September 2005 |
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In This Issue
Bonding Companies Must Meet Deadlines Too
In a victory for subcontractors and suppliers, the Maryland Supreme Court has ruled that bonding companies, like bond claimants, have to strictly follow the rules set forth in the payment bond form. In the case, National Union Fire Insurance Company of Pittsburgh, Pa. v. Wadsworth Golf Construction Company of the Midwest, a subcontractor properly submitted a claim within the time limit prescribed by the American Institute of Architects' (AIA) A312-1984 bond form. This form requires the bonding company to "Send an answer to the Claimant … within 45 days after receipt of the claim, stating the amounts that are undisputed and the basis for challenging any amounts that are disputed." The bonding company's correspondence with the subcontractor within the 45-day period did not, however, dispute any portion of the work and did not offer grounds to challenge the subcontractor's claim. Maryland's highest court found that the bonding company waived its defenses when it failed to dispute the claim within the 45-day period. While the bonding company had argued that its "reservation of rights" letter should allow the bonding company (surety) to provide the details to contest the claim later, the Court rejected this argument and stated:
This case may encourage bonding companies to move promptly to investigate and pay legitimate payment bond claims. Sands Through the HourglassThe Department of Labor's View of Compensable Work Time
The U.S. Department of Labor enforces the Fair Labor Standards Act, which is the federal law that mandates minimum wage and overtime pay requirements. One issue, which is sometimes thorny and often overlooked, involves time spent by employees before work begins and traveling throughout the day. An employer's failure to properly account for all compensable time, even if innocent or inadvertent, usually results in a sizeable backpay award for unpaid overtime compensation. An instructive case in this area was just decided by the federal district court in northern Ohio. [Chao v. Akron Insulation & Supply, Inc., 2005 U.S. Dist. Lexis 9331 (N.D. Ohio 2005)]. The case is a good primer on how to properly, and improperly, handle these issues. In this case, the Secretary of Labor brought suit against a contractor, claiming that the contractor failed to pay 45 employees overtime and also failed to keep accurate time records. The contractor utilized the following pay procedures: (a) employees were required to report to the shop each day before going out to job sites, (b) the employees clocked in when they arrived at the shop, (c) after they reported to the shop, employees received their work assignments for the day and, to the extent necessary, collected and loaded materials on trucks which traveled to the job sites, (d) crew assignments were made each morning, depending on which employees were present and the number of workers needed on the jobs, and (e) while at the shop in the morning, the employees spent a great deal of time waiting around, drinking coffee, and generally socializing. In order to get to the job sites, some employees drove company trucks (carrying materials, equipment, tools, etc.), and others rode together in their own cars. At the end of the day, all of the employees returned to the shop. The employees also submitted handwritten time cards, which indicated the amount of time they spent at the job sites. The contractor paid the employees on the basis of the handwritten timecards. Employees were not paid from the time they reported to the shop because the contractor regarded this time as personal, social time and non-compensable travel time. The Court's first finding was that the contractor violated the law by not paying employees from the time that the employees reported to the shop. Generally, an employer does not have to pay employees who voluntarily report for work early, as long as they do not perform any work. However, the basis for the Court's ruling in this case was that the employees were required to report to the shop by the company, and they often performed activities which were an indispensable part of their normal duties (such as receiving assignments and loading equipment). In addition, to the extent that employees were sitting around, drinking coffee and socializing, the Court said that did not matter because the employees were required to be there and they were waiting for the company's benefit. The second finding was that the company also violated the law by not paying the employees for travel time. An employer can require employees to report for work at the job site, in which case paid time starts at the job site. However, once the contractor required the employees to report to the shop, all of the travel during the day (including from the shop to the job) must be compensated as hours worked. Since the contractor did not include the employees' shop time and travel time in the employees' compensable work hours, the contractor violated the overtime law whenever an employee's total hours (including the unpaid shop and travel time) exceeded forty in a week. In this case, it cost the contractor a tidy $95,000.00, plus interest. Mistakes in payroll procedures can be costly. Be sure to audit your payroll practices from time to time to confirm that you are paying employees properly under the law. Public Owner Prevails on ClaimThe Court of Appeals in Franklin County recently ruled in a very negative way for contractors that will be appreciated by public owners. The Court in that case was dealing with a substantial award out of the Court of Claims in favor of prime contractor Dugan & Meyers against The Ohio State University arising from the Fisher College of Business (Phase II) project. In that case, there were allegations that the Spearin doctrine (which says that the public owner impliedly warrants that the bid documents are constructible) applied because the plans as designed and bid were not "constructible" without great additional expense and time. The Court of Appeals reversed the existing trend in Ohio and specifically said that the Spearin doctrine did not apply to this circumstance. The Court also expressed skepticism of cumulative impact claims when the State's change order form says that it is compensating all direct and indirect costs. The decision also placed great weight on the contractor's obligation to let the architect know in writing of a claim for additional time (and money) within ten days of the initial occurrence of the condition. As a result, the Court of Appeals knocked out a multi-million dollar judgment in favor of Dugan & Meyers. This case will encourage public owners to vigorously dispute claims and may force contractors to begin a "paper war" routinely giving notice of potential impacts on an almost daily basis and reserving rights in change orders, to try to preserve their rights, hardly a formula for cooperative team based construction efforts. It is unknown whether the Ohio Supreme Court will elect to take on this important issue in the coming months. CreditsKegler, Brown, Hill & Ritter's Construction Law Newsletter is prepared by Donald W. Gregory for the Construction Law practice group. To subscribe to any Kegler Brown publication, please use our Subscribe Form. To unsubscribe from any Kegler Brown publication, please use our Opt-Out Form. This publication, as well as an archive of previous publications, is also available from our Publications Archive. The Construction Law Newsletter is designed to provide general information about the subjects discussed. It is not meant to be all-inclusive or comprehensive. Kegler Brown is not rendering any legal or professional advice by way of this publication. © 1989-2008, Kegler, Brown, Hill & Ritter Co., L.P.A.
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