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Contractors and Architects Suing Each Other Architects Should Read This.

It’s a multi-million dollar construction contract and it’s halfway done. Then a snag—a terrible design error, so terrible that doing it the way the architect wants will cause the project to quite literally cave in on itself. What to do? Request a change? Denied.

“Proceed as planned,” says an unreasonable owner’s rep. and rejects your shop drawings that change the design and double the cost of the project. “You read the original plans and specifications before you bid this job.” She yells. “And you had a chance to visit the project site.”

“Terminate my contract and walk? Can I legally do that?” The contractor wonders aloud.

The owner finally agrees to some costly changes that will save the project from imploding, but refuses to admit that her architect made a mistake, and even worse, she hides behind the contract she made with the contractor and refuses to pay the contractor for the additional work.

“This is on you.” She says.

A lawyer advises the contractor that the contract’s one-sided terms in favor of the owner are going to make it very difficult to get paid for the additional work.

“What about the architect?” the contractor says. “He’s the one the made the mistake. He’s the one that should be on the hook. He’s the one that should pay. Can I sue the architect?”

The short answer is “no.” Generally, if you don’t have a contract with someone, then you can’t sue him for purely economic loss. By economic loss I mean money—your costs and expenses—payments made because of someone else’s actions. On a construction project, contractors typically don’t enter into contracts with architect. The owner is the party that has the contract with the architect. Contractors are therefore not in “privity,” with the architect, so can’t sue him for economic loss. Privity is a weird concept, sounds almost obscene. It’s a contractual relationship—an agreement with definite terms and a bargained-for exchange, you know, a quid pro quo. Without privity with someone, in this case an architect, that someone cannot be held responsible for causing you to lose money in a business transaction. Liability in a contractual relationship—for breach of contract—is based solely on whether one party performed the promises contained in his contract with the other.

And when you have a contract with someone, you usually can’t also sue him for negligence. By negligence we mean some action or failure to act that causes you harm. Harm, like injury, not economic loss. You need a contract with someone to sue him for economic loss, remember?

It works the other way too. If an owner sues both an architect and a contractor for defective construction, the architect can’t sue the contractor because there is no privity between them.

But, as with almost everything, there are exceptions. If a party (such as a contractor) can establish that the relationship was so close as to be the “functional equivalent of privity,” it may recover damages. So close, that the architect has a “duty of care” to the contractor. What does that mean? Here’s what: the contractor and architect are working closely together and the architect acts in a way or says things that make the contractor rely on the architect. Here’s what New York State’s highest court said:

“The rule is not that ‘recovery will not be granted to a third person for pecuniary loss arising from the negligent representations of a professional with whom he or she has had no contractual relationship.’ The long-standing rule is that recovery may be had for pecuniary loss arising from negligent representations where there is actual privity of contract between the parties or a relationship so close as to approach that of privity.”

“A relationship so close as to approach that of privity”—here are some examples of that taken from a legal treatise on the issue:

  • When an architect communicates with contractor in a way that is misleading, makes an affirmative misrepresentation to the contractor that cause the contractor harm.
  • The relationship between the prime contractor and the architectwas the functional equivalent of privity where 1) the architect was aware that its drawings would be used for the construction of the project by the contractor, 2) the contractor relied on the architect’s drawings and the architect was required to oversee construction. 3) There was actual “linking conduct” between the architect and the contractor. The architect reviewed submissions from the contractor and oversaw the actual construction.
  • Architect exercised a substantial amount of control over the project, which established a nexus between the parties sufficient to “substitute for privityof contract.”
  • The architect assumed extensive responsibility with respect to the project including, negotiation of the contract, interpretation of the contract, supervision of the work, and ultimately deciding to remove the contractor from the job.
  • The architect’scontract required the architect to administer the construction contract, to become familiar with the progress and quality of the work, and to determine if the work was proceeding in accordance with the contract documents. The architect also had the duty to interpret the contract documents, review the contractor’s payment requests, determine when the project was substantially completed, and the owner could terminate the contractor’s work if notified by the architect of the contractor’s “delay, neglect, or default.”

Upshot seems to be that anything more by the architect than simply preparing the plans and specifications prior to bid, and then disappearing from the scene, could make them liable for errors and omissions with respect to design.

Joint Ventures Part II: How NOT to commit DBE fraud

So another contactor tells you, “Joint ventures are a great way to win big contracts. Join up with me on this next one. Look at the money you can make. Look at the money I have made.”

You look. What he says is true. He HAS won big contracts and made beaucoup bucks. And you realize that you can too. His firm is not DBE certified. That’s why he’s talking to you. You’re a woman and a minority, so partnering with your firm will keep  doors open to lucrative new world of contracting opportunities for his firm. It’s a match made in contractor’s heaven.

But he wants to keep the arrangement loose. No need for a written joint venture agreement,” he says. “The details of our deal—how profits and losses are allocated, who is responsible for what work—will work themselves out during contract performance.”

How does that sound? What do you say? What should you say?

Federal and state regulations dictate how DBE / MWBEs must run their joint ventures.

Here’s the U.S. Government’s take on it:

“A DBE joint venture partner must be responsible for specific contract items of work, or clearly defined portions thereof. Responsibility means actually performing, managing and supervising the work with its own forces.”

In New York, a similar regulation defines a joint venture this way:

“A contractual agreement joining together two or more business enterprises, one of which is a certified minority – or woman – owned business enterprise, for the purpose of performing on a State contract. The certified minority – or woman – owned business enterprise must provide a percentage of value added services representing an equitable interest in the joint venture.”

Does that mean you can simply put your partner’s non-DBE employees on your payroll? Or, hire them as consultants and let them do the work? Do you have any special knowledge or expertise that your non-DBE partner doesn’t? Are you making decisions concerning the contract work, communicating with owners, architects and engineers? Are you personally attending important meeting and speaking for the joint venture?

What have you contributed to the joint venture in terms of money and property and credit? The federal regulations are very specific on what you, the DBE / MWBE need to bring to the table in order for your arrangement to be legit in the eyes of the law.

Here’s what the federal regulation says:

“The DBE joint venture partner must share in the capital contribution, control, management, risks and profits of the joint venture commensurate with its ownership interest.”

And in New York, “All parties [must] agree to share in the profits and losses of the business endeavor according to their percentage of equitable interest.”

So, a regulatory enforcement officer might ask, “What did you give in order to get a 50% stake in the joint venture? Your non-DBE partner put in all the manpower, put up all the working capital, has all the bonding capacity. All you appear to have contributed was your DBE certification. You have no special knowledge or expertise or experience doing the type of the contract work involved. Your non-DBE partner paid almost all the upfront costs of bidding and performing the contract. What’s up with that? On paper you own 50% of the joint venture, but it looks like the amount you’ve earned is a flat fee equal to 5% of the contract price. If there were a loss on this contract, your non-DBE partner would eat it, not you—because he has funded the cost of performance.”

And finally, “how is it that your joint venture can take credit for $X amount of dollars toward DBE / MWBE contacting goals when your firm has done little or nothing to advance the performance of the contract work?”

Here’s how is DBE participation is counted toward goals in a joint venture:

When a DBE performs as a participant in a  joint venture, count a portion of the total dollar value of the contract equal to the distinct, clearly defined portion of the work of the  contract that the DBE performs with its own forces toward DBE goals.

If you are a contractor bidding on a public contract, don’t be the bad guy and try to take advantage of the starving DBE / MWBE firm. Try your best to find a qualified and competent DBE to perform work on your contract. Pass-through or fronting schemes designed to satisfy DBE goals could lead to criminal charges. Can’t meet the DBE goal? Make sure to document your efforts to meet it, because you can fight for the contract award if you are the low bidder. Using those documents, if you can demonstrate “good faith efforts” to meet the DBE goal, you cannot be denied contract award.

Get Big Government Contracts with Joint Ventures (Part I).

Many DBEs or MWBEs starting out don’t understand what joint ventures are, how they work or why they’re important. This lack of knowledge can get you into big trouble and make joint ventures a dangerous proposition.

You may have a vague sense of what “joint venture” means—working together with someone else on something—but if you’ve never been involved in one, it’s hard to know the risks and rewards or whether the arrangement is right for your business. This article (and the next), we hope, will expand your understanding of joint ventures so that you can see the possibilities they hold, see them in the context of a larger strategic business plan, comply with strict DBE/MWBE regulations concerning joint ventures, weigh your options, engage in meaningful discussion with colleagues and associates, and, when it comes down to negotiating the terms of a joint venture, be smart about them and have a firm grasp of the important issues.

Essentially, joint ventures function as a partnership but for a specific purpose and usually for a limited period of time. They exist by voluntary agreement with another person or business, and have as their aim the accomplishment of certain concrete, defined objectives. In our industry those objectives are the successful and complete performance of contracts. How to properly structure your joint venture will depend largely on what those objectives are, what the subject matter of your contract is. By subject matter, we mean—are you performing public construction? Perhaps it’s research and development? Professional services? Supply?

In any case, there are some basic elements to joint ventures, and very importantly, special requirements for non-DBE/DBE or non-MWBE/MWBE joint ventures—strict regulations that must be complied with, regulations designed to circumvent fraud—the situation where the DBE/MWBE is not really bringing anything to the table besides its certification and the preference to contract award that come with that certification. Beware of the non-DBE that wants to join up and bid a contract but doesn’t ask anything of you—already has all the capability to perform the contract itself. That’s a recipe for criminal liability.

With joint venture agreements, as with any agreement, the devil is in the details. If your joint venture is more of a long term arrangement, where you’ll be bidding or working on multiple contracts with your partner for an extended period of time, you may wish to consider creating a new business entity with your partner. Other arrangements include special purpose vehicles, joint marketing agreements, license agreements and subcontracts, among others. But basically all of these arrangements boil down to written language—whether in the form of a partnership agreement or LLC operating agreement, for example—the terms of which are negotiable. The following is a checklist of topics you should consider at the beginning of these negotiations:

  • Clear business objectives
  • Communication arrangements between organizations/teams
  • Financial structure
  • Protection of your interests (trade secrets, customer lists)
  • Daily/strategic decision making responsibilities
  • Dispute resolution procedures
  • Legal structure for your joint venture (contractual co-operation for a defined project, partnership or unlimited partnership, limited liability company)
  • Bank account arrangements will depend on the legal model chosen, although a new account can be set up for a single project.
  • Single point of contact for client communication
  • Sales and marketing activities
  • New business generation (if applicable)
  • Termination procedures—how and when will the joint end?
  • Ownership of assets in the joint venture
  • Allocation of any profit and liabilities resulting from the joint venture

So, there’s a lot to think about, a lot to think through in structuring any joint venture. Plus, with joint ventures between DBEs and non-DBEs, there’s the added pressure of regulatory compliance. Non-DBEs are strongly encouraged by regulations and procurement agency policy, to partner with DBEs or MWBEs on public work. And in many instances, a non-DBE’s inability to secure such partnerships has cost them contracts. In this context, joint ventures become an important tool. They function in the arena of public contracting to unlock the door to big contracts.

Federal regulations define them as “an association of a DBE firm and one or more other firms to carry out a single, for-profit business enterprise, for which the parties combine their property, capital, efforts, skills and knowledge, and in which the DBE is responsible for a distinct, clearly defined portion of the work of the contract and whose share in the capital contribution, control, management, risks, and profits of the joint venture are commensurate with its ownership interest.” (See 49 CFR 26.5 – What do the terms used in this part mean?)

Notice the emphasis here on the DBE bringing something to the table, and being “responsible,” for certain, specified work. So, in your joint venture agreement, do you think that it might be good to clearly delineate, spell out separately, the DBE and non-DBE’s respective scopes of work? Of course it would. And do you think it would be smart to layout in clear detail the duties and responsibilities of both the DBE and non-DBE partners? Yes, obviously.

Our regular readers will see similarities here to the regulatory requirement that a DBE perform a “commercially useful function.”

We’ll have more on joint ventures in the next article. Stay tuned.


On November 29, 2017, the U.S. Department of Defense (DoD) issued its STTR 18.A Program Broad Agency Announcement and its SBIR 18.1 Program Broad Agency Announcement, beginning the 30-day pre-release window during which small businesses can communicate directly and privately with the Technical Points of Contact who authored the BAA topics. Discussions with topic authors during the pre-release period often can be invaluable opportunities to obtain not only useful information about a particular topic, but also technical clarifications that can help companies assess how well their technologies align with technology needs reflected in the DoD topics.
Once the pre-release period is over, small businesses can obtain technical clarifications only by posting questions publicly and anonymously on the SBIR/STTR Interactive Topic Information System. Responses to questions will likewise be posted publicly.

DoD will begin accepting proposals on January 8, 2018, which must be received by 8:00 pm on February 7, 2018.

To download the BAA’s go to DoD’s SBIR & STTR website here.

Creative, Effective, Efficient Legal Fee Arrangements

Today more than ever, clients require creative, flexible, and predictable approaches to the delivery and pricing of legal services. If implemented successfully, alternative fee arrangements provide substantial value and are mutually beneficial for the firm and the client.

Below are some examples of the alternative fee plans legal clients have find attractive.

Alternative Hourly Rates

Blended Hourly Rates – For some matters, a law firm may agree to bill the same rate for all lawyers who work on a client’s matters, regardless of each lawyer’s level or individual billing rate. Blended rates are determined on the basis of work the law firm expects to be provided for a matter and the billing rates of those lawyers the firm anticipates will work on the matter.

Volume Discounts – In situations where a client prefers traditional hourly rates, a law firm may consider providing hourly rate discounts on a sliding scale in return for that client guaranteeing a set level or volume of legal work.

Fixed or Flat Fees

Straight Fixed or Flat Fees – A law firm may be willing to provide some services for a set fee. This fee could cover a particular matter (e.g., a fixed fee for all work provided on an internal investigation) or a particular service (e.g., a flat fee for consulting services provided on a monthly basis). Fixed fees typically are set for individual matters or for an entire portfolio of matters, and may cover the entire life of a matter or be limited to a specific period of time or a particular task.

Fixed Fee or Pre-Agreed Upon Budget with Collar – Some fixed fee arrangements (and matters with pre-agreed upon budgets) will warrant a “collaring” arrangement. This fee arrangement anticipates engagements in which the amount of effort needed to fulfill the law firm’s obligation as responsible legal counsel is greater or less than what both the law firm and the client initially thought the effort would require.

Under such a collaring arrangement, the law firm and the client would agree that if the hourly value of the firm’s lawyer time expended on a matter falls considerably outside the fixed fee (or pre-agreed upon budget), the parties will share the fee upsides and downsides with each other.

Monthly Access and Advice Retainers – Although this is a variation of the straight fixed fee approach described above, an advice and access retainer has benefits that warrant further explanation. This approach makes sense in situations where a client wishes to be proactive in seeking legal advice to avoid legal exposure, but does not want to pay for expensive legal research every time a potential legal issue arises. This arrangement offers clients ready access to relatively inexpensive legal advice and offers the law firm the chance to add value to the client. It helps the law firm distinguish early on between those situations that are easily dealt with and others that, unaddressed, might expose the company to significant liability.

Phase-Based Fees – The firm will estimate a specific fee for each phase of a matter based on the work anticipated for each phase. In litigation, for example, this arrangement might result in a separate fee for each of the following phases:

  • Motion to dismiss
  • Discovery
  • Dispositive motions
  • Trial preparation
  • Trial

In transactional matters, phases of work might include due diligence, drafting of specific agreements, negotiating the terms and amount of the purchase/sale price, closing activities, etc. This approach could be implemented in a variety of ways. For example, the arrangement may be based on fixed fees, where the law firm charges a fixed fee for each matter phase. Another approach that might be taken would require the client to pay an estimated (budgeted) fee for each phase with a rationalization against actual billings at agreed-upon times, e.g., quarterly, annually, or when the matter is concluded.

Fee Caps – For matters in which the scope is understood and well defined beforehand, the firm may agree to cap its fees. Fee caps are determined based upon anticipated fees for the scope of work, and they can be set for the entirety of the matter or for each phase.

Risk Sharing Arrangements

Fee Holdbacks – In certain situations, the law firm can hold back an agreed-upon percentage from its monthly billings. In return, the law firm will have the opportunity to earn and be paid the full holdback amount at the client’s discretion. Whether the law firm earns back all or some of the holdback amount will be based on the client’s assessment of our performance against certain predetermined criteria, e.g., work quality, results, creativity, efficiency, cost-consciousness, collaboration with other outside counsel, and effective utilization of the client’s own resources. In these situations, the criteria are established up front. The client’s holdback determinations could be made annually or when the matter concludes. A fee holdback arrangement could be applied to a litigation or transactional matter.

Success Fees – Under this arrangement, the law firm would be eligible for a success fee or premium in addition to its prior billings, in the form of a performance bonus at the client’s discretion. A success fee can be a set fee, a graduated fee according to a mutually developed schedule, or a percentage of the law firm’s billings. As with a holdback, whether we earn a success fee will be based upon the client’s evaluation of our performance against predetermined criteria.

Broken Deal Discounts – The law firm would consider a discount off of its fees in the event that a project did not proceed beyond a certain stage of the transaction. For example, there would be an agreed upon substantial discount if the client chose not to proceed after completing its due diligence, followed by separate discounts should the client elect to proceed with documentation after completing due diligence, but then failed to reach a financial closing of the project.

Contingency Fees

Traditional Contingency – Under a traditional or full contingency arrangement, the law firm will defer its fees entirely in exchange for receiving an agreed upon portion of the client’s ultimate recovery. Typically, the client pays the expenses of the litigation.

Partial Contingency – In a partial contingency arrangement, the firm handles a matter at a reduced hourly rate and shares in a favorable recovery or resolution at a smaller percentage. Partial contingency arrangements reduce legal expenses during the course of a matter, and provide a mechanism for the firm to share litigation risk with the client. Defense cases can also be structured as partial contingency fees with success contingent on specific predetermined results or milestones being achieved.

For transactional matters, the firm may conduct the work at reduced hourly rates in exchange for a percentage of the value the client receives upon liquidation or sale.

Hybrid Fee Arrangements

Hybrid Fee Arrangements by Matter Phase – In certain situations, the billing arrangement that makes the greatest sense is a combination of several arrangements described above. For example, the law firm could estimate fixed fees for some matter phases, holdbacks on hourly rates for other phases, and success fees for other phases.

“Frequent-Flyer” Credits toward New Legal Services – The law firm may agree to provide a significant reduction in fees for one matter in exchange for the client’s commitment to assign other matters to us where we have not yet served the client. This could take the form of a discount on the instant matter, a credit against future billings for the new matters, or some combination.

To ensure alternative fee arrangements are successful, at the initiation of a new engagement, Kernan and Associates will invest significant time and effort to better understand the client’s ultimate objectives and preferred approach and legal strategy, as well as agree on the scope and parameters of the project. Because details of the matter are disclosed and discussed at the outset, the resulting fee arrangements typically provide the optimal balance between risk and reward for both parties.


Financial Forecasting – Cornerstone of a Successful Project

Everything seems to be going well in your contracting or consulting business… but there could be serious financial trouble lurking under the surface.

There is a strong correlation between “business confidence” and increasing profits, until the market shifts and uncovers business strategies have become stagnant and no longer apply to the changing industry. It is the fundamentally sound processes and relatively accurate estimation of the project that are critical tools needed for developing any successful venture, especially in lean times.

Professional accounting and financial forecasting throughout bidding and contract management is essential to achieving the greatest amount of profit on any given project. First, financial estimating involvement in the bidding process ensures a solid financial foundation for the project. The failure to keep realistic and accurate estimates at the outset, resulting in not forecasted revenue loss, is when the ineffective and failed business strategies become apparent. Moreover, during bidding, the special tools of accounting analysis and financial forecasting can help find construction funding; offer invaluable guidance on selecting markets, rating sites, raising capital, understanding financing options; and mastering cash flow management.

During the project, financial analysis can identify key performance indicators as the project is ongoing that will show red flags that the project is about to be under financial stress before the loss is catastrophic. Proper financial analysis is the canary in the coal mine for catastrophic problems. Additionally, financial planning allows estimates for delay costs and contract changes. A rudimentary spreadsheet will be unlikely to support government payment for additional delay costs.

To avoid these late reactors which may be quite costly…

NEEDED real-time access to forecast and industry trends

ABILITY to identify key performance indicators to assist in estimate costs of delay

ACCOUNTANT that is interested in estimating the project as it unfolds not just providing the filing on the quarterly reports.

Accurate financial analysis and forecasting allows contractors to avoid pitfalls and find profit centers. Make a practice doing it in your contracting business. It is the cornerstone of growth.

Prevent Your Prevailing Wage Disaster

A contractor or subcontractor found to have violated prevailing wage laws can face contract termination, debarment from future projects, and the withholding of contract payments to satisfy any unpaid wage, in addition to fines, penalties, liquidated damages, and an award of attorneys’ fees.

Read on, and gain the knowledge that will protect you from a prevailing wage disaster. Do prevailing wage laws even apply to your project? Have you accurately calculated and paid the proper wage and benefits? Is your bookkeeping in compliance with regulations? Empower yourself to answer these questions. Get the information here.

First and foremost, it’s important for contractors and subcontractors to keep themselves up-to-date on all recent changes to the federal, state, and local prevailing wage rates.

(If you need a primer—the basics of prevailing wage laws, get that by clicking here).

Start to maintain compliance with prevailing wage laws by determining whether and which prevailing wage laws apply. Which prevailing wage law applies is based on the source of the project’s funding: federal, state, or local. Contractors should be aware, however, that a construction project may have various funding sources. For example, under federal regulations, the Davis-Bacon Act applies when work is performed using funds in excess of $2,000, regardless of whether a federal agency is the owner of the project. In other words, if there is federal money providing even part of the funding on a project, it may be subject to the Davis-Bacon Act and require payment of prevailing wages and fringe benefits. In cases of multiple funding sources, the contractor or subcontractor should comply with the prevailing wage laws resulting in the highest wage/benefit package.

Establishing Proper Prevailing Wage Rates

The next step to maintaining compliance with prevailing wage laws is to properly calculate the wage/benefit package. The prevailing wage rate is made up of two components: (1) an hourly base rate and (2) an hourly fringe benefit rate. A contractor or subcontractor can pay the prevailing wage in a number of different ways. First, the contractor or subcontractor may pay the total prevailing wage rate, including the fringe benefit amount, as cash wages. Alternatively, the contractor or subcontractor may credit toward the hourly fringe benefit rate the cost the contractor or subcontractor incurred for paying a “bona fide” fringe benefit (e.g., health/life/disability insurance, vacation, holiday pay, etc.). Last, the contractor or subcontractor may use a combination of cash wages and “bona fide” fringe benefits to meet the required prevailing wage.

The fringe benefit portion of the prevailing wage rate is complicated and often misapplied by contractors. For example, certain benefits are not considered “bona fide” (e.g., use of a company truck, tools, travel expenses, and cellular phone), so these benefits may not be used to calculate the prevailing wage rate.

Since construction projects can span months or even years, it is important to note that the prevailing wage rates in place at the time the bid is solicited by the agency controls. The prevailing wage rates at the time of bid solicitation will control throughout the entire life of the project, even if the project spans years and the prevailing wage rates have been adjusted, up or down.

Correct Labor Classification

The prevailing wage rate that applies to a particular worker depends on the labor classification of the work being performed by that worker. Since labor classification is based on the actual work being performed, it is very common for a single worker to be classified in different ways in a single workday if the worker performs different types of work throughout the same day. Unfortunately, not all work performed on a given project falls neatly into the pre-established classifications. One option to stay compliant is to classify the worker at the higher pay rate. This, however, may not be economically feasible. Another option is to identify the tasks that do not fit neatly into any classification at the beginning of the project and agree in advance on the appropriate classification for that specific task. Correlating the specific tasks performed by the worker to the applicable prevailing wage will greatly assist contractors and subcontractors in staying compliant with prevailing wage laws.

Proper Bookkeeping

The prevailing wage laws require contractors and subcontractors to maintain certain records. For example, the Davis-Bacon Act requires contractors and subcontractors to maintain records that include: (1) name, address, and social security number of each employee; (2) each employee’s labor classification(s); (3) hourly rates of pay (including rates of contributions or costs anticipated for fringe benefits); (4) daily and weekly numbers of hours worked; (5) deductions made; and (6) actual wages paid. Contractors and subcontractors must maintain these records through the course of the project and for a period of three years afterwards. In addition, contractors and subcontractors must submit certified payroll records. Failure to maintain proper books and records exposes the contractor or subcontractor to penalties and fines and even withholding of contract payment when the inevitable audit rolls around at the end of the project.

When it comes to prevailing wage compliance, the old adage is true: an ounce of prevention is worth a pound of cure.

Prevailing Wage Law Basics

Prevailing wage laws require construction workers employed by private contractors or subcontractors on public projects be paid wages and benefits at least equal to the “prevailing” wage for similar work in the locality in which the project is located. Prevailing wage laws exist at the federal, state, and local levels.

The federal prevailing wage law, the Davis-Bacon Act, requires private contractors and subcontractors to pay workers the prevailing wage/benefit package on all construction contracts exceeding $2,000 for construction, alteration, or repair of federal public buildings or public works. Oregon’s equivalent, its “Little Davis-Bacon Act,” requires private contractors and subcontractors to pay workers the prevailing wage/benefit package on “public works” projects with a contract price greater than $50,000.  The District of Columbia is also covered under the Davis-Bacon Act.

On the state level, the State of New York established its own prevailing wage law under Articles 8 and 9 of the New York State Labor Law. The Bureau of Public Work administers Articles 8 and 9. Article 8 covers public construction and Article 9 covers building service contracts. The Bureau of Public Work issues wage schedules on a county-by-county basis. They contain the pay rates for each work classification. Under state law, all contracts between a government entity and a contractor must contain these schedules.

DBE Fraud Case Ripped from the Headlines

Smart DBE contractors are skeptical when a non-DBE makes them an offer that sounds too good to be true.

“Let’s do a joint venture,” the prime might say, “we’ll take care of the bidding and mobilization and supply the manpower. You can use our working capital and take advantage of our bonding capacity. We’ll take the risk of loss on the contract. All you have to do is allow us to use your DBE certification and we’ll pay you a flat fee of $50,000, guaranteed.”

Sound good? Sound legal? Don’t rent your DBE certification. Doing so not only cheapens the value of your company, it diminishes he capabilities of all DBEs.

What you should know is that this or similar arrangements violate the law and can be prosecuted criminally for fraud.

Here’s what many DBE owners tend to forget—their firm must be performing a commercially useful function on the project. A DBE performs a commercially useful function when it’s responsible for execution of the work of the contract and is carrying out its responsibilities by actually performing, managing, and supervising the work involved.

It happens often that DBE don’t perform a commercially useful function, and when they don’t law enforcement officials start smelling fraud.

Another DBE fraud has made the headlines. Yesterday 78 year of Donald Taylor of Pennsylvania pleaded guilty to conspiring with DBE owner Watson L. Maloy to defraud the United States Government. What did they do? U.S. Attorney Soo C. Song alleged that Talyor, owner of non-DBE Century Steel Erectors Co. used Maloy’s DBE, W.M.C.C as a “front,” to procure federally funded bridge subcontracts to the tune of $1,065,000 between January 2012 and February 2014.

What does it mean to be a “front?” That’s when the fronting company, here W.M.C.C., doesn’t really bring anything of value to the table, like property or expertise, except it’s DBE certification, and doesn’t perform a commercially useful function. That is, the DBE front is not responsible for execution of the work of the contract and is not carrying out its responsibilities by actually performing, managing, and supervising the work involved.

In this case Taylor used personnel from his non-DBE, Century Steel Erectors Co., to negotiate, bid and perform the work on DBE-eligible subcontracts for work on Pennsylvania Turnpike Commission and Pennsylvania Department of Transportation bridge projects, which receive funding from the Federal Highway Commission.

It was a matter of the non-DBE company impersonating the DBE to avoid detection. Taylor utilized W.M.C.C.’s phone line, email account, magnetic business signs and business cards. In exchange Maloy and his DBE, W.M.C.C., got whopping lump sum payments from $2000 to $10,000.

As part of his guilty plea, Taylor has agreed to pay PennDOT $85,221.21 in restitution. He faces a maximum 5-year prison term and/or a $250,000 fine. Maloy is scheduled for sentencing on January 23, 2018.

Critical GAO Bid Protest Deadlines and Timeline

Many clients call our office seeking to protest the award of a federal government contract. Unfortunately, sometimes these calls are too late. While contracts can be protested at the agency level, the Court of Federal Claims, and the Government Accountability Office (“GAO”), GAO protests are the most common. The deadlines by which a protester must take certain actions to file a timely protest are confusing. Below we address some of the trickier and/ or mandatory deadlines a potential protester must meet to file a timely protest.

Pre-Award Protests—On or before the date for submission of proposals.

Under the GAO’s rules, to be timely, a protester must file a pre-award protest prior to the deadline for submission of proposals. Pre-award protests challenge the terms or “ground rules” of the competition as stated in the solicitation, such as, for example, challenging the agency to clarify or remove confusing, ambiguous, or unduly restrictive requirements. You must file a pre-award protest on or before the date and time set by an agency for receipt of proposals. You cannot wait to see whether you win the award and then file a protest challenging the rules of the competition, because by then it will be too late.

Post-Award Protests—Think Three (3), Five (5), Ten (10)

There are two considerations for filing a timely post-award protest: 1. Is the protest timely filed so that the GAO will consider the protest? 2. Is the protest timely filed at the GAO so that the automatic stay of performance under the Competition in Contracting Act (“CICA”) will apply to preserve the status quo during the pendency of the protest? To be timely filed at the GAO, a disappointed offeror must file its protest within ten (10) calendar days after “the basis for the protest is known or should have been known, whichever is earlier” OR within five (5) calendar days of a debriefing that is requested and required, whichever is later.

Three (3) days after award, certain procurements (FAR Part 15) require the agency to provide a debriefing. If a debriefing is required, you must submit a written request for a debrief within three (3) calendar days of the date of notification of award. In addition, you must accept the first reasonable date offered by the agency for the debrief.

To be timely filed at the GAO for purposes of getting the automatic stay, a disappointed offeror needs to file its protest within 10 calendar days of award or within five calendar days of a timely requested and required debriefing. You must accept the first-offered debriefing date, otherwise you will lose the five-calendar-day allowance, and thus your clock will start to run from the default 10-day period. You should also note that the five-day period only applies to required debriefings. This is important, because not all procurements entitle a disappointed offeror to a debriefing. For example, a Federal Supply Schedule (“FSS”) procurement under FAR Part 8 does not entitle a disappointed bidder to a debriefing. As such, a voluntary, as opposed to a required, debrief will not impact the timely filing requirement for purposes of obtaining an automatic stay.

Finally, regardless of whether you abide by the 10-day or five-day period for filing to get an automatic stay, it is very important that you file as early as possible on the 10th or fifth day (whichever applies to your case), because the stay is triggered only when the GAO physically calls the agency to notify them that a protest has been filed. While under the law, the GAO has one business day to make this call (and, therefore, if you are very cautious, you should file on the ninth or fourth day), as a matter of practice, the GAO makes the phone call on the same day your protest is filed. But, you should file in the morning or before noon, to give the GAO as much time as possible to make this critical call.

The foregoing deadlines are critical to filing a timely GAO protest to have the GAO hear the merits of the case, and to obtain an automatic stay.