projects. It attempts to add a level of protection by providing specific criteria for responsibility that will allow the government entity to either decline to award a contract, or void a contract after awarded, if the contractor is found to be non-responsible. Notably, "contractor" is defined as a prime contractor or subcontractor, and does not include material suppliers or design professionals. 

 

Application & Minimum Requirements:

The requirements in the new Responsible Contractor statute applies to all publicly funded construction projects that exceed $50,000.00. On these projects, the prime contractor, and all of its subcontractors, and any related entities must meet the following minimum requirements:

  

(1)  Insurance and tax.
a.  Compliance with workers compensation and unemployment insurance;
b.  Registration with the Department of Revenue and the Department Employment and Economic Development ("DEED");
c.  A valid federal tax id or social security number; 
d.  Registration to transact business in Minnesota (foreign businesses);
 
(2)  Wage and Hour compliance. A three-year record of compliance with the following laws:
a.  Minn. Stat. 177.24 (minimum wages);
b.  Minn. Stat. 177.25 (overtime);
c.  Minn. Stat. 177.41 to 177.44 (prevailing wages);
d.  Minn. Stat. 181.13 and 181.14 (prompt payment of wages);
e.  Minn. Stat. 181.722 (misrepresentation of employment);
f.  29 U.S.C. 201-219 (FLSA); and
g. 40 U.S.C. 3141-3148 (Davis-Bacon Act).
 
(3)  Registration and Licensing Compliance. Compliance with:
a.  Minn. Stat. 181.723 (pertaining to independent contractors and registration)
b.  Chapter 326B (construction codes and licensing).
 
(4)  Affirmative Action. The contractor has not had a certificate of compliance revoked or suspended more than twice during the three-year period.
 
(5)  Good Faith Efforts. Good faith efforts at targeted group business, disadvantaged business enterprise (DBE), or veteran-owned goals (no more than 1 violation in three years).
 
(6)  Debarment/Suspension. No debarment or suspension by any federal or state agency. 
Minn. Stat.  18C.285, subd. 3.

 

Notably, the public entity is also able to exercise its discretion to establish additional criteria that a contractor must meet in order to be considered "responsible." Minn. Stat.  18C.285, subd. 6.

 

Certification of Compliance:

All contractors bidding on a public project must provide the contracting authority with a signed statement under oath verifying that it complies with each of the minimum criteria in subdivision 3 at the time that it responds to the solicitation document.  Minn. Stat.  18C.285, subd. 4. If the contractor fails to verify its compliance with any one of the minimum requirements, or falsifies its compliance statement, then that contractor will be deemed ineligible and cannot be awarded the contract for that construction project. A false compliance statement may also result in termination of a construction contract that has already been awarded to a contractor or subcontractor. Importantly, false certification also implicates the liability and penalties set out by the False Claims Act including civil penalties, treble damages, and attorney fees.

 

Application and Implementation of New Legislation:

The new statute applies to new contracts solicited on or after January 1, 2015.  Therefore, any contract bids submitted after January 1 must include a valid certification affirming compliance with the minimum requirements. The contractor should carefully read all bid documents from the government entity to determine exactly what it must do to submit a valid certification for each particular project. Strict compliance is required, and should not be taken lightly. 

 

If you have any questions on this statute, or what steps you must take to comply with this new statute, please call to discuss.

  

 

Court's finding on "damage" can lead to more work for contractors, possible changes to future policy language

The Minnesota Supreme Court recently issued a decision in Cedar Bluff Townhome Condo Assoc. v. American Family. The opinion in this case is important because it could directly impact, and directly benefit contractors, that perform any remedial and repair work. 

Basic Facts
In October 2011, a hail storm damaged select siding panels on 20 buildings in the Cedar Bluff townhome development. The townhome association had an insurance policy that covered repairs to the buildings, including replacement of the "damaged property with other property ... of comparable material quality." The townhome association's repair contractor was not able to replace the hail-damaged siding panels with new panels that were identical to the non-damaged panels. The contractor could match the style of siding, but it could not match the color because the old siding had faded since its original application. The townhome association argued that the mis-matched color on the new siding was not "comparable." The townhome association then argued that insurance company had to pay to re-side all of the buildings, including panels that were not hail damaged, because the contractor's inability to provide an exact color match was constituted "damage" and a "loss" that must be fixed, and paid for by the insurance company.

Legal Issue: 
Whether the inability to provide an exact color match constituted "damage" or "loss" under the association's policy because mis-matched siding was not a "comparable" replacement. The townhome association argued, yes, that the inability to provide a color match was a covered loss because mis-matched siding was not "comparable" and, as such, it was entitled to a complete replacement of all siding. The insurance company argued, no, that the inability to provide a color match did not constitute "damage" and, therefore, the association was only entitled to the replacement of the siding pieces that were actually damaged by the hail.

Court Finding: 
The Supreme Court agreed with the townhome association. The Court agreed that, based on the terms of the townhome association's insurance policy, the policy language requiring that the replacement siding must be of "comparable material and quality" means that there must be a "reasonable match between new and existing siding." Because the insurance policy did not specifically define "loss" or "damage," the Court was permitted to interpret these terms. The Court determined that the inability to provide a reasonable color match between the new and existing siding panels was not a "reasonable match" and, therefore, the townhome association sustained a covered "loss." The Court then concluded the insurance company had to pay to replace all siding on all of the townhome buildings, even if the siding had no hail damage.

Impact on Contraction Industry: 
This opinion provides support for property owners to demand that their insurance companies must pay to replace all of their siding, shingles, other building components if the contractor cannot provide a reasonable color match. These demands could lead to an increased scope of work for contractors working on repair projects. However, contractors should be aware that the applicability of this opinion will depend on the language in an owner's insurance policy, and the exact case facts.

Impact on the Insurance Industry: 
The Court's opinion was based in part on the fact that the townhome association's insurance policy did not define "loss" or "damage" to expressly exclude color matching. This created a loophole that the townhome association was able to take advantage of. Not all insurance policies contain this loophole. Additionally, we expect new insurance policies to be drafted such that this loophole does not exist.

 

Recent Articles

Meagher & Geer partners, Michael Hutchens and Elizabeth Poeschl have co-authored an article in the Engineers and the Law section of the latest issue (Vol. 49, No. 4) of Engineering Minnesota. The article, titled "Data Center Dilemma--Downtime Can Lose Millions of Dollars," explores the hidden legal issues of aging data centers that were not constructed to handle today's unexpected torrential processing demand, or new centers that do not meet all code and regulatory requirements.  Read More.
  

 

Upcoming Construction Programs

Meagher & Geer partner Elizabeth Poeschl will be speaking on Important Construction Contract Provisions at the Builders Association of the Twins Cities (BATC) seminar on March 3, 2015.
 

Elizabeth will offer her recommendations for critical construction contracts provisions, including indemnification, site conditions, scope of work and payment, change orders, and how to handle ambiguities and defects within a contract. Learn how to decipher the terms, allocate risk appropriately, and negotiate terms that satisfy all parties.
 

For further information or to register for this seminar, please visit the BATC website.

  

 

Elizabeth S. Poeschl

612.337.9655

epoeschl@meagher.com

 

View my profile on LinkedIn  

In This Issue
Beware of New Legislation on "Responsible Contractors"
Court's finding on "damage" can lead to more work for contractors

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