The Carmel Chamber of Commerce recently held a luncheon where the topic was the Mass Transit plan of the Central Indiana Mass Transit Authority, a group of various individuals and entities who developed the plan.  It was an interesting discussion and I would encourage anyone who is interested in the topic to try to attend one of these informational sessions.  As the plan moves through the General Assembly, I’m sure there will be more.

So what is the Mass Transit Plan?  The plan proposes a phased approach to implementation of the bus and rail portion – with Phase One beginning in Marion and Hamilton counties and primarily built out within 10-years (by 2021).  Additional contiguous counties could choose to join sometime during that time period and the system would be built out within that county as suggested in the plan.  Essentially, the plan calls for light rail from Noblesville to Union Station.  Other elements include dedicated Rapid Bus service from Carmel to downtown where the bus would have control of the lights at intersections and stops would only be every half mile rather than every block.  There is also expanded bus service in Marion County and newly created bus service in Hamilton County.  For more information on the details of the Pass Transit Plan, see the dedicated Indy Connect website.

So how do you pay for it?  First, the General Assembly this Spring would have to authorize a referendum in the counties which seek to be a part of the Transit program.  Representative Jeff Espich, R-Uniondale, has proposed HB 1073, the bill which authorize the referendum. That referendum would take place in November, 2012.  The voters would then have to authorize a new income tax of .02%.  The Central Indiana Mass Transit Authority originally asked for .03% but Rep. Espich’s bill only authorizes a referendum for .02%.  This amounts to about $200 per $100,000 of income.  The Transit Authority would utilize this tax, the current property taxes dedicated to IndyGo, Federal and State Funds and rider fares to construct and operate the System.  Note that the System would not be self sustaining.  The nationwide average for operating expenses of transit systems is only about 25% rider fares.  The rest of the operating costs come from other sources including Federal and state taxes.  This System would likewise rely heavily on subsidies from Federal and state taxes and the .02% income tax.

So how likely is it to pass?  At this point, HB 1073 is awaiting a vote in the House Ways & Means Committee, a committee with 25 members.  Rep. Espich has stated only one lawmaker has expressed support, Rep. Peggy Welch, D-Bloomington.  Espich, chairman of the House Ways & Means Committee, said he is hesitant to bring it to a vote in Ways & Means and see it soundly defeated.  The lack of support could be tied to the on-going rolling walk out by the Democrats in the House due to the Right to Work legislation, which is making it difficult to bring bills like HB 1073 for a vote, or possibly the fact that the Mass Transit Plan in its current form is viewed simply as a central-Indiana issue with the legislature, by and large, having other regional or state-wide priorities this session.  Regardless, despite the momentum gained by the new plan, a referendum on mass transit may have to wait.

On December 19, 2011, the Indiana Court of Appeals issued another construction job site safety opinion in Capital Construction Services, Inc. v. Gray.  Like in the other recent cases discussed in this blog, the Court of Appeals went through an exhaustive analysis of the contract between the general contractor and the owner to locate and focus the analysis on all provisions in which the general contractor agreed to perform safety related tasks.  Based on those provisions of the contract, the Court decided that the general contractor had a duty to provide a safe work environment to a subcontractor’s employee killed on site.   The opinion can be read in its entirety here.

The facts of this case are tragic and all too familiar.  Capital Construction served as a general contractor on a project for Kroger.  Capital in turn subcontracted with All One to perform a portion of the work.    Clinton Gray was an employee of All One who was working on a ladder when he came into contact with live electrical wires.  As a result of the shock, Mr. Gray fell from the ladder and died. His estate subsequently brought suit against Capital Construction for negligent failure to maintain a safe workplace.

The estate moved for summary judgment arguing that Capital Construction had a non-delegable, contractual duty of safety on the jobsite.  Capital Construction defended the claim and took the position that it did not owe a duty to Mr. Gray, relying on the general rule that an employer does not owe a duty to supervise the work of an independent contractor to assure a safe workplace.  The Court noted, however, that where one party has contractually agreed to perform safety related work for the Project owner, the failure to perform that work in a reasonable manner can give rise to an actionable claim by an employee of a subcontractor.

Consistent with its opinion in the Hunt Construction Group, Inc. et. al. v. Garrett case described in a prior blogs posts, the Court of Appeals analyzed all of the many safety related obligations contained in the Capital Construction contract with Kroger, and determined that as a result of those safety obligations, Capital Construction had a duty to all people working on the Project for their safety.  Thus, the estate’s suit against Capital Construction could proceed to a jury to determine whether Capital Construction had breached the duty.

One interesting issue in the case is the fact that Judge Friedlander wrote a concurring opinion in which he explained how his decision in the Capital Construction case (finding there is a duty of safety) can be reconciled with his dissent in the Hunt case (in which he found the contract did not impose a duty of safety).  In particular, Judge Friedlander felt that in the Hunt case there were several clauses that other members of the Court of Appeals failed to heed in their analysis that in his view eliminated the general contractor’s duty of safety to third parties working on the construction project.  Judge Friedlander noted that none of the limiting clauses that saved the general contractor from liability in the Hunt case were in the Capital Construction contract with Kroger.   Accordingly, Judge Friedlander found that Capital Construction had, in fact, agreed to be responsible for the safety of all employees on the Project by contract.   Judge Friedlander also noted that the Hunt decision is currently pending before the Indiana Supreme Court and therefore we should all know soon enough what the status of Indiana law is on the general duty of job site safety on a construction project.

From a construction industry participant standpoint, the long anticipated Indiana Supreme Court decision in Hunt should provide all parties with sufficient information and analysis to clearly understand the risks to a general contractor of including safety related provisions in the contract with the owner.   Once the law in the area is settled, the parties will be able to utilize risk shifting mechanisms in their contracts such as indemnity and insurance provisions to allocate the risks associated with job site safety appropriately.  In the meantime, the Capital Construction case serves as yet another example of the court imposing on a general contractor a duty of safety towards subcontractors’ employees based upon the terms of the Owner-General Contractor agreement.  The question remains, did the parties to that agreement understand (at the time it was negotiated) the risk the general contractor incurred when including those safety provisions in the contract?

This past year, I had the opportunity to co-present with DSV attorneys David Temple and Jayme Donnelson at the American Institute of Architects (AIA) Ohio Valley Regional Convention on “Killer Contract Clauses”.  This is a topic that always generates a lot of discussion among architects and engineers, most frequently in the form of “What if the Owner/Client refuses to change any of their contract terms?”  In other words, the perception by a lot of architects and engineers is that it does them no good to negotiate alternatives to “killer” contractual provisions if in practice the contract negotiations consist solely of “take it or leave it.”

Problems can also arise where the Owner/Client is in such a rush to proceed with the work that having a contract that matches the agreed upon terms of service takes a back seat to moving the project forward.  Ditto for the well-meaning architect or engineer that pulls out a standard form contract without consideration of whether the “boilerplate” provisions are truly appropriate for each particular project.  The result under these scenarios is often the same: bad contracts that (1) do not accurately define the parties’ expectations and agreement on scope of services, (2) potentially jeopardize insurance coverage, and/or (3) are so one-sided that they unnecessarily expose a party to excessive liability or risk.  Put simply, bad contracts often lead to disastrous results for architects and engineers.

There a number of reasons why design professionals end up with contracts that are all wrong for their business and for the project.  What is the harm in signing one of these “bad” contracts?  Nothing—if the project goes smoothly, if there are no funding or payment issues, if there are no disputes over changes to the work, if there are no delays or substitutions of alternate materials, if there are no disagreements about the agreed upon scope of the project and design services, if there is no disagreement about ownership and use of the electronic data comprising the construction drawings, and if there are no claims at the end of the project.   However, if any one of these things does not go exactly to plan—let alone the dreaded project where multiple issues arise—then everyone pulls out the contract and—sometimes for the first time—look to see what the legal rights and remedies are.  Even worse are the disputes that require attorneys, judges, arbitrators, or even juries to figure out what the parties intended when they originally signed the contract.

Architects and engineers often tell us that they do not have the time or the financial resources to have an attorney review every single contract that gets signed.  However, this is no excuse for architects and engineers to proceed with bad contracts.  Instead, maybe it is time to re-think your contract review and negotiation strategies.  You should work with your legal counsel and insurance representatives to formulate an efficient strategy.  Here are some ways to get started:

• Have a contract form that you are comfortable with and that you can use as your “go to” contract form when needed.  Know and understand why you have certain terms included or excluded from that form and why those terms are important to your business.  Be prepared to fight for the terms that are most critical to your business.

• Notwithstanding the suggestion above, do not be so married to your own contract form that you insist on only using your form.  If you know and understand why you include (or exclude) certain terms in your preferred form, you will be better prepared to negotiate key terms even when using someone else’s contract form.  If you do not understand why you include (or exclude) certain terms, ask someone; take time to understand the reasoning behind the contract terms.

• Clearly communicate with your legal counsel and insurance representatives as to what you expect from their respective contract reviews.  What issues/risks are you willing to live with, and what issues/risks are deal-breakers?  What is the substance of your discussions with the Owner/Client about your scope of services, and does the contract accurately reflect those discussions?  Early communication of these issues helps streamline contract review, and further helps facilitate meaningful comments and suggestions back from your advisors.

• When negotiating key terms with the Owner/Client, focus on the mutual benefits of your proposed terms.  The Owner wants to heighten your standard of care and include guarantees or warranties of performance?  Remind the Owner that such terms may jeopardize your insurance coverage, resulting in the Owner losing that insurance protection for potential errors or omissions.  The Owner refuses to waive consequential damages?  Use the negotiations as an opportunity to find out what potential consequential damages are of most concern to the Owner (e.g., lost profits if the business does not open on time, lost tax credits if the project does not achieve certain certifications or milestones, etc.); then develop a strategy to address those limited issues, rather than leaving the scope of recoverable damages completely open-ended.

• Do not forget to coordinate all of your contracts with downstream consultants so that those consultants are bound by the same terms as you have with the Owner/Client.  Your contract with the Owner requires arbitration for all disputes, but your downstream consulting agreements are silent on the issue of dispute resolution?  You may face arbitration with the Owner and litigation with the consultants in two different forums.  The Owner refuses to waive consequential damages, but your consulting agreement contains a mutual waiver for those damages?  You may be on the hook for those damages to the Owner with no way to share that risk with your consultants (who may be ultimately responsible for the damages).

As you plan ahead for 2012, take time to sit down with your legal counsel and other individuals involved in contract review to formulate a strategy for how you will address contracts for the coming year.  And stop signing bad contracts.

I recently participated on an industry panel at the Indiana Construction Management Summit sponsored by ABC Indiana and Somerset CPAs. We heard from economist Anirban Basu and other panel members on what happened to the construction industry during 2011 and what we should expect for 2012. Suffice it to say that the news from 2011 was rather gloomy and the outlook for construction during 2012 remains muted.

One message came through loud and clear: Construction companies need to implement best practices in order to survive a market plagued with thin margins, stiff competition, and slow pay cycles. Here are some suggestions that could add value to your business during the coming year:

1. Foster a Collaborative Project Team—Low margins mean low margins for error as well. A contentious project environment does not encourage efficiency, and often makes the construction process more expensive for everyone. Avoid draconian contract terms and adversarial actions that impede project relationships.

2. Confirm Project Funding—Project collaboration includes assurances of project funding, starting with the owner and continuing downstream. Red flags should be raised when a party refuses unreasonably to share information about the funding of the project or its ability to perform the contract.

3. Prequalification of Subcontractors—Contractors should continue to emphasize the prequalification of its subcontractors, and subcontractors should request assurances of financial ability from their contractors. Prequalification remains an important issue since subcontractor defaults are expected to increase during the coming year.

4. Low Bid is Often Not Best—Contractors need to consider pricing as just one component of many in determining the value a subcontractor brings to the project. Subcontractor default is projected to be a continuing problem, and a low bid that originally seemed reliable may turn out to be much more costly than a reasonably priced bid from a financially secure subcontractor.

5. Experience and Expertise—Contracting parties need to thoroughly investigate the expertise and experience of their counterparts. Unsophisticated owners can cause significant problems during construction, while contractors and subcontractors operating outside their customary expertise may not be able to perform the work as efficiently as planned.

6. Contract Terms—Owners and their consultants frequently try to minimize the cost of contract administration by using contract terms that were prepared for an entirely different project than the one being built. Contractors should limit onerous and inappropriate contract provisions that increase the risk of performance and reduce profitability. This is also true of provisions that are incorporated into a contract by reference without being adequately reviewed.

7. Unfamiliar Work—Some contractors have adapted to difficult times by expanding into unfamiliar types of work, different project delivery systems, larger jobs, and new geographic areas. This diversification into unfamiliar areas along with tighter margins often creates the perfect storm for change order and scheduling disputes.

8. Systems and Controls—Contractors and subcontractors need to pay special attention to the requirements of their contracts regarding payment, change orders, delays, and defaults. The time limitations for providing notice and asserting payment remedies should be carefully reviewed and calendared.

9. Materials Escalation—Contractors and subcontractors will likely continue to face severe and rapid increases in construction materials during 2012. The challenges created by volatile material costs have been magnified as projects are bid with thinner margins. Contractors and subcontractors should try to negotiate material escalation provisions that allocate the risk of escalation in material costs, since the courts generally enforce the contracts as they are written.

Does your company provide remote access to e-mail for all or some of its employees to read and respond to work-related emails after hours and on weekends?  Does your company issue “PDA” or smartphone devices such as a Blackberry, Android or iPhone to its employees and require its use outside the office?   If the answer is “Yes” to either of these questions, as an employer you should know that state and/or federal law may require additional payment for time spent by employees checking and responding to such work-related emails.

Under the federal Fair Labor Standards Act (“FLSA”), non-exempt employees generally need to be compensated for time spent working and staying connected to the workplace, even through emails.  Moreover, the FLSA has strict minimum wage and overtime pay requirements for compensable time in which employers and employees covered by the FLSA are not free to negotiate to avoid such payments.

Remember, while smartphone use by employees can be a significant benefit to an employer, there are legal issues to consider before allowing an employee to stay connected to the office, even if the smartphone is not a company-issued device.  Failure to properly track and pay such wages to eligible employees could potentially expose the employer to substantial damages on both the state and federal level. Recently, there have been several lawsuits by current and former employees alleging unpaid wages for time spent responding to emails outside of regular work hours.  In addition, enforcement of wage and hour compliance has become an added focus of agencies such as the U.S. Department of Labor (“DOL”) .  In fact, in the spring of this year, the DOL even announced a free smartphone application specifically designed to assist employees in keeping track of their hours worked and wages earned.

So with the strong likelihood that a smartphone continues to be as much of an integral part of a work place as a desk, PC or laptop computer, what can an employer do to protect itself against such claims?  First and foremost, employers should establish a written company policy for their employees’ use of smartphones and similar hand-held electronic devices.   Such policy could state that smartphones will only be issued to “exempt” employees (who do not qualify for overtime pay under the FLSA requirements).  The policy could also limit the use of smartphones to designated work hours only or require prior supervisory approval for use outside of normal work hours. And finally, any such policy should require strict record-keeping by “non-exempt” employees of all time spent on a smartphone for employment-related purposes.

As with all employment policies, it is vital that any smartphone policy be implemented in a clear and concise manner, communicated to all employees and uniformly enforced by management.

Bob Orelup is a partner with the law firm of Drewry Simmons Vornehm, LLP and focuses his practice on labor and employment and construction law.  If you have questions, please contact Bob at 317-580-4848 or via email at rorelup@DSVlaw.com.

On September 22, 2011, Federal OSHA issued a memoranda stating that OSHA was not going to enforce full penalties for failure to comply with the implementation of the fall protection plan.  Indiana OSHA followed suit stating that the effect of the Federal OSHA September 22, 2011 memoranda was to “scale back enforcement until March 15, 2012.”  Indiana OSHA (IOSHA) issued its own guidance on September 29, 2011 stating that  IOSHA will not fine or cite employers that either meet “the interim guidelines” or are making a good faith effort to comply with the new guidelines but may have fallen short in some respect.    Rather than cite or fine the employers who fail to meet the new guidelines, IOSHA will make a referral to INSafe for consultative services.   However, employers who do nothing – meaning make no attempt at moving forward with a fall protection program will still be subject to citation and fines.

The new date for “full enforcement” in Indiana (meaning fines and citations) is set for March 15, 2012.  It appears that this is the last reprieve for those in the industry that fail to take steps to comply with the full application of the OSHA fall protection provisions in residential contracting.  To review IOSHA’s most recent memoranda on this topic click here.

During Greenbuild 2011 in Toronto, the American Institute of Architects (AIA) announced that it is releasing five AIA contract documents with model language to be used on sustainable design and construction project.  The contract documents will incorporate the model contract language and concepts outlined in AIA’s D503-2011 Guide for Sustainable Projects, which was discussed in more depth in prior blog posts here (Introduction), here (What Architects Need to Know), and here (What Contractors Need to Know).

The new contract documents for use on sustainable projects will include modified versions of (1) the A101-2007 Owner-Contractor Agreement; (2) the B101-2007 Owner-Architect Agreement; (3) the A201-2007 General Conditions; (4) the C401-2007 Architect-Consultant Agreement; and (5) the A401-2007 Contractor-Subcontractor Agreement.  As we mentioned in relation to the Guide for Sustainable Projects, the inclusion of model contract language for green or sustainable projects is an important tool for any project participant involved in these types of projects.  For example, the model contract language will provide a process for defining sustainable project goals, addressing those goals in the Contract Documents, allocating responsibility among the project participants for achieving those goals, and addressing the issue of what damages, if any, may be recoverable in the event that the project fails to meet the targeted sustainable goals.

The new contract documents are expected to be available in the first quarter of 2012.  Prudent Owners, Architects, Contractors, Subcontractors, Engineers, and others involved in green or sustainable projects should take time now to download the free AIA Guide for Sustainable Projects in order to familiarize themselves with these new concepts and model contract provisions.  Of course, for those already involved in green and sustainable projects, now is the perfect time to review your current contract forms to evaluate how those contracts address sustainable project goals.

The International Code Council (ICC) has been developing its International Green Construction Code (IgCC) for some time now, with the intent of rolling out the final version in March 2012.  Despite the fact that the “final” version of the IgCC has not yet been released, several states and local jurisdictions (including Rhode Island, Maryland, Florida, North Carolina, Scottsdale (AZ), and Richland (WA)) have adopted portions of the early versions of the IgCC for their own regulatory purposes.  Similarly, California adopted its own green building code, called CALGreen, which went into effect on January 1 of this year.

In their most basic form, green building or construction codes provide minimum development standards for public and/or private projects.  These codes differ from green building rating systems (such as LEED, Green Globes, and Energy Star), in that they are mandatory and establish a minimum threshold for compliance for all projects, as opposed to being voluntary and rewarding projects that achieve targeted levels for certification.  These codes share some similarities to green building rating systems, though, in that many of the requirements allow owners some flexibility in which “credits” to pursue in order to achieve compliance.

One reason that green building codes appear to have gained momentum is in response to federal, state, and local jurisdictions that have mandated that certain types of projects achieve certification under third-party green building rating systems.  Rightly or wrongly, some criticism has been levied on such legislation based upon the fact that such mandates result in the jurisdictions ceding control of the regulations and requirements for achieving certification to a third-party entity.  If a City requires public or private projects to be LEED Silver certified, there can be an element of ambiguity for all project participants if the USGBC and/or GBCI materially changed the requirements for what is required to achieve LEED Silver certification, not to mention situations where third-party entities provide discretionary credit interpretations that may materially affect the level of certification awarded.  Green building codes result in returning some of the power (i.e., control) back to the jurisdictions where the projects are being built.

So is Indiana primed to make the leap into the world of green building codes?  Recent legislative history suggests that Indiana is not quite ready.  In 2008, Governor Mitch Daniels issued Executive Order 08-14, which provided that state buildings should be designed and constructed to achieve “energy efficiency”, which was defined as LEED Silver certification, a two-globe rating under Green Globes, Energy Star compliance, or an equivalent rating under the American National Standards Institute (ANSI).  Despite this executive-level initiative, Indiana’s legislators have considered, but not passed, multiple bills relating to green building and sustainable mandates and incentives for both public and private projects.

However, the IgCC is also a tool that can be utilized by local jurisdictions, such as counties, cities, and towns.  In terms of sustainable legislation, Indiana has been somewhat more progressive on the local level than on the state level, with the cities of Bloomington and Indianapolis enacting voluntary green building incentive programs for private developments.  Consequently, if Indiana is to join the green building code movement, it seems feasible that the initiative could originate at the local level.

This much is clear: It appears to be a question of “when” and not “if” states will ultimately adopt some form of a green building code.  All eyes will be on California and the other jurisdictions that move forward with green building codes, so that states and local jurisdictions (including Indiana) can determine how and when adoption of similar codes should be pursued.

Are you an employee or an independent contractor? The answer to this question has major ramifications both in terms of payroll taxes as well as eligibility for employee benefits. The IRS has been conducting many audits in the last few years designed solely to answer this question. If a worker is improperly classified as an independent contractor rather than an employee, the IRS will seek to impose substantial taxes, penalties and interest on the employer. The construction industry is one of the industries that has been targeted for audits by the IRS.

On Wednesday of this week, the IRS announced a New Voluntary Worker Classification Settlement Program. This program will allow many employers to resolve past worker classification issues at a low cost (about one percent (1%) of the wages paid to the reclassified workers for the past year). More information about this program can be found at http://www.irs.gov/newsroom/article/0,,id=246203,00.html.  If you have any potential liability regarding this issue, this program could be a wonderful opportunity to resolve the issue at a very reasonable cost. If you wish to discuss this issue and the various alternatives available to you, we would be glad to assist.

On September 9, 2011, the Indiana Court of Appeals issued its opinion in Shawnee Construction and Engineering, Inc. v. Don C. Stanely, Jr., which serves as the most recent example of the limitations placed on the duties owed to individual construction workers for project safety from project participants.  As some of our prior blog posts here and here have indicated, recent Indiana cases have shown a propensity to broaden the duty of safety to construction workers, such that general contractors and construction managers could be found to have assumed safety responsibilities on the project even in the face of apparent attempts by project participants to contractually limit their exposure.  See, for example, Stumpf v. Hagerman Construction Corp. 863 N.E.2d  871 (Ind. Ct. App. 2007) and  Hunt Construction Group, Inc. v. Garrett, 938 N.E.2d 749 (Ind. Ct. App. 2010) (currently being reviewed by the Indiana Supreme Court).  The new Shawnee Construction opinion reinvigorates long standing case law that, absent the application of an exception, a general contractor does not have a duty to supervise the work of an independent contractor to assure a safe workplace.   After reviewing the facts and determining that there was no applicable exception to the general rule—and specifically, finding that the GC did not contractually assume a duty for project-wide safety—the Court granted summary judgment in favor of Shawnee Construction and against the injured employee.

In contrast, the Stumpf v. Hagerman Construction and the Hunt Construction Group cases found that the contractor and construction manager had assumed a duty of safety to the injured employee of a subcontractor—and had left some to wonder whether the Court would ultimately change the law and find that all participants on a construction project owed a duty of safety to all individuals working on a project regardless of contractual language attempting to limit the duties owed.

Ultimately, as our prior posts on the subject have implied, it appears that the Hunt Construction case that is currently being appealed to the Indiana Supreme Court will inform the debate, and provide lawyers and construction industry participants with some guidance on how to contractually deal with the very real risk of injury on a construction project.    Once the Hunt Construction case is ruled upon, construction industry participants may consider taking a look at their safety practices and their contracts to determine what if anything they can do to limit their exposure from personal injury suits brought by employees of other construction companies working on their projects.