Forks High is slated for a upgrade. (Photo: Peninsula Daily News)

I have yet to be thrilled about any of the public works projects that are floating around this month. But, one bears mention.

It appears that Forks, WA is capitalizing on the success of Twilight, by adding a $12 Million face-lift to their high school. So, contractors in the state might want to check that solicitation out by following this link.

The plan is to recycle about 50% of the original 1925 building, while modernizing much of the interior of the school. Here is a quick blurb on the new design (courtesy of Peninsula Daily News):

The new 39,500-squarefoot school is comprised of double-loaded corridor classroom wings that branch off from the facility’s new administrative spaces and feature six new classrooms, two resource rooms, one multipurpose classroom, a self-contained special-needs classroom, a band and choral rehearsal room, a technology lab, a consumer science classroom, a health room and a student library, according to materials from BRLB.

If that doesn’t get you excited about construction in our great state, check out the new Husky Stadium digs. Our July 2010 “Solicitation of the Month” was awarded to Wright Runstad & Co, who put together an amazing video of the new project.

The video is a simulated “fly-over” of the newly designed stadium. You can see the video by following this link. Looking good, eh?

Labor Day - time for some rest.

Well, I’m sorry to have been missing over the past week. An unexpected family emergency sent me back East. So, I apologize for the lack of content.

But, I am back. I want to first wish you all a Happy Labor Day! (though a bit late) I hope that all my contractor readers took some time to relax and enjoy a day off with the kids, your family, or simply on your own. You deserve it.

Expect to see the regular flow of content this week. On Friday, I will be providing a guest post to Chris Hill’s Musings. You can read Chris’ amazing blog by following this link.

Thanks for reading!

Before you build - make sure your bond is adequate.

In an age where more and more contractors are making a foray into the realm of public contracting, we seem to see more confusion over what legal requirements the contractor must face. Today, I wanted to explore another legal dilemma – the public works bond.

In the past, we have discussed reporting your material sources, your bidding obligations, payment of Davis-Bacon wages, and how to file claims on public projects.

Yesterday, I noticed a great article from Mike Purdy, Washington’s own public contracting expert, discussing whether or not your payment and performance bonds must include the amount of sales tax on your work. Mike Purdy’s Public Contracting Blog is an amazing construction resource for Washington contractors.

Mike set out to answer the following question:

Should my bond include the amounts of sales tax that are added to a contractor’s billings for work on a public project?

Its an intriguing question, especially in Washington where sales tax rates might near 10%. Adding that much to a multimillion dollar contract can tack on a pretty penny in premium costs.

Knowing whether or not you need to cover that amount, can save you significant costs, or potential liability. If you have inadequate bonding, you might face liability for breach of contract and the excess not covered by your insufficient bond.

The bond obligation is set forth in RCW 39.08.030, which states that the Payment Bond and Performance Bond must be “in an amount equal to the full contract price agreed to be paid for such work or improvement.” So, the question is whether the full contract price includes these amounts.

Mike provides an excellent commentary on this issue. For purposes of not chopping it up – we will simply direct you to his wonderful article. The sum of it is that there are several ways of looking at this statute.

Your best bet as a contractor is to communicate directly with the governing agency and meticulously read the bid specifications. If the terms in the bid specifications are still unclear and ambiguous, as to this obligation, consult with your attorney and open a dialogue with the public agency who awarded the contract.

ConsensusDOCS' new release focuses on subcontract packages for federal projects

***This was originally posted on 4/8/2010.

The Associated General Contractors’ Newsletter reported that ConsensusDOCS, a leading collaborative organization who produces construction documents, has released its first ever subcontract agreement geared towards federal projects.

According to the release, the new document (#752) is compliant with the Federal Acquisition Regulation (FAR). The FAR governs what is called the “acquisition process,” which is the process through which the government purchases (“acquires”) goods and services.

From the newsletter:

ConsensusDOCS released the first standard subcontract designed specifically for federal government construction projects. The release is especially timely in light of the American Recovery and Reinvestment Act. ConsensusDOCS 752 provides all terms and conditions necessary to comply with the Federal Acquisition Regulation. In addition to being FAR compliant, ConsensusDOCS 752 includes all of the federally mandated flow-down provisions, while providing the same fair and balanced foundation as all of the other ConsensusDOCS contract documents.

Of course, I am interested in reviewing this document and seeing whether or not it takes a practical approach to handling the bevy of subcontractor obligations present on a federal job. Likely, it will need some tweaking over the next few years.

More discussion on warranty limitations in Washington state.

Back on August 9, I published a short article summarizing the ruling in a recent Washington Court of Appeals case (held before Division II). The case opinion in Mattingly v. Palmer Ridge Homes LLC concerns the disclaimer of home warranties and the effect of third-party warranty limitations.

Alan Middleton, an attorney at Davis Wright Tremaine, writes for Washington Construction Law blog. Alan put together a great summary of this same case, which I very much recommend. You can view his article by following this link.

Alan briefly sums up that that the “as is” limitation, in construction contracts and documents, will not waive express warranties without explicit reference to them. A brief snippet from his article:

Although the Mattinglys’ implied warranty claims were barred, their express warranty claims were not. An “as is” acceptance may bar implied warranties, but will not bar express warranties without explicit reference to them. Accordingly, Palmer Ridge continued to be liable for breach of the express undertakings in its construction contract — e.g., workmanship, compliance with codes, compliance with plans/specifications, systems in good working order. A claim for breach of express warranties nonetheless had to be brought within a year of “completion” or cessation of work.

Thanks to Alan for his great report on this lawsuit. If you want to read our original post, please follow this link.

The 1099 game does not always work. Watch out for unintentional employees.

There has been a long standing rule that unregistered contractors cannot recover payment of contract sums for construction work. The theory is that a person or entity cannot actually perform construction work unless they are registered. If they cannot legally perform the work – they cannot legally obtain payment if they do it. Its like asking to be paid to steal cars. It cannot happen.

But, over the past few year I have noticed an epidemic in the contracting world: Contractors hiring people as 1099 “contractors”. Unfortunately, the 1099 game is a dangerous one, which could land you in trouble with Washington’s Labor &Industries, Employment Security Division, Department of Revenue, and courts.

Its time to discuss this contractual fallacy and dispel the rumors that this is a way around paying workers.

The Unregistered Contractor & Its Claims.

Here is the likely scenario: You have a registered contractor. He gets work and needs to hire laborers. He decides that a laborer is cheaper as a contractor, where he believes that he can avoid payroll taxes, insurance and other liabilities. So, he seeks out and hires 1099 “contractors.”

Unfortunately, many 1099 “contractors” are not registered as contractors. If you are not registered, take on the role of a 1099 “contractor,” and perform construction work – you are generally perceived as an unregistered contractor. In this scenario, you cannot file a lien (See RCW 60.04.041) or a lawsuit to recover payment of your contractual compensation (See Stewart v. Hammond, 78 Wn.2d 216, 219, 471 P.2d 90 (1970)).

So, are workers left in the cold? Does the hiring contractor get off, without having to pay these workers? Probably not.

When You Are an Employee & Not an Unregistered Contractor.

There is one potential argument that you can make to obtain compensation – that you are an “employee” under state law. While it is true that an unregistered contractor cannot file a lien for contract sums unpaid, an employee can file a lien for its unpaid wages, seek a lawsuit for wage claims and even make a claim against a contractor’s bond. This is in addition to the many penalties that can be levied against a registered contractor for failing to pay benefits, insurance and wages to an employee.

There is a long line of cases that determine what defines an employee versus an independent contractor. The law has been created for the purpose of preventing employers from avoiding worker rights and skirting responsibility for workers compensation, unemployment insurance and proper wages.

But, its very difficult to determine whether a worker is an employee or contractor, what with several statutes to give us a definition.There are definitions of an employment situation within the statutes of the Contractor Registration Act (RCW 18.27.090(15)), Wage & Hour Act (RCW 49.48.082), Industrial Insurance Statute (RCW 51.08.070), and Unemployment Statute (RCW 50.04.080). Its not easy to tell when a worker is an employee.

In the end, its best to start with the old common law definition of “servant” when determining your role Massey v. Tube Art Display case is a good start. This case indicates that there are several factors to consider when determining whether or not you are an employee or contractor. The list is a bit extensive for listing here, but Massey noted that the single most important factor is control, or supervision. If you are supervising these workers directly, then they might be considered employees.

In most circumstances, a contractor laborer is an employee.  L&I has even established a 5 point test for determining whether the worker meets the threshold for wages, workers compensation and unemployment. Though L&I’s publication does not perfectly meet the tests established by the courts, its a good start to determining whether a worker is an employee.

A hiring contractor should ask itself the following 3 questions:

1. Is the worker bringing other workers or heavy equipment? If yes, then the hiring contractormight be ok, if the hiring contractor is compensating them beyond wages, they are supervising themselves, they are providing something more than just labor, and they comply with #3 below. If not, proceed to #2

 

2. Is the hiring contractor supervising or exerting control over the workers? Supervision is direction or control over the work. If yes, then the hiring contractor is most likely the worker’s employer. If no (it is not ok to simply rely on the worker’s registration as a contractor), proceed to #3.

 

3. Does the worker have an established business? Even if you make it through those hoops, the hiring contractor will need to comply with the proper business activity prong. This requires that the worker has an independent business, supervises itself, a separate office location, its own books, pays taxes and, most importantly, its properly licensed and registered as a contractor. If these all apply – the worker is probably a contractor.

In most cases, an employment relationship is the general outcome. 1099 “contractors” are often hired to provide strictly labor and cannot meet all the prongs of a proper business. If that is the case, the worker may be exempt from contractor registration obligations under RCW 18.27.090(15). If the worker is exempt, it may have recourse to recover wages and may file a lien for the performance of labor on a construction job.

Liens & Bond Claims for Unpaid Wages to Employees.

If a worker is deemed to be an employee for purposes of insurance and wages, there are several resulting concerns for the hiring contractor:

 

Pay Wages – The employer must comply with the Wage & Hour Act in paying the contractor. This means meeting minimum wage and overtime requirements.

 

Pay Industrial Insurance – The employer must report the worker’s hours and pay premiums to cover the worker’s time on the job.

 

Pay Unemployment – The employer must report the worker’s hours and pay premiums to cover the worker’s time.

 

Face Wage Complaints & Lawsuits – The employer may face a wage complaint via L&I or a lawsuit in a court of law. Claims under $5,000.00 can go before a small claims court and most of the time the hiring contractor will be responsible for additional penalties and attorneys fees.

 

Face Liens & Bond Claims – The worker may file a lien against the job and seek recovery against the hiring contractor’s bond.

The lesson of this article is that there are major concerns for hiring contractors and that there is hope for unregistered laborers being forced into 1099 relationships.

The Lesson for Hiring Contractors

Contractors should take care to ensure that they do background checks on their 1099 contractor workers, to ensure that they have an established business that is registered. A subcontractor agreement should memorialize the 1099 contractor’s obligation to supervise itself and its workers.

The Lesson for Unpaid Workers

Laborers who have been taken advantage of by contractors should know that they do have rights to recover their wages. They should consult with an attorney, immediately after being denied payment. Remember, you only have 90 days from your last day of work to file a lien, and preserve your right to payment.

Taxes of any kind can cause problems for your business. There's a new tool that can help you decide whether you owe WA taxes for your construction services.

Are you an out of state business that works or sells products in the State of Washington? Then you might need to register with the Department of Revenue (DOR) and pay taxes.

Unfortunately, it has been my experience that gobs of out of state contractors and suppliers have no idea that they might be on the hook for Washington Business & Occupancy Taxes. There is some indication that most of these businesses believe that they are only required to both register as a contractor and pay taxes in their home state. But, if you are physically performing construction work in the State of Washington – you probably need to register as a contractor with L&I and setup a tax account with the DOR.

It can sometimes be difficult to determine whether or not you fit within the definition of a business that owes taxes to the State of Washington. The State of Washington has established an “economic nexus” test for service business (businesses that sell services and not personal property), but he test may be difficult for most out of state businesses to understand. Luckily, the DOR has developed a worksheet to help you figure that out.

Joe Wallin, an attorney at Davis Wright Tremaine LLP, runs a resource-packed blog for startups and small businesses. Recently, Joe reported that the DOR has released a standard worksheet for determining whether or not your business meets the State’s “economic nexus” test. The worksheet can be found at the DOR’s website, by following this link.

Joe has also cautioned readers that you should not rely on the worksheet to determine your responsibility for taxes. There is Washington Supreme Court precedent that provides that a business cannot rely upon DOR interpretations of the law. Take a gander at Joe’s brief article to learn more about the limitations of the worksheet.

All in all, its nice to see that the DOR developed a tool that can translate the new “economic nexus” test into a language that we can all understand.

Monitoring your site - becoming the norm. Monitoring your labor and materials - now a possibility.

I came across some very interesting information on new construction job monitoring software that might be a good look for contractors. In the past, we discussed the emergence of construction monitoring software that can reduce your risks on the job site. Increased monitoring and data recording might save your company from costly injury disputes, missing material bills, and other job site specific issues.

In our past article, we  profiled Projectmates, a software which enables a contractor to do the following:

Projectmates also lets users perform additional construction management tasks such as analyzing workflow, two-way bidding, and even tracking project costs. Project executives don’t even necessarily have to be at the office to view images from the OxBlue cameras or log into Projectmates because the Web-based application can be accessed from any Web-enabled computer or mobile device.

But, today I saw an article about new technology from Data-Maxx and TeraHop that will enable contractors to review employee and asset location and activity. While it might sound a little “Big Brother”, its not nearly as invasive as it might be. Instead, the software allows contractors to reduce excess infrastructure and overhead of phones, computers, etc., by allowing the contractor to monitor continuous movement of labor forces, materials and equipment.

From their site:

The combination of these two technologies will enable construction companies to increase visibility of employees and equipment onsite. By being able to monitor these resources, companies can work to eliminate cost overruns and audits.

Truly, use of this technology might have a profound effect on limiting your costs and liability. The goals of reducing overhead, streamlining activity, grabbing facts and ensuring timely and efficient performance might never be more easy and effective.

Mandated on Public Works?

This was something I mentioned last time. It is a novel idea – but I think a very good one. Video monitoring might become more of a consistent thing if public entities began to mandate use on their projects.

Like contractors, public entities encounter a variety of major risks on the job site. We have tried to eliminate risk through bonds and guaranties – but what about monitoring to eliminate factual inaccuracies and holes? What about having better ways to obtain performance evaluation? What about allowing government access to the equipment and materials that are on their job sites?

Its all a big change and potentially frightening to many of you. But, this is certainly a question that will come up in the future, as monitoring systems become cheaper and more accessible.

Seattle's Division 1 Court of Appeals raised some eyebrows, questioning the Williams v. Athletic Field decision

Division 1 took on two very intriguing issues in the lien world: (1) reformation of lien releases based on mistake and (2) the ruling in Williams v. Athletic Field. The ruling in North Coast Electric Company v. Seattle Construction Services, Et Al. is a great read for any construction lawyer, contractor and lien agency.

Though the court somewhat sidestepped Williams (the question of improper attestation was not properly raised), it did offer a compelling peak at the ruling. You could easily infer that Division 1 will not follow Williams, if in fact it is ever faced with the issue.

Below is a brief synopsis of the case and the findings.

The Brief on the Facts

The facts are as follows:

1. A subcontractor, North Coast, has been delayed payment from a general, Seattle Construction Services (Sea Con).
2. After demanding payment, Sea Con agreed to deliver payment for outstanding invoices through May 24, 2002.
3. Upon delivering payment, Sea Con issued a lien release covering payments due through June 30, 2002. North Coast signed.
4. Immediately after noticing the problem, North Coast contacted Sea Con and asked that it be corrected. Sea Con refused.
5. North Coast later filed a lien in September 2002 and filed an action to foreclose, seeking reformation of the lien release so that it could recover its payments due from May 24, 2002 on. Sea Con opposed the reformation, but failed to raise issues of defects in the lien.
6. North Coast won on its lien, but the trial court dismissed its reformation claim, asserting that it could only recover from June 30th on. North Coast appealed the dismissal of reformation. It was remanded and the trial court ruled in its favor.
7. Sea Con now appeals on the reformation issue, but also raised issues of defects in the lien.

Reformation of Lien Releases

The main portion of this case, and the primary issue on review, was the reformation of a lien release based on mutual mistake and unilateral mistake. Division 1 essentially stated that the trial court made its finding based upon one or both of unilateral and mutual mistake.

The Court followed the mutual mistake rule in reviewing the trial court finding. The rule: (1) both parties to the instrument had an identical intention as to the terms to be embodied in a proposed written document, (2) that the writing which was executed is materially at variance with that identical intention, and (3) innocent third parties will not be unfairly affected by reformation of the writing to express that identical intention. Leonard v. Wash. Employers, Inc., 77 Wn.2d 271, 279, 461 P.2d 538 (1969).

Here, it was clear from the testimony that both parties had agreed to compensation for invoices issued through May 24 only, and thus the evidence supported a mutual mistake. The Court properly reformed the lien release agreement to cover the proper period.

Validity of Attestations in Liens: A Comment on Williams v. Athletic Field

The most important, or at least intriguing, portion of this opinion is a footnote, challenging the application of Williams v. Athletic Field. As you might know, Williams was reported here earlier this year.

The Williams case involved a Division 2 ruling that a lien was invalid because of an improper attestation, where a corporation executed the lien as an individual – not a corporation.

Here, Division 1 ruled that the improper attestation argument was raised late, amounting to a collateral attack on an earlier obtained judgment. But, they were interested enough to make a revealing comment on the case in Footnote 4:

We also question the result in Williams. Division Two relied on a case where the Court of Appeals had invalidated a lease, because the lessor acknowledged a lease using the individual rather than corporate acknowledgment form. Williams, 155 Wn. App. at 444 (citing Ben Holt Indus., Inc. v. Milne, 36 Wn. App
468, 472 — 73, 675 P.2d 1256 (1984)). The court in Ben Holt determined that both the acknowledgement and the underlying instrument were invalid. 36 Wn. App. at 472 — 73. In the lien context, however, there is a strong statutory directive that “RCW 19.27.095, 60.04.230, and 60.04.011 through 60.04.226 . . . be liberally construed to provide security for all parties intended to be protected by their provisions.” RCW 60.04.900. This directive clearly applies to RCW 60.04.091. See, e.g., Northlake Concrete Prods., Inc. v. Wylie, 34 Wn. App. 810, 818, 663 P.2d 1380 (1983) (explaining the Legislature’s intent that “‘the lien laws shall be liberally construed with the view to effecting their object’” meant that “‘when it has been determined that persons come within the operation of the act it will be liberally applied to them.’” (quoting De Gooyer v. Nw. Trust & State Bank, 130 Wash. 652, 653, 228 P. 835 (1924), aff’d, 132 Wash. 699, 232 P. 695 (1925))). The Williams decision does not take this directive into account. Neither the signor’s identity nor his authority is at issue here, only technical compliance.

 

The insinuation is that Division 1 judges believe that Division 2 missed the boat in deciding Williams. The Court seems to be set on deciding that the lien statute must be liberally construed to protect the persons “intended to be protected by its provisions.”

Of course, this is a different cry from the normal feeling that the lien statute is to be strictly construed, in derogation of the common law. But, as it pertains in these limited circumstances cited above by Division 1, I believe that they have it right. If the issue appears before Division 1, or the Supreme Court, we may have a different result from that in Williams.

Avvo Legal Guides are great resources for contractors looking for quick legal information

We went ahead and published a new legal guide on Avvo.com today. The new guide is called How to Make a Claim Against a Washington Contractor’s Bond. The guide lays out a five step process to bringing a claim in Washington courts. Check it out by visiting this link.

Reiser Legal has published several legal guides over the past few years. Avvo is one of the nation’s leading legal resources. It brings consumers up close and personal with attorneys across the country, who answer your questions.

In the past we have published many “how to” articles for contractors, including How to Protect and Secure Your Goods in a Business Transaction, Worker Injury: Avoiding Exposure to Liability for Subcontractor Employees, and Perfecting Your Lien: The Material Supplier’s Guide to Filing Liens in Louisiana.

Check out some of the resources we have published on our profile at Avvo.