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European Society of Construction Law Deutsche Gesellschaft fur Baurecht e. V. The Top 10 European Society of Construction Law Deutsche Gesellschaft fur Baurecht e. V. The Top 10 (or so) Recent Developments in U. S. Construction Law of Which Every Contractor Working in the United States Should Be Aware Presented by John B. Tieder, Esq. Alex N. Lamme, Esq. 2011 Annual Meeting Frankfurt, Germany 10 – 12 November 2011 8405 Greensboro Drive, Suite 100 Mc. Lean, VA 22102 703 -749 -1000 (p) [email protected] com [email protected] com

Summary I. III. IV. V. VI. • • VIII. IX. X. XIII. XIV. Page Summary I. III. IV. V. VI. • • VIII. IX. X. XIII. XIV. Page Organization of U. S. Legal System Public Contracts U. S. Government Contracts – Focus on “Fraud & Abuse” Contractor Licensing Public-Private Partnerships (P 3) Freedom of Contract Exceptions Payment Performance Bonds Demise of Arbitration Dispute Review Boards Liquidated Damages Liability to Non-Contract Parties – The Economic Loss Doctrine Consequential Damages Green Construction 50 -State Survey

I. Organization of United States Legal System Page 3 I. Organization of United States Legal System Page 3

Federal Court System 1 Supreme Court (§ 1) Other Courts as Established by Congress Federal Court System 1 Supreme Court (§ 1) Other Courts as Established by Congress (§ 1) Judges Have Lifetime Tenure Trial by Jury (§ 2) Page

U. S. Federal Court System U. S. Supreme Court • Created by Constitution (Article U. S. Federal Court System U. S. Supreme Court • Created by Constitution (Article III) – 13 U. S. Circuit of Appeals – 12 Circuits – Court of Appeals for Federal Circuit – 94 Federal District Courts – Specialized Courts – – Page U. S. Court of Federal Claims U. S. Court of International Trade Court of Military Appeals U. S. Court of Custom & Patent Appeals

Federal Jurisdiction Federal Questions • • Arising under Federal Law Violations of Federal Constitution Federal Jurisdiction Federal Questions • • Arising under Federal Law Violations of Federal Constitution Patents Regulations under Federal Law Admiralty or Maritime Treaties U. S. a Party Diversity Actions • A dispute between citizens of any 2 different states in excess of $75, 000 • Suit between a foreign citizen and a U. S. citizen applying state law Page

Typical Case Instituted in a U. S. District Court Right of Appeal to Circuit Typical Case Instituted in a U. S. District Court Right of Appeal to Circuit Court of Appeals Right to Petition, but not be heard, by Supreme Court Page

Page 8 Page 8

U. S. Court of Appeals and U. S. District Courts 8 1 2 7 U. S. Court of Appeals and U. S. District Courts 8 1 2 7 9 3 10 6 4 5

51+ Legal Systems 1 Federal System 50 State Systems Territories and Provinces • Puerto 51+ Legal Systems 1 Federal System 50 State Systems Territories and Provinces • Puerto Rico • Guam Page

State Courts 50 State Courts - use New York as an example Court of State Courts 50 State Courts - use New York as an example Court of Appeals • 4 Appellate Divisions • 12 Judicial Districts – 57 County Courts Appeals from last Court of Appeals in State can go to U. S. Supreme Court • Very seldom in a commercial case Page

Jurisdiction of State Courts All Civil and Criminal Matters Not Federal in Nature • Jurisdiction of State Courts All Civil and Criminal Matters Not Federal in Nature • Examples – Civil – – – Personal Injury Family Law Commercial Disputes Ownership of Property Inheritance • Examples – Criminal – – – Page Murder Assault Robbery Embezzlement Arson

II. Public Contracts Page 13 II. Public Contracts Page 13

Types of Public Contracts Direct U. S. Government Contracts U. S. Government Funded Contracts Types of Public Contracts Direct U. S. Government Contracts U. S. Government Funded Contracts State Contracts Political Subdivisions within States • Counties • Cities / Town • Special Purpose Entities – Water Districts – Sewer Districts – School Districts – Transit Districts – ETC. Page

Laws Applicable to Non-Federal Public Contracts U. S. Laws of General Application • Social Laws Applicable to Non-Federal Public Contracts U. S. Laws of General Application • Social / Economic Clauses • Safety • Labor U. S. Laws Applicable to Federally Funded Projects • False Claims Acts, 18 U. S. C § 287, 31 U. S. C. §§ 3929 -3933 • American Recovery & Reinvestment Act – Report Effects on Employment – Report Compensation of 5 Most Highly Paid Employees – Buy American Compensation State Laws • State Procurement Statutes • State False Claims Acts • Political Subdivisions within States – Some are quite unusual – e. g. Cannot bid if do business with Myanmar or Iran Page

III. U. S. Government Direct Contracts Page 16 III. U. S. Government Direct Contracts Page 16

Applicable Laws and Regulations Basic Statutes • Contract Disputes Act of 1978 • Buy Applicable Laws and Regulations Basic Statutes • Contract Disputes Act of 1978 • Buy American Act • Others Primary Regulations • Federal Acquisition Regulations Procuring Agency Regulations • U. S. Army Corps of Engineers • U. S. Department of State • General Services Administration Page

Improper (False) Claims – Federal Criminal and Civil Statutory Scheme Criminal Liability • • Improper (False) Claims – Federal Criminal and Civil Statutory Scheme Criminal Liability • • • Making False Statements, 18 U. S. C. § 1001 False Claims Act, 18 U. S. C. § 287 Mail / Wire Fraud, 18 U. S. C. §§ 1341, 1343 Conspiracy to Defraud Govt. , 18 U. S. C. § 286 Major Fraud Act, 18 U. S. C. § 1031 Federal Enforcement and Recovery Act of 2009 Civil Liability • • Page False Claims Act, 31 U. S. C. § 3929 -33 Anti-Kickback Act, 41 U. S. C. §§ 51 to 58 Forfeiture of Fraudulent Claims Act, 28 U. S. C. § 2514 Contract Disputes Act, 41 U. S. C. § 604

Improper (False) Claims – What Is a Claim? Any request or demand, whether under Improper (False) Claims – What Is a Claim? Any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipients if the United States provides and portion of the money or property which is requested or demanded or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded Page

Improper (False) Claims – What Is a “False Claim? Knowingly presents, or causes to Improper (False) Claims – What Is a “False Claim? Knowingly presents, or causes to be presented, to an officer or employee of the United States or a member of the Armed Forces as a false or fraudulent claim for payment or approval Knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government Conspires to defraud the Government by getting a false or fraudulent claim allowed or paid Has possession, custody or control of property or money used, or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person received the certificate or receipt Page

Improper (False) Claims – What Is a “False Claim? Authorizes or delivers a document Improper (False) Claims – What Is a “False Claim? Authorizes or delivers a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true Knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell the pledged property Knowingly makes, uses or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government Page

Improper (False) Claims – Examples of False Claims False Certification Reverse False Claims Subcontractor’s Improper (False) Claims – Examples of False Claims False Certification Reverse False Claims Subcontractor’s Pass-Through Claims Overstating Damages Double Billing Deliberate Misbranding or Substitution of Materials Labor Issues Equipment / Material Issues Page

Improper (False) Claims – Damages for False Claims Act Violations Civil Penalty of $5, Improper (False) Claims – Damages for False Claims Act Violations Civil Penalty of $5, 000 to $10, 000 per violation Treble Damages Debarment Criminal Liability Benefit to Qui Tam Relator Page

Improper (False) Claims – Reporting Violations to the Government Amended FAR § 52. 203 Improper (False) Claims – Reporting Violations to the Government Amended FAR § 52. 203 -14(b)(3) – December 2008 • Contractors must “timely” notify Government of: 1) Violations of Civil False Claims Act (FCA) 2) Violations criminal statutes upon “credible evidence” of such violations 3) Receipt of “significant overpayments” from the Government • “Knowing failure” to timely disclose violation can lead to suspension or debarment; Amended FAR § 52. 203 -14(b)(3) – December 2008 • “FULL COOPERATION” in investigations; and • Mandate that certain previously excepted Contractors establish a compliance program and internal control system Page

IV. Contractor Licensing Page 25 IV. Contractor Licensing Page 25

IV. Contractor Licensing is a State-by-State Issue Types of License • • Professional, i. IV. Contractor Licensing is a State-by-State Issue Types of License • • Professional, i. e. , Architect or Engineer General (Main) Contractor Specialty Subcontract Construction Manager Failure to Have Proper License at Time of Contracting • • Page Bid Not Accepted on Public Contracts No Problem if License Obtained During Contract No Entitlement to Payment Criminal Proceedings

V. Public-Private Partnerships Page 27 V. Public-Private Partnerships Page 27

Public-Private Partnerships New to United States Only some states authorize, e. g. , Florida, Public-Private Partnerships New to United States Only some states authorize, e. g. , Florida, Georgia Projects with Revenue Potential • Toll Roads • Bridges • Water & Sewage Treatment Facilities Re-Coup Costs of Construction and Make Profit Page

VI. Freedom of Contract Page 29 VI. Freedom of Contract Page 29

VI. Freedom of Contract In Private Contracts, Few Limitations Nothing Comparable to German VOB VI. Freedom of Contract In Private Contracts, Few Limitations Nothing Comparable to German VOB In Public Contracts, More Requirements Some Exceptions • Prompt payment of subcontractors and suppliers • Indemnification against sole negligence – By Statute – By Case Law • Non-Enforcement of “No Damages for Delay” Clauses – By Statute – By Case Law Page

VII. Performance & Payment Bonds Page 31 VII. Performance & Payment Bonds Page 31

Performance & Payment Bonds Performance Bond – Outside (Insurance) Guarantee of 100% of Contract Performance & Payment Bonds Performance Bond – Outside (Insurance) Guarantee of 100% of Contract Value • Owner has direct recourse Payment Bond – Outside (Insurance) Guarantee for Payment of Subcontractor and Suppliers • Set at various levels • Subcontractor and Suppliers have direct recourse Required for All Public Contracts Usual Practice on Private Contracts Cost is. 75% - 2+% of Contract Value Page

VIII. Demise of Arbitration Page 33 VIII. Demise of Arbitration Page 33

Demise of Arbitration More Common in Private than Public Contracts Less Sophisticated than ICC Demise of Arbitration More Common in Private than Public Contracts Less Sophisticated than ICC or Other International Arbitrations No Right of Appeal Trend is to Non-Jury (i. e. judge only) Trials with Right of Appeal Should Be Contract-by-Contract Determination Depending on Many Factors • • Location of Project Likely Nature of Dispute Ability to Appeal Arbitration Amount of Discovery Many Problems Can Be Overcome by Drafting of Arbitration Clause Page

IX. Disputes Review Boards Page 35 IX. Disputes Review Boards Page 35

Disputes Review Boards Panel of Experts who Make Initial Determination of Claims Non-Legal Proceeding Disputes Review Boards Panel of Experts who Make Initial Determination of Claims Non-Legal Proceeding Not Binding Can Be Introduced Into Evidence in a Court or Arbitration Proceeding Page

X. Liquidated Damages Page 37 X. Liquidated Damages Page 37

Liquidated Damages are a good-faith pre-determined amount of loss applicable to a specified event, Liquidated Damages are a good-faith pre-determined amount of loss applicable to a specified event, e. g. , a day of delay Liquidated Damages are not a penalty as that concept is applied in Civil Law Jurisdictions Cannot be adjusted by Court or Arbitrator 3 Approaches Depending on State 1) 2) 3) Page Always applied unless shown to be a penalty Applied if a good faith calculation of amount is shown regardless of actual loss “Look Back”, i. e. , specified amount bears some reasonable relationship to actual loss

XI. Economic Loss Doctrine Page 39 XI. Economic Loss Doctrine Page 39

Economic Loss Doctrine Are Engineers and Contractors Liable to Parties with Whom They Have Economic Loss Doctrine Are Engineers and Contractors Liable to Parties with Whom They Have No Contractual Relationship for Purely Economic Losses? Purely Economic Losses = Increased Cost of Performing Work, Additional Overhead, Lost Profits Not Related to Personal Injury or Damage to Property 3 variations Depending on State • Never Liable • Always Liable • Liable only When the relationship is so close it is equal to a Contractual Relationship Page

XII. Waiver of Consequential Damages Page 41 XII. Waiver of Consequential Damages Page 41

Waiver of Consequential Damages = Those Not Reasonably Foreseeable at Time of Contracting, e. Waiver of Consequential Damages = Those Not Reasonably Foreseeable at Time of Contracting, e. g. , lost profits to Owner if contract not completed in time Generally Waivable in All States, But Must Be Explicit Page

XIII. Green Construction Page 43 XIII. Green Construction Page 43

Green Construction – Design and Construct with Minimal Negative Impact on Environment, e. g. Green Construction – Design and Construct with Minimal Negative Impact on Environment, e. g. , production of carbon dioxide Standards are Still Evolving; No National or Even State Codes Standards Set by Contract Owners Pay Premium Liability for Failure to meet Specified Standards Page

XIV. 50 State Survey Page 45 XIV. 50 State Survey Page 45

Questions? Page 50 Questions? Page 50