February 1, 2009

2009 Jordan Ramis Construction Law Update


Winter 2009

Following is a review of pending federal and state legislation that could impact the construction industry and a description of what contractors should do to be prepared to participate when stimulus dollars start funding Oregon construction projects.

1. Federal Stimulus Package — The American Recovery & Reinvestment Act

Last week, the House of Representatives passed an $819 billion economic stimulus bill. President Obama is hoping to sign a stimulus bill into law mid-February. However, criticism by Republicans and a few Democrats in the Senate indicates that the Senate version of the bill may not be passed as quickly as initially expected.

The opposition has argued that large portions of the bill, such as support for federal healthcare programs, requirements for green building, investments in alternative energy sources, and the expansion of broadband service, focus on promoting new policies instead of creating jobs and sparking spending. Republican Senators added provisions that would lessen the impact of the alternative minimum tax and directly address the collapse in the housing market through tax credits and refinancing options. The alternative minimum tax amendment increased the bill's price tag to $888 billion.

There appears to be no dispute over the need for infrastructure spending because it creates jobs and value. However, many have questioned the relatively small portion of funding dedicated to infrastructure projects. Currently, only a fraction of the bill is dedicated to infrastructure investment. Amendments that would boost infrastructure investment by as much as $40 billion will be considered in the coming days.

Currently, the Senate bill would provide, in part:

  • $27 billion to build and repair highways;
  • $23 billion to build and repair Federal buildings and facilities;
  • $15 billion for water and sewer infrastructure improvements, construction of flood control systems, and environmental restoration projects;
  • $12 billion for mass transit and rail projects;
  • $160 billion for local school districts and states to improve school facilities and prevent cutbacks;
  • $32 billion for energy-related projects focused on conservation, efficiency, and renewable energy sources;
  • $77 billion for increased unemployment and COBRA benefits, and job training; and
  • $247 billion in tax cuts.

To encourage speedy use of recovery funds, the bill contains "use it or lose it" requirements. For example, some transportation infrastructure funds would be provided to the states within seven days of passage and the states must be obligated to issue contracts for at least half of the funds within 180 days. If a state misses the benchmark, the remaining funds will be returned to the government for redistribution.

Some federal and state agencies and local governments have already prepared lists of "shovel ready" projects. For instance, the Oregon Department of Transportation ("ODOT") created a list of potential projects that could be under construction this summer totaling about $180 million. More information on ODOT's plans for recovery funds can be found at:http://www.oregon.gov/ODOT/HWY/LGS/stimlus_prospectus.shtml.

Analysts estimate that Oregon would receive about $349.3 million to build and repair highways and bridges, $68 million to expand and modernize mass transit systems, and $65.5 million to upgrade and build new water and sewer infrastructure.

Oregon Public Contracting Code Requirements

Because much of the infrastructure funding will be funneled through existing federal programs to the states, many of the resulting construction projects will be subject to the Oregon Public Contracting Code, which was modified as recently as 2007. To be ready to participate in stimulus projects, contractors should familiarize themselves with the following Oregon Public Contracting Code requirements:

  • Licensing: The construction contractor licensing laws have changed and contractors who will be applying for or renewing a license in the coming months should be prepared. Contractors now must select at least one license endorsement from a total of nine endorsements (four residential and five commercial). Each endorsement carries its own bonding requirements ranging from $20,000 to $75,000, and general liability insurance requirements ranging from $500,000 to $2 million. More detailed information describing the new requirements can be found on the Construction Contractors Board ("CCB") website at:http://www.oregon.gov/CCB/Licensing_I.shtml. Workers compensation insurance is also required for all contractors who are not exempt under ORS 656.126.
  • Bonding: Oregon contractors performing public improvement contracts are required to provide the CCB with a surety bond in the proper amount for its endorsement and a public works bond in the amount of $30,000. Contractors will usually also be required to provide bid bonds and performance and payment bonds directly to contracting agencies. Because the CCB bonds are larger than the previously required licensing bond, and because sureties are increasingly concerned about the risk of contractor default, it is important for contractors to develop and maintain a relationship with a surety. A brief description of each of the bonds commonly required for contractors performing public works contracts follows:
    • CCB Bond: After July 1, 2008, every new and renewing licensee must provide the correct bond to the CCB for its endorsement category. A level one commercial general contractor must have a $75,000 surety bond and a level one commercial specialty contractor must have a $50,000 surety bond. Level two commercial and specialty contractors are required to provide a $20,000 surety bond.
    • Bid Bond: For projects exceeding $100,000 ($50,000 for transportation projects), contractors must provide a surety bond or similar security in the amount of 10 percent of any bid as bid security to the contracting agency.
    • Performance and Payment Bonds: A successful bidder for a public improvement contract must promptly provide a performance bond and a payment bond to the contracting agency, both in an amount equal to the full contract price.
    • Public Works Bond: Before starting work on a contract or subcontract for a public works project, a contractor or subcontractor shall file with the CCB a public works bond in the amount of $30,000 (only one bond is required, not one for each project). The bond must provide that the contractor or subcontractor will pay claims ordered by Bureau of Labor and Industries ("BOLI") to workers performing labor on public works projects.
  • Prevailing Wage Rates: The proposed Federal Stimulus Package requires that all workers on projects receiving recovery funds be paid at least the prevailing rate of wage. In Oregon, every worker on a public works project must be paid not less than the higher of the state prevailing rate of wage or the federal prevailing rate of wage. In addition, contractors must post wages and fringe benefit information, provide certified payrolls to the contracting agency, include prevailing wage rate terms in subcontracts, and maintain records related to each employee's work classification, wages, fringe benefits, hours worked, training, and payroll deductions. Contractors who are not familiar with the prevailing wage rate requirements should consult an attorney and review the information provided on the BOLI website at:http://www.oregon.gov/BOLI/WHD/PWR/index.shtml.
  • Prequalification Requirements: Oregon contracting agencies may require contractors to prequalify for public improvement contracts. Contractors should review advertisements for public improvement contracts for any prequalification application deadline (the advertisements are required by law to state any such deadline). Contractors prequalified with ODOT or the Oregon Department of Administrative Services are presumed qualified with any other contracting agency for the same kind of work, unless proved otherwise. Contractors wishing to prequalify with ODOT should complete a prequalification application that can be downloaded at:http://www.oregon.gov/ODOT/CS/CONSTRUCTION/Prequalifications.shtml. ODOT and other agencies will not consider bids from prime contractor candidates who are not prequalified in the appropriate class of work. Subcontractors and suppliers typically do not need to be prequalified.
  • Trade Publications: Contractors should pay attention to trade publications. An advertisement for an Oregon public improvement contract must be published at least once in at least one newspaper of general circulation in the area where the contract is to be performed, and if the contract has an estimated cost in excess of $125,000, the advertisement must be published in at least one trade newspaper of general statewide circulation.

Federal Stimulus Requirements

  • E-verify Requirements: The Federal Stimulus Package will require all contractors performing work on projects funded in any part with recovery funds to participate in the E-verify program of the Illegal Immigration Reform and Immigrant Responsibility Act. E-verify is an Internet-accessed electronic identity and employment eligibility verification program operated by the United States Citizenship and Immigration Services ("USCIS"). Contractors will have to verify employment eligibility for all employees (both existing and new). The USCIS guide to using E-verify can be downloaded at: http://www.uscis.gov/files/article/E4_english_v.1.pdf.
  • Green Building: A percentage of recovery funds used for education facility construction and renovation (currently 25%) must be used for work performed in accordance with a green building standard such as LEED, Energy Star, or Green Globes. Green building standards are document-intensive and often require detailed calculations. During construction, applicants typically must compile detailed documentation to certify the environmental improvements achieved in the finished project. Because most contractors are not accustomed to the level of documentation required for green building certification, hiring a project manager with green building experience is important and identifying a green building project team is advisable because the green building process will be a major component of the entire project.
  • Ethics & Integrity Regulations (Federal Contracts): Although contractors doing business directly with the federal government are not typically required to satisfy many of the state-specific contracting requirements, those contractors will be required to comply with the Federal Acquisition Regulations ("FAR"). In addition to the E-verify requirements described above, the FAR has other new provisions such as ethics and integrity regulations. The ethics and integrity regulations apply to contracts and subcontracts expected to exceed $5 million and require contractors and subcontractors to have a written code of ethics and conduct, an awareness and internal control program, and display hotline posters. A more detailed description of the requirements can be found at:http://www.jordanramis.com/articles/article0295.html.

2. State Stimulus Package

Convinced that whatever ends up coming to Oregon as part of the Federal Stimulus will not be enough, Oregon legislators Senate President Peter Courtney and House Speaker Dave Hunt have developed a stimulus package of their own. However, their package is only intended to be a first step.

The Oregon stimulus plan, signed into law on February 5, 2009, will raise $175 million in bond revenue, which will be spent on a number of maintenance projects across 11 state agencies. A significant portion of the funds will go to the Oregon University System and Oregon's community colleges. The package's focus is to fund projects that could start between February and April of this year.

While the Oregon University System is exempt from the competitive procurement requirements of the Public Contracting Code, other recipients will be required to comply with the competitive procurement requirements of the Public Contracting Code. Also, these agencies will have to offer contracts to minority and women-owned businesses to the extent practicable and will be required to report results to the Department of Administrative Services, the Legislative Fiscal Office, and the Legislature.

Most of the projects on the state stimulus list are smaller projects of short duration and will not create or sustain a significant number of jobs in the construction industry. For instance, the projects include the repair of cabinets in an OSU laboratory building, the replacement an overhead door on an ODOT service building, and the upgrade of exterior lighting at Southern Oregon University. The largest projects include exterior and HVAC repairs to university buildings and the replacement of roofs and siding on ODOT buildings. Even the largest projects are not expected to last more than a few months.

3. Oregon Transportation Funding

Governor Ted Kulongoski has developed and presented to the Oregon House and Senate Transportation Committees a transportation plan called "The Jobs and Transportation Act of 2009." As its name indicates, the plan is an attempt to create jobs and establish long-term funding for Oregon's transportation system.

The Governor developed the plan from recommendations of an advisory committee charged with developing a balanced approach to transportation funding, developing the economy, maintaining statewide product distribution, incorporating sustainability and local control, and improving transparency and oversight. The Governor estimates that this plan should support at least 6,700 jobs per year in the first five years.

Under the plan, $1 billion would be invested every biennium in the state transportation system. The highway program would receive approximately half, which would be funded by increased vehicle title and registration fees and a two cent gas tax increase. The remainder of the investment would go to non-highway transportation projects and rural counties impacted by the scheduled sunset of federal forest payments. The plan calls for a transportation utility commission to oversee all transportation investments and develop a state-wide program to maintain and prioritize infrastructure investments.

The plan comes at a time when most of the projects funded through the Oregon Transportation Investment Act III (OTIA III) are coming to an end. OTIA III began in 2003 and focused on repairing and upgrading bridges throughout the state. Although OTIA III increased the quality of Oregon's bridges, other elements of Oregon's highway infrastructure need work.

Some interested parties question whether the two cent gas tax increase (the last gas tax increase was in 1993) and whether the $55 million per year that would be dedicated under the plan to maintenance and preservation of the existing highway system are enough. Many people involved in the construction industry agree that increasing title and registration fees and the gas tax to pay for transportation improvements is an acceptable way to ensure that the users of the state's highways pay for needed maintenance and improvements. However, contentious debate over the gas tax and a proposed pilot program to tax drivers for the miles they drive is expected.

Industry groups have opined that the Governor's proposed yearly investment in the preservation of the existing transportation system ($20 million) is not sufficient, but are generally urging their members and other contractors to contact their state representatives in support of a package similar to the Governor's.

4. Federal Labor Law Changes — The Employee Free Choice Act

The time is now for nonunion employers to evaluate their labor practices. Although Congress has rejected three prior attempts to make the Employee Free Choice Act ("EFCA") law, the current Congress will very likely pass some form of the bill, and President Obama has pledged to sign the bill into law. If enacted, the EFCA will make it easier for unions to organize employees, remove an employer's right to negotiate a labor contract with a union in many cases, and increase penalties for "unfair labor practices" committed by an employer.

  • From secret ballot to card check. Currently, if at least 30 percent of the employees have signed authorization cards, the National Labor Relations Board ("NLRB") will hold a secret ballot election. Under the existing system, each employee votes in secret at the election, and to prevail, a union must receive a majority of the votes. Under the EFCA, if a union got a majority of bargaining unit employees to sign authorization cards and the NLRB validated the cards (its "card check"), the union would be certified as the employees' representative. No election required.
  • From bargaining to arbitration. Currently, in negotiating a first collective bargaining agreement, employers must bargain with a union in good faith, but the parties are not required to reach an agreement. Under the EFCA, if a collective bargaining agreement is not agreed to in 90 days, either party may submit the dispute to mediation. If mediation does not result in agreement in 30 days, the dispute will be submitted to arbitration. An arbitration panel will decide the terms of the contract, which will be binding on the parties for two years.
  • From penalties to more penalties. Currently, if an employer commits an "unfair labor practice," the NLRB may seek a court order against the employer and may award back pay to affected employees. The EFCA requires the NLRB to seek a court order for any "unfair labor practice" committed by an employer and award any affected employee back pay and twice that amount as liquidated damages. Any employer found to have willfully or repeatedly committed any unfair labor practice would also be subject to a $20,000 civil penalty.

Nonunion employers should plan for these likely changes now. Employers should consider documenting any plans to reduce employee compensation or benefits and the reasons therefore. If any such reductions are implemented after the commencement of a union organization effort, without proof of proper justification, an employer may be subject to the unfair labor practice penalties.

Employers should ensure that their supervisors know the dos and don'ts of responding to an organizing effort. Educating employees about the facts of unionization and the employers' opinions about unionization is also something to consider — especially because under the EFCA an employer may not even know of an organizing effort until a majority of its employees have signed authorization cards.

5. Summary

The Oregon construction community can expect stimulus dollars to start funding projects soon — but there are requirements to meet. Contractors should consult with legal counsel for advice on their specific situation and act now to ensure they are qualified to work on these projects and are prepared for the new legislation.

For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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