Author: Thomas H. Welby

The procurement of adequate insurance is important in any industry, and the construction industry is no different. However, insurance is different than many of the goods and services a construction contractor procures because insurance is not tangible good but, rather, a contractual promise to make good for losses that the contractor may incur. Often times, it is only after a liability has been incurred (and it’s too late) that a contractor will realize that the insurance it has procured was not sufficient. In such situations, the contractor often tries to look to the insurance broker who did not procure the adequate coverage to make things right after the fact and cover the loss for the contractor (often, with the broker’s own insurance policy). In the recent case of Gibraltar Contracting, Inc. v Northeast Brokerage, Inc., an appellate court reminds us that such claims against insurance brokers are limited to situations where the broker fails to procure coverage that was specifically requested by the Contractor, but not procured by the Broker.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

It is widely known in the construction industry that one way to get the attention of an upstream contractor that is not remitting payment is to file a mechanic’s lien against the project. Aside from the obvious claim against the title of the property, a mechanic’s lien can also have the effect of putting an upstream contractor in default of its obligations under its contract, putting the property owner in default of its mortgage, and preventing a sale transaction from going forward, amongst others. However, notwithstanding these effects, there are contractors who may be tempted to give their lien a little extra “oomph” by increasing the amount of the lien beyond what they are actually owed. In the recent case of LaPenna Contracting v Mullen, an appellate court reminded us that this is always a very bad idea.

Background

In July of 2016, LaPenna Contracting entered into a contract to construct an extension on the Mullens’ home. Problems arose between LaPenna and the Mullens, and LaPenna’s services were terminated in March of 2017. The Mullens retained one of LaPenna’s subcontractors to complete the project. At the time of its termination, LaPenna had been paid $36,350 from construction loan proceeds, and an additional $9,515.48 directly by the Mullens. LaPenna promptly asserted a mechanic’s lien for $33,870, and immediately commenced a lawsuit to foreclose that lien. The Mullens asserted a counterclaim in that lawsuit to recover the money they paid to LaPenna’s former subcontractor to complete the project. The Mullens also claimed that LaPenna’s mechanic’s lien was exaggerated.  The case ultimately went to trial.

Decision

The trial court found that LaPenna’s work was deficient and defective, and that the Mullens properly terminated LaPenna for its breach of contract. At the time LaPenna was terminated, the trial court found that there was only limited progress made on the Mullens’ home, and that the approximate value of that work was only $36,350—even though LaPenna had been paid $45,865.48. Accordingly, the trial court awarded the Mullens the amount that they had to pay to complete the home, as well as the difference between the amount of work actually performed by LaPenna and what was paid by the Mullens. The trial court also found that LaPenna’s mechanic’s lien was exaggerated, and it awarded the Mullens damages accordingly. LaPenna appealed.

The appellate court affirmed, finding that an award to LaPenna on its mechanic’s lien would result in a payment to LaPenna of $79,735.48, or 94% of the contract price, when the evidence established that the value of that work was only $36,350—and LaPenna submitted no evidence to suggest otherwise. Given this math, there was no other conclusion to be drawn other than the mechanic’s lien was willfully exaggerated. Accordingly, the award to the Mullens of the amount of the exaggeration (here, the entire lien) and attorney’s fees—on top of what the Mullens were awarded on their breach of contract counterclaim—was upheld.

Comment

Mechanic’s liens are a powerful tool because they not only involve the upstream contractor who is not paying, but they also attach to the title of the property itself. Accordingly, in order to prevent abuse of this powerful tool, the state legislature put in a safeguard in the form of an award against an exaggerating lienor of not only the attorney’s fees incurred in discharging the exaggerated lien and the interest on monies deposited to discharge the exaggerated lien (or the premium for any lien discharge bond), but an amount of money equal to the amount of the exaggeration itself. One can see here that even though LaPenna’s work was legitimately worth $36,350, after the award of the amount of the exaggeration (which was the entire lien), LaPenna was left with only $2,480 to show for its efforts.

Contractors should be forewarned of the bitter penalties that can be imposed if they exaggerate a lien. Accordingly, one should consult with construction counsel to determine what evidence you have available to meet your burden of proving the reasonable value of the work performed such as would support the filing of the lien.  

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

It is widely known in the construction industry that New York is a “trust fund” state, meaning that trustees of a construction trust fund have specific responsibilities under the Lien Law, and that there are significant penalties for diverting trust funds—including criminal penalties. While owners, contractors and subcontractors are universally acknowledged to be trustees, and payments made downstream are acknowledged to be trust funds, questions often arise as to a construction lender’s role in the trust fund scheme. In the recent case of ECD NY, Inc. v 616 First Avenue Developer, LLC, an appellate court shed some light on the lender’s role in the process, and when it may be able to be held liable under Article 3-A of the Lien Law.

Background

In 2014, ECD NY entered into a contract with 616 First Avenue Developer where ECD was to perform excavation, sitework, foundation and structural concrete work for the construction of a 47 story mixed use building in Manhattan. 616 financed the construction through construction loans with various lender entities, and signed a building loan agreement on December 22, 2016. 616 secured the loan by assigning its leases and rents to the lenders. The lenders filed their Notices of Lending on January 27, 2017.

ECD undertook its work, and ultimately sued to collect what it claimed was its outstanding balance. ECD also sued 616’s lenders, alleging that they were trustees of the statutory trust, and that they improperly received trust fund assets such that they would be directly liable to the contractor on a diversion claim. The lenders moved to dismiss the lawsuit as against them, arguing that they were not trustees under the statute, and that they were insulated by the fact that they filed a Notice of Lending against the project.

Decision

The motion court denied the lenders’ motion (and also, it should be noted, granted 616’s motion to dismiss an unjust enrichment claim on the grounds that such a claim is precluded where, as here, there is a written contract governing the subject matter of the claim), finding generally that there were disputes that had to be the subject of discovery before dismissal could be assessed.

On the lenders’ appeal, the appellate court dismissed the cause of action for diversion of trust funds, noting that the statutory list of trustees includes owners, contractors and subcontractors, but not lenders. As to the cause of action for receipt of diverted trust funds, the appellate court was more nuanced. While holding that lease payments are not listed in the lien law as trust assets, the court was compelled to deny the motion because the Notice of Lending was filed 5 weeks after the building loan agreement, and there was no evidence that payments weren’t made by the owner between the signing of the building loan agreement and the date on which the Notice of Lending became effective. Accordingly, so held the court, discovery was necessary to flesh out this issue.

Comment

While the court was clear that the lender was not liable as a trustee, it did highlight that there are circumstances when lenders could be deemed to have improperly received trust funds based on the date of its filing of a Notice of Lending (which insulates the payments made to a lender, even though these payments are technically outside of those otherwise permissible under the trust statute). If payments are made to the lender before the Notice of Lending is effective, then a potential trust fund diversion exists.

There are often collectability issues on construction projects; for instance, your upstream contractor may not be solvent, there may not be a sufficient lien fund available to satisfy your claim, or there may be no payment bond on the project, amongst other reasons. Accordingly, it makes sense to attempt to bring in as many potential defendants as possible. Before doing so, however, one much make sure that there are viable claims against those potential defendants; courts have little tolerance for simply applying a shotgun approach.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

Delays are rather commonplace in the construction industry. As a result, “no-damages-for-delay” clauses are commonplace in construction contracts as well. Because these contractual provisions are considered a bargained for benefit of the contract, courts are loathe to apply one of the four narrow exceptions to the clause. Yet another example of a court declining to apply one of the exceptions is found in the recent case of Federated Fire Protection Systems Corp. v Extell West 57^th Street, LLC.

Background

In 2010, Federated Fire Protection Systems entered into a contract with Extell West 57^th Street to furnish and install the fire sprinkler system at the One57 multi-use condominium, a supertall skyscraper in Midtown Manhattan. In furtherance of its work, the contract provided that Federated would have access to all three elevator hoists which were servicing the project, and Federated scheduled its work (and agreed upon its completion date) accordingly.

Ultimately, Federated was provided access to only two of the three agreed upon hoists. As a result, Federated was delayed in completing its work, and it sued Extell to recover monetary damages resulting from the delay. Extell moved to dismiss based on the no damages for delay clause. Federated argued that it was entitled to the benefit of the judicially crafted exception based on the owner’s breach of a fundamental contractual obligation. 

Decision

The motion court granted the motion to dismiss, finding that the no damages for delay clause was a bargained for provision of the contract, and that by including such a provision the parties both anticipated delays and agreed that the remedy for such delays would only be an extension of contract time. As to the claimed exception, the motion court held that it was not appliable because the owner provided access to hoists. On appeal, the appellate court affirmed, finding that the allegation that the owner only provided access to two of the three hoists, alone, was not sufficient to establish the breach of a fundamental contractual obligation. In doing so, the appellate court contrasted cases where the owner completely failed to provide access, etc., required by the contract.

Comment

The harsh consequence of a no damages for delay provision is that the contractor or subcontractor must absorb all of its monetary damages arising out of delays caused by others. They generally do not have the bargaining power to change or delete the oppressive language of the no damages for delay clause when initially negotiating the contract. Here, the court once again reminds us that the exceptions to the enforceability of a no-damages-for-delay clause are extremely limited—even where the owner’s breach and the impacts of that breach are so clear and easily determinable. It is difficult, but not impossible to argue around such clauses. Given that each case is necessarily limited to its own facts, it is important to consult with an attorney early in the process so that the claim can be properly analyzed and documented.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

Many times in the construction industry (and others), when payment for work or supplies is not forthcoming, the unpaid party will look to other, third parties, for that payment. Sometimes, what is forthcoming from these third parties is not payment but, rather, a verbal reassurance that payment will eventually be made. Sometimes this is enough to have the unpaid party continue its performance, often to its detriment.

In the recent case of United Concrete Mix of Brooklyn, Inc. v Parkside Construction Builders Corp., a court reminds us as to what, exactly, is necessary for such a promise to be enforceable.

Background

United Concrete Mix of Brooklyn was a supplier on a project owned by One Beekman Owner, LLC, and on which TG Nickel & Associates was the general contractor. United Concrete had entered into a supply contract with Parkside Construction Builders Corp., a subcontractor to TG Nickel. Pursuant to that supply agreement, United Concrete provided over $1.1 million worth of concrete to the project for which it was not paid. One Beekman and TG Nickel provided assurances that United Concrete should have no concerns regarding payment, and that both would pay United Concrete for the materials that it delivered to the project.

United Concrete remained unpaid, and it ultimately sued to collect. In addition to suing Parkside for payment, United Concrete also asserted claims against One Beekman and TG Nickel based on the oral promises to pay. One Beekman and TG Nickel moved to dismiss those claims, arguing that the oral promise to be liable for Parkside’s debts was unenforceable under the Statute of Frauds. In opposition to the motion, United Concrete argued that the oral promises rose to the level of a separate contract to pay it if Parkside did not and, therefore, was enforceable as such.

Decision

The court granted the motion to dismiss, finding that even assuming that the promises were made, they were unenforceable under the Statute of Frauds. The Statute of Frauds provides that certain oral agreements, including an oral promise to guarantee the debt of another, are not enforceable if they’re not in writing. Notwithstanding, there is a judicially crafted exception where the promise need not be in writing if the promise is: 1) supported by new consideration beneficial to the promisor sufficient to motivate him to undertake the obligation; and 2) the promisor has demonstrated his intention to be primarily liable on the debt.

Here, there was no writing to make the promise enforceable. Accordingly, United Concrete’s only hope would be the application of the exception to the Statute of Frauds. However, as the promise related to the existing supply contract, and as there was no requirement to provide new materials (or do anything other than to pay for the pre-existing debt of another), the court found that there were no grounds to apply the judicial exception.

Comment

When a supplier or a contractor is unpaid, it is easy to find refuge in someone else’s promise to pay. However, United Concrete Mix reminds us that one cannot rely on a mere oral promise alone. If you are inclined to rely upon the payment promise of a third party in order to continue performance of a construction or supply contract, one would be well advised to get that promise in writing (and provide new consideration independent of the original contract). Failing that, be prepared to demonstrate that the promise to pay is supported by new consideration sufficiently beneficial to that third party to motivate him to make the promise, and that the third party intends to become primarily liable for the debt. Essentially, one must demonstrate that the promise to pay for the obligation rises to the level of a new contract. Of course, the more direct way to make a claim against the owner and general contractor under these circumstances would have been the timely assertion and foreclosure of a mechanic’s lien.

Remember, if it ain’t in writing, it didn’t happen!

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

In previous columns, we have written about contracts where the parties have reduced the applicable statute of limitations from the generally applicable six years to as little as six months. The issue with such contracts is that they are often written so that the limitations period runs before the claim accrues—which will result in a court invalidating the provision entirely. However, not every construction contract has such a provision. As can be seen from the recent case of Eurotech Construction Corp. v Skanska USA Building Inc., even where there is not a shortened limitations period in the contract, it is equally crucial to determine when the claim actually accrues so that the statute of limitations can be properly applied.

Background

In March of 2011, Eurotech Construction signed a subcontract with Skanska USA Building where Eurotech was to be a subcontractor on one of Skanska’s New York City School Construction Authority projects. On June 20, 2013, Eurotech sent its “98%” substantial completion invoice to Skanska for payment, indicating that 98 percent of the work had been completed. Despite having submitted its “98% invoice”, Eurotech performed the following work after the submission of that invoice: repairs to auditorium ceilings; changing and raising soffits; changing and raising framing; changing metal panels and waterproofing; changing and fixing hundreds of doors; installing louvers and door stops; installing aluminum sills; removing ceilings to permit cable installation; and patching sheetrock ceilings, all totaling 1,039 hours’ worth of effort.

Issues arose during the project, and Eurotech ultimately sued Skanska to recover nearly $6 million for amounts it claimed were owing. Importantly, Eurotech commenced its lawsuit on July 21, 2019. Skanska moved to dismiss the lawsuit, arguing that Eurotech submitted its 98% invoice on June 20, 2013, and as the lawsuit was commenced more than six years later, it was time barred. In opposition, Eurotech noted that it performed more than just incidental work after the submission of the 98% invoice, and that substantial completion only occurred on the completion of that substantive work.

Decision

While both sides agreed that a claim for the breach of a construction contract accrues upon substantial completion of the construction, the parties fought over whether such substantial completion had been achieved before, or after, July 21, 2013: the earliest date on which the claim would not have been time barred. The court denied the motion to dismiss, holding that the well settled law on the subject does not reference the measure of substantial completion by any percentage of completion. Rather, the test announced by the Court of Appeals, and again applied here, holds that the statute of limitations begins to run “on the completion of the project even though incidental matters related to the project remained open”. The court further distinguished the controlling case on the issue, noting that the “incidental matters” referenced there were only a minor punchlist—not over 1,000 hours of actual physical work.  In light of this actual physical work continuing well after July 21, 2013, the court held that the claim was timely.

Comment

In negotiating construction contracts, especially between owners and general contractors, the definition of substantial completion is often hotly contested. Owners frequently try to delay a substantial completion payment by requiring the contractor to jump through a number of hoops, some involving outside parties such as the local building department. Having the parties agree upon the definition of substantial completion up from, in the contract, eliminates many of these issues. However, even without a definition of substantial completion in the contract here, the court dismissed the general contractor’s form over substance argument, and held that regardless of the denomination of Eurotech’s invoice as a “98%” or “substantial completion” invoice, the applicable test relates to the actual work performed, and left to be performed, at the project. Clearly, here, the 1,039 hours put in by Eurotech could not be credibly characterized as “minor punchlist” or “incidental matters”.

There will undoubtedly be a case in the near future where the work put in after the statute of limitations date does not measure up to Eurotech’s effort, and the call will be much closer than the one faced by the Eurotech court. Of course, if the lawsuit had been brought much earlier, then this issue would have been avoided in the first place. Accordingly, it is important to consult with construction counsel to determine when your claims accrue, and when you should commence a lawsuit to protect your rights.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

In today’s day and age, administrative determinations can be just as troublesome to a contractor’s business as criminal prosecutions or lawsuits. While these quasi-judicial proceedings may have the look and feel of court proceedings, contractors must be aware that different rules apply to these proceedings—and appeals from these proceedings.

In Matter of Sahara Construction Corp. v New York City Office of Administrative Trials and Hearings, a court used a doctrine requiring the exhaustion of administrative remedies to deny what it described as a potentially meritorious constitutional challenge to a requirement that a contractor pay restitution in full before pursuing an administrative appeal.

Background

In April of 2009, Sahara Construction Corp. entered into a contract with a homeowner for an extensive renovation of a residential property in Queens. The plans for the project were approved by Department of Buildings, and construction proceeded. However, as work progressed, the homeowner noticed defects and deviations from the approved plans and, by September of 2014, Sahara had abandoned the project. The homeowner had lodged a complaint with Department of Consumer Affairs, which issued a summons to Sahara for deviating from and disregarding the approved plans. After a hearing before the Office of Administrative Trials and Hearings (“OATH”), the charges against Sahara were sustained, and the hearing officer both imposed a $5,000 civil penalty, and directed Sahara to pay restitution of approximately $230,000.

Sahara attempted to take an appeal of the hearing officer’s determination within the OATH office. However, OATH’s rules require that any party taking an appeal must pay the penalty and restitution levied by the hearing officer. OATH granted Sahara’s request for a financial hardship waiver of this requirement, but pursuant to OATH’s rules the waiver only applied to the $5,000 civil penalty, and did nothing to relieve Saraha of the obligation to pay the restitution before taking the appeal. Notwithstanding, Sahara attempted to take the appeal, but the OATH rejected it because it did not conform with OATH’s requirements to pay the levied restitution prior to taking the appeal.

Sahara commenced an administrative review (Article 78) proceeding in court to challenge the OATH’s determination. OATH responded to the petition by arguing that Sahara failed to exhaust its administrative remedies, which is a precondition to mounting an Article 78 proceeding.

Decision

The motion court denied the petition, finding that Sahara failed to properly take its appeal within the OATH office by failing to “provide[] proof of payment in full of any fines, penalties or restitution imposed by the decision”. Sahara appealed to the appellate court, arguing that it sufficiently satisfied the preconditions to appeal, and that the restitution order constituted a constitutionally excessive fine.

The appellate court upheld the denial of Sahara’s petition, finding that Sahara had, in fact, not exhausted its administrative remedies because it failed to pay the directed restitution as a condition of taking the appeal. The appellate court also declined to reach the issue of whether the restitution constituted a constitutionally excessive fine because that issue was not raised to the administrative agency, which it held should have been given the opportunity to develop the factual record for judicial review.

The appellate court also took the rare step of noting that although the issue was not raised, it was bothered, as a matter of constitutional law, by the fact that the OATH’s rules did not provide for a financial hardship waiver for the restitution payment before taking the appeal. Thus, the appellate court reasoned, the OATH could impermissibly insulate itself from effective appellate review by setting a high restitution, thus limiting appeals to only those with financial means—regardless of the merits of the appeal. (However, as this issue was not fully briefed, the appellate court did not reach it and left the lower court’s decision undisturbed.)

Comment

While an administrative hearing can very much resemble a trial, be assured that a different set of rules apply. For instance, in a conventional court proceeding, you have a near unfettered right of appeal. However, in an administrative context, before undertaking any sort of appeal to a court—where the higher “arbitrary and capricious” standard, rather than the conventional “preponderance of the evidence” standard, applies—you are required to exhaust every possible step before the administrative agency.

It was rather clear from the decision that this appellate court was sympathetic to the constitutional argument that the OATH rules requiring payment of the restitution as a precondition to taking the appeal constituted an impermissible barrier to further review. Unfortunately for this contractor, because this issue was not properly raised, the contractor was left to pay nearly a quarter of a million dollars without the possibility of further review. This emphasizes that contractors in such situations need to consult with counsel experienced in appearing before, and taking appeals from, administrative agencies.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

Construction contracts, like other contracts, are meant to define the relationship between the parties to the contract. In that regard, the parties are generally free to negotiate the terms of that contract. It is only where the contractual language at issue is contrary to statute, against public policy, or is unreasonable, will a court decline to enforce the contract, as negotiated between the parties.

While parties are generally free to negotiate to shorten the contract’s statute of limitations from the otherwise applicable six years, where the contract’s shortened limitations period effectively nullifies the claim before it arises it will be found to be unreasonable. An appellate court reinforced this principle of law again in Greystone Building & Development Corp. v Makro General Contractors, Inc.

Background

In December of 2010, Makro General Contractors entered into a construction contract with the New York City Transit Authority for various construction work. The following month, Makro entered into a subcontract with Greystone Building & Development for a portion of this work. The contract contained a provision requiring that “any claim or action by [Greystone] against [Makro] must be commenced within (1) year after substantial completion of this Subcontract, and in no event after final payment to [Greystone]”.

Greystone substantially completed its work by September 30, 2013, and the entire project was completed by August 30, 2014, with the NYCTA issuing its certificate of substantial completion on October 28, 2014. Greystone commenced a lawsuit against Makro on December 10, 2015, seeking to recover monies owed under a disputed change order, as well as its retainage.

After discovery, Greystone moved for summary judgment on its complaint, and Makro cross-moved for summary judgment dismissing the complaint. On the cross motion, Makro argued that Greystone’s claims were time barred under the contract’s shortened limitations period. Makro claimed that under that shortened limitations period, Greystone’s claims had to have been brought no later than September 14, 2014, one year after substantial completion of its work, and that by not commencing the lawsuit until 2015, Greystone was barred from seeking recovery. In response, Greystone noted that the grand majority of the money sought was related to a change order that was open well into 2015. Accordingly, under the contract, before that change order was settled with the owner, Makro had no claim to that money and, therefore, could not have started the lawsuit any earlier.

Decision

The trial court granted Makro’s motion to dismiss. Although the trial court made note of the negotiations between Makro and the owner relating to the open change order, it held that “nothing prevented [Greystone] from commencing an action or seeking an extension of the one year limitation * * * there was nothing contained in the subcontract, or occurred as a part of the negotiations, that inhibited [Greystone] from pursuing its rights under the subcontract”.

Greystone appealed, and the appellate court reversed, reinstating Greystone’s lawsuit. While acknowledging that Greystone’s work was complete in September of 2013, the appellate court found that the contract provided that Greystone was not entitled to payment until Makro was paid, and that could not occur until the negotiations with the NYCTA concluded in September of 2015. Accordingly, the appellate court held that the contractual limitation period at issue was not reasonable, citing to well settled case law that “A ‘limitation period’ that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim”.

Comment

On its face, Makro’s motion to dismiss looked like it would be a winner, based only on the contract language. But as is so often the case, it ain’t necessarily so. These legal issues require some thinking outside of the box.

Normally, you have six years to sue for breach of a contract. Parties to construction contracts frequently shorten this period. However, Greystone is a reminder that the limitations period cannot be so short that it runs before the claim actually accrues. Accordingly, contractors would be well advised to consult with construction counsel in drafting and reviewing contracts so that they can be sure that their shortened limitations period passes the reasonableness test, and does not run before the claim accrues; in other words, so that you get the limitations period you intended in the first place.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100

One month ago, when this column last appeared, not much was known about the progress of the COVID-19 virus. The “curve” was peaking (although we did not know it at the time), and it was not known how long New York’s “pause” would last. Since then, although schools have been closed for the remainder of the year, we are at a point where the pause will be lifting, and construction will be in the vanguard. However, with most job sites idled for the last several weeks, we now have to think about how to proceed again once those sites open, and how to begin to recover from the effects of the shutdown. This column will address two concerns relating to the resumption of work (and the continuation of work on “essential” job sites that never shut down).

TEMPERATURE TESTING OF EMPLOYEES

While much is still unknown about the COVID-19 virus, “social distancing” has demonstrated effectiveness in slowing the transmission of the disease. Accordingly, when job sites reopen, social distancing protocols must be maintained. The purpose of this social distancing is to reduce the chance of catching the virus from potentially infected individuals. Another way of reducing this chance is to prevent potentially infected people from entering the job site. As one of the early symptoms of COVID-19 is a fever, one way to weed out potentially infected people is to conduct temperature tests as a condition of admission. However, is this permissible for an employer? Clearly, in attempting to prevent one problem, one does not need to create another.

The U.S. Equal Employment Opportunity Commission, the agency charged with the principal enforcement of the Americans with Disabilities Act, has recently provided guidance on the issue of whether employers may administer temperature tests to their employees. As a medical test, temperature testing may be administered to employees if it is “job related and consistent with business necessity”. Since employees with the COVID-19 virus pose a direct threat to non-infected employees, the EEOC guidance provides that employers may test their employees for fever as a condition of returning to work. However, the tests must be administered in a uniform manner (which, for purposes of avoiding any allegations of discriminatory testing, should be interpreted as testing of all employees). Further, the tests must be carried out in a way that insures accuracy and reliability. This can be done through backup testing of any feverish employees with a second thermometer, and a “positive” test be deemed to have taken place only when both tests indicate fever. Finally, because of the Health Insurance Portability and Accountability Act (“HIPAA”), which provides for confidentiality of health information, employers should be careful not to share the results of any of this testing with anyone other than the affected employee. Of course, employers must keep in mind that fever is only one indicia of the COVID-19 virus, and that a non-feverish employee may nevertheless be infected with COVID-19.

DOCUMENTING YOUR COVID-19 RELATED IMPACTS

Even though New York is officially reopening its economy, starting with the construction industry, the economy will not simply resume as if nothing has happened. While some projects which were deemed essential continued, and while others will resume as soon as they can, others, due to lack of funding or other reasons, will either be put into mothballs for the time being, or simply cancelled altogether. However, even for those that have been working on those essential projects, there is not a contractor out there that has not suffered some sort of impact as a result of COVID-19. Accordingly, it is important that contractors be prepared to recognize, and document, their COVID-19 related impacts—and be able to differentiate these impacts from other, non-COVID related impacts.

The first thing that a contractor must keep in mind in assessing one’s impacts is that the law imposes a duty to mitigate one’s damages. While certain impacts related to COVID-19 are unavoidable, particularly where your job was shut down, where a contractor can minimize the impacts they must do so or they will not be permitted recovery. These impacts may, aside from the obvious one of having the “non-essential” job site shut down, include delays of deliveries of materials, supplies and goods necessary for the job, additional time required to unload those items, the lack of workers due to illness or being home with dependents, delays in obtaining permits and in scheduling municipal inspections, the inability to hold proper meetings, the challenges imposed by social distancing requirements (particularly on vertical conveyances such as lifts and hoists), site workflow constraints and work area limitations, more regular cleaning requirements, the need for additional tools to minimize sharing, longer and additional workdays to accommodate staggered shiftwork and minimize labor on the site, and the need for additional supervision for that increased time, amongst others.

In assessing the damages suffered, the contractor must, of course, look to the terms of the contract to see what damages can be recovered (if any, for the contract may only provide for an extension of time for certain types of delays, including those for force majeure type of events such as epidemics/pandemics). Additionally, as we mentioned in last month’s column, contractors must provide notice of the delay and the impacts they are suffering in accordance with the contract. Provided that has been done, the contractor should, first and foremost, determine the project’s actual progress and costs at the time of the disruption. Once that baseline is established, useful strategies would include considering the disruptions to suppliers and subcontractors to determine possible escalation costs, dedicating resources to document and manage the impacts, and creating separate COVID-19 related cost codes so that they can be easily distinguished from general job costs. Contractors can base their analyses on project specific comparison studies, which can be performed based on comparable work by the contractor or, where that is not possible, comparing work between different contractors, comparable or work between different projects. Contractors can also rely on the total/modified cost method, where the loss is determined by simply subtracting the bid cost from the actual cost. However, contractors should be cautious in using this method because it assumes a cause-and-effect relationship between the damages and the claimed impacts, as well as that the work was reasonably estimated, that the actual costs are similarly reasonable, and that the contractor is not responsible for the additional costs.

Clearly, the job of classifying and documenting the impacts that contractors face as a result of COVID-19 is not an easy one. Once the contractor determines its direct costs (such as increased labor, materials, equipment, and subcontractor costs) and its indirect costs (such as increased project management staff, field office, site maintenance, cleaning and home office overhead costs), the retention of appropriate legal counsel and scheduling experts would be helpful in assisting it in best presenting its claim for the maximum chance of recovery.

Comment

Undoubtedly, the COVID-19 pandemic will add time and cost to virtually every construction project. Who bears the burden of that additional time and cost, as between owners, general contractors, suppliers and others, may be debated and litigated for some time to come. It is important to reiterate from last month’s column that a contractor who is faced with an impact resulting from COVID-19 would be well advised to, first and foremost, give notice of the delay and the condition which led to the delay, as well as any other information required by the particular contract—particularly now that New York’s economy will be opening up shortly and those additional impacts will be incurred. The requirements for how New York will open up its economy seems to be changing on a daily basis, and contractors would be well advised to be prepared by doing your paperwork now.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100