Recent Developments in US Construction Law Contractors Should Know

1. The Top 10 (or so) Recent Developments in U.S. Construction Law of Which Every Contractor Working in the United States Should Be Aware European Society of Construction LawDeutsche Gesellschaft fur Baurecht e.V. Presented by John B. Tieder, Esq. Alex N. Lamme, Esq. 8405 Greensboro Drive, Suite 100 McLean, VA 22102 703-749-1000 (p) jtieder@wthf.com alamme@wthf.com 2011 Annual Meeting Frankfurt, Germany 10 – 12 November 2011

2. Summary • Organization of U.S. Legal System • Public Contracts • U.S. Government Contracts – Focus on “Fraud & Abuse” • Contractor Licensing • Public-Private Partnerships (P3) • Freedom of Contract • Exceptions • Payment • Performance Bonds • Demise of Arbitration • Dispute Review Boards • Liquidated Damages • Liability to Non-Contract Parties – The Economic Loss Doctrine • Consequential Damages • Green Construction • 50-State Survey

3. I. Organization of United States Legal System

4. Federal Court System • 1 Supreme Court (§ 1) • Other Courts as Established by Congress (§ 1) • Judges Have Lifetime Tenure • Trial by Jury (§ 2)

5. U.S. Federal Court System • U.S. Supreme Court • Created by Constitution (Article III) • 13 U.S. Circuit of Appeals • 12 Circuits • Court of Appeals for Federal Circuit • 94 Federal District Courts • Specialized Courts • U.S. Court of Federal Claims • U.S. Court of International Trade • Court of Military Appeals • U.S. Court of Custom & Patent Appeals

6. Federal Jurisdiction • Federal Questions • Arising under Federal Law • Violations of Federal Constitution • Patents • Regulations under Federal Law • Admiralty or Maritime • Treaties • U.S. a Party • Diversity Actions • A dispute between citizens of any 2 different states in excess of $75,000 • Suit between a foreign citizen and a U.S. citizen applying state law

7. Typical Case • Instituted in a U.S. District Court • Right of Appeal to Circuit Court of Appeals • Right to Petition, but not be heard, by Supreme Court

9. U.S. Court of Appeals and U.S. District Courts 8 1 2 7 9 3 10 6 4 5

10. 51+ Legal Systems • 1 Federal System • 50 State Systems • Territories and Provinces • Puerto Rico • Guam

11. State Courts • 50 State Courts - use New York as an example • Court of Appeals • 4 Appellate Divisions • 12 Judicial Districts • 57 County Courts • Appeals from last Court of Appeals in State can go to U.S. Supreme Court • Very seldom in a commercial case

12. Jurisdiction of State Courts • All Civil and Criminal Matters Not Federal in Nature • Examples – Civil • Personal Injury • Family Law • Commercial Disputes • Ownership of Property • Inheritance • Examples – Criminal • Murder • Assault • Robbery • Embezzlement • Arson

13. II. Public Contracts

14. Types of Public Contracts • Direct U.S. Government Contracts • U.S. Government Funded Contracts • State Contracts • Political Subdivisions within States • Counties • Cities / Town • Special Purpose Entities • Water Districts • Sewer Districts • School Districts • Transit Districts • ETC.

15. Laws Applicable to Non-Federal Public Contracts • U.S. Laws of General Application • Social / Economic Clauses • Safety • Labor • U.S. Laws Applicable to Federally Funded Projects • False Claims Acts, 18 U.S.C § 287, 31 U.S.C. §§ 3929-3933 • American Recovery & Reinvestment Act • Report Effects on Employment • Report Compensation of 5 Most Highly Paid Employees • Buy American Compensation • State Laws • State Procurement Statutes • State False Claims Acts • Political Subdivisions within States • Some are quite unusual • e.g. Cannot bid if do business with Myanmar or Iran

16. III. U.S. Government Direct Contracts

17. Applicable Laws and Regulations • Basic Statutes • Contract Disputes Act of 1978 • Buy American Act • Others • Primary Regulations • Federal Acquisition Regulations • Procuring Agency Regulations • U.S. Army Corps of Engineers • U.S. Department of State • General Services Administration

18. Improper (False) Claims – Federal Criminal and Civil Statutory Scheme • Criminal Liability • Making False Statements, 18 U.S.C. § 1001 • False Claims Act, 18 U.S.C. § 287 • Mail / Wire Fraud, 18 U.S.C.§§ 1341, 1343 • Conspiracy to Defraud Govt., 18 U.S.C. § 286 • Major Fraud Act, 18 U.S.C. § 1031 • Federal Enforcement and Recovery Act of 2009 • Civil Liability • False Claims Act, 31 U.S.C. § 3929-33 • Anti-Kickback Act, 41 U.S.C. §§ 51 to 58 • Forfeiture of Fraudulent Claims Act, 28 U.S.C. § 2514 • Contract Disputes Act, 41 U.S.C. § 604

19. Improper (False) Claims – What Is a Claim? • Any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipients if the United States provides and portion of the money or property which is requested or demanded or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded

20. Improper (False) Claims – What Is a “False Claim? • Knowingly presents, or causes to be presented, to an officer or employee of the United States or a member of the Armed Forces as a false or fraudulent claim for payment or approval • Knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government • Conspires to defraud the Government by getting a false or fraudulent claim allowed or paid • Has possession, custody or control of property or money used, or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person received the certificate or receipt

21. Improper (False) Claims – What Is a “False Claim? • Authorizes or delivers a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true • Knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell the pledged property • Knowingly makes, uses or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government

22. Improper (False) Claims – Examples of False Claims • False Certification • Reverse False Claims • Subcontractor’s Pass-Through Claims • Overstating Damages • Double Billing • Deliberate Misbranding or Substitution of Materials • Labor Issues • Equipment / Material Issues

23. Improper (False) Claims – Damages for False Claims Act Violations • Civil Penalty of $5,000 to $10,000 per violation • Treble Damages • Debarment • Criminal Liability • Benefit to Qui Tam Relator

24. Improper (False) Claims – Reporting Violations to the Government • Amended FAR § 52.203-14(b)(3) – December 2008 • Contractors must “timely” notify Government of: • Violations of Civil False Claims Act (FCA) • Violations criminal statutes upon “credible evidence” of such violations • Receipt of “significant overpayments” from the Government • “Knowing failure” to timely disclose violation can lead to suspension or debarment; • Amended FAR § 52.203-14(b)(3) – December 2008 • “FULL COOPERATION” in investigations; and • Mandate that certain previously excepted Contractors establish a compliance program and internal control system

25. IV. Contractor Licensing

26. IV. Contractor Licensing • Licensing is a State-by-State Issue • Types of License • Professional, i.e., Architect or Engineer • General (Main) Contractor • Specialty Subcontract • Construction Manager • Failure to Have Proper License at Time of Contracting • Bid Not Accepted on Public Contracts • No Problem if License Obtained During Contract • No Entitlement to Payment • Criminal Proceedings

27. V. Public-Private Partnerships

28. Public-Private Partnerships • New to United States • Only some states authorize, e.g., Florida, Georgia • Projects with Revenue Potential • Toll Roads • Bridges • Water & Sewage Treatment Facilities • Re-Coup Costs of Construction and Make Profit

29. VI. Freedom of Contract

30. VI. Freedom of Contract • In Private Contracts, Few Limitations • Nothing Comparable to German VOB • In Public Contracts, More Requirements • Some Exceptions • Prompt payment of subcontractors and suppliers • Indemnification against sole negligence • By Statute • By Case Law • Non-Enforcement of “No Damages for Delay” Clauses • By Statute • By Case Law

31. VII. Performance & Payment Bonds

32. Performance & Payment Bonds • Performance Bond – Outside (Insurance) Guarantee of 100% of Contract Value • Owner has direct recourse • Payment Bond – Outside (Insurance) Guarantee for Payment of Subcontractor and Suppliers • Set at various levels • Subcontractor and Suppliers have direct recourse • Required for All Public Contracts • Usual Practice on Private Contracts • Cost is .75% - 2+% of Contract Value

33. VIII. Demise of Arbitration

34. Demise of Arbitration • More Common in Private than Public Contracts • Less Sophisticated than ICC or Other International Arbitrations • No Right of Appeal • Trend is to Non-Jury (i.e. judge only) Trials with Right of Appeal • Should Be Contract-by-Contract Determination Depending on Many Factors • Location of Project • Likely Nature of Dispute • Ability to Appeal Arbitration • Amount of Discovery • Many Problems Can Be Overcome by Drafting of Arbitration Clause

35. IX. Disputes Review Boards

36. Disputes Review Boards • Panel of Experts who Make Initial Determination of Claims • Non-Legal Proceeding • Not Binding • Can Be Introduced Into Evidence in a Court or Arbitration Proceeding

37. X. Liquidated Damages

38. Liquidated Damages • Liquidated Damages are a good-faith pre-determined amount of loss applicable to a specified event, e.g., a day of delay • Liquidated Damages are not a penalty as that concept is applied in Civil Law Jurisdictions • Cannot be adjusted by Court or Arbitrator • 3 Approaches Depending on State • Always applied unless shown to be a penalty • Applied if a good faith calculation of amount is shown regardless of actual loss • “Look Back”, i.e., specified amount bears some reasonable relationship to actual loss

39. XI. Economic Loss Doctrine

40. Economic Loss Doctrine • Are Engineers and Contractors Liable to Parties with Whom They Have No Contractual Relationship for Purely Economic Losses? • Purely Economic Losses = Increased Cost of Performing Work, Additional Overhead, Lost Profits Not Related to Personal Injury or Damage to Property • 3 variations Depending on State • Never Liable • Always Liable • Liable only When the relationship is so close it is equal to a Contractual Relationship

41. XII. Waiver of Consequential Damages

42. Waiver of Consequential Damages • Consequential Damages = Those Not Reasonably Foreseeable at Time of Contracting, e.g., lost profits to Owner if contract not completed in time • Generally Waivable in All States, But Must Be Explicit

43. XIII. Green Construction

44. Green Construction • Green Construction – Design and Construct with Minimal Negative Impact on Environment, e.g., production of carbon dioxide • Standards are Still Evolving; No National or Even State Codes • Standards Set by Contract • Owners Pay Premium • Liability for Failure to meet Specified Standards

45. XIV. 50 State Survey

50. Questions?