Constructing In Accordance With All Applicable Laws...

Provisions requiring contractors to comply with "all applicable federal, state and local laws, regulations and ordinances" are found in most construction contracts (and probably all that have an attorney advising the owner), and they seem to be accepted without difficulty by contractors. Similar provisions are frequently found in design contracts, and while these seem to get a bit more scrutiny by the designer these, too, are usually accepted.

A lawsuit filed on April 27, 2006, in the United States District Court in Maryland, against a national developer of apartment buildings alleging discrimination against the disabled for designing and constructing apartment buildings that do not comply with the Fair Housing Act and the Americans with Disabilities Act illustrates the importance of these contract provisions to owners, designers and contractors. The lawsuit asks the court to require the developer to bring its existing buildings into compliance, change it designs so that future buildings will comply with these laws, and pay actual and punitive damages.

It would be surprising if all parties involved in the development, design and construction of the projects at issue were not brought into this lawsuit to participate in its resolution. The case is Equal Rights Center v. Equity Residential, 2006 WL 1352765 (D.Md.).

Public School Districts and Private Developers Consider Opportunities for Long-Term Lease of Privately-Constructed Schools

A July 27th article in the Raleigh News & Observer suggests that local public school planners and private developers are wasting no time in seizing a new opportunity to enter long-term leases of schools to be constructed by private developers. The new private construction/public lease arrangement could help ease acute school construction needs under legislation recently passed by North Carolina's General Assembly. For the full story, see here.

For a summary of the legislation, which was presented to Gov. Easley for signature on July 18, see here.

-Liz Riley

NC House Bill Will Impact Bonding for Government Construction

As noted by the North Carolina School Boards Association ("NCSBA") in its Legislative Update for July 21, 2006, "HB 2793 Additional Surety for Public Construction was re-referred from the House Appropriations Committee to the House Judiciary II Committee on Thursday. This bill authorizes the use of individual sureties and qualified financial institutions, in the form of an irrevocable letter of credit, for performance and payment bonds for large State or local government construction projects. Under current law, only surety companies can execute these bonds. NCSBA is strongly opposed to this bill as it is problematic for public owners." For the full text of the bill see here.

While I understand the reservation expressed, I wonder if NCSBA understands how much the surety industry has contracted and how limited surety capacity is- especially at the high-end/large project level. Partial bonding is often all that is presently available on the large cap job from the traditional market. As well, many would contend that with the limited surety capacity and the industry's efforts to recoup the significant losses suffered from the last several years, through increased asset collateralization requirements and increased premium, many smaller constructors simply cannot get the bonding they once could.

While the present draft of the legislation may not be all that one might wish, the status quo for meeting bonding requirements for public projects is not either.

-John Springer

Public-Private Financing Now Available to Build K-12 Schools in NC

Under a bill passed Monday by the North Carolina legislature, developers would be able to build K-12 schools and lease them to local governments for decades. School districts in North Carolina can already lease buildings, but not ones that were built just for them. This legislation gives school districts another option for getting new classrooms without a bond referendum. The bill has passed the Senate and the House and now awaits the governor's signature.

Public-private partnerships to build schools have been tried in Virginia, Maryland and South Carolina in recent years, and such financing has been available at the university level in North Carolina and many other states for quite some time.

The legislation is written to effect a state-wide program. A school board could ask developers for proposals for schools in a particular area. Developers would come up with the site, design and funding. The school board and county commissioners would then select among proposals. Alternatively, a school board could ask for proposals for development of a piece of land it already owns.

Although the build-own-operate and lease system could give developers more influence over locations and designs, the school district and county commissioners still would have the final say.

Senate Bill 2009 and the new Article 37 of Chapter 115C of North Carolina General Statutes, specifically new Sections 115C-531 and 532, are available online.

Defective Work

Defective work is the subject of the controversy. What buckets of recovery are there? The Contractor, the subcontractor, their surety and/or their insurers. Making a prompt determination of who may be called upon and when can be critical to timely resolution of the problem and completion of the work, and, recovery from available sources of relief. For a good article on just how complex the interplay of insurance and surety can be, see Patrick J. Wielinski, Cokinos, Bosien & Young's article, Claims Involving Complex Construction Defect Claims Involving Performance Bonds and Insurance: Who Pays First?- Part 1.

Call us. We can help.

Economic Development and the Future of Eminent Domain

The Engineering News-Record reports that "President Bush has weighed in on the debate over the use of eminent domain to spur economic development projects." Lawyers and members of the construction industry alike will remember last year's Supreme Court decision in Kelo v. New London, 125 S. Ct. 2655 (2005), permitting the city of New London to use its eminent domain power to condemn private property for economic development. Now President Bush has issued an executive order prohibiting federal agencies from seizing property through eminent domain for economic development. Last year the House passed a bill cutting aid to states that exercise eminent domain power for economic development. That bill is now before the Senate Judiciary Committee. For further discussion, see articles from ENR and The Washington Post.

This issue is also being addressed at the state level in Raleigh, N.C. A bill intended to prohibit eminent domain for economic development unanimously passed the state House and is now pending before the Senate. The bill would limit eminent domain to public uses allowed under existing law (such as construction of public roads and installation of utility lines). For a discussion of the N.C. bill, see here.

Cutting corners or cutting red tape in North Carolina public projects?

The N.C. state Senate appropriations committee has given preliminary approval in a 46- 3 vote to a bill that would exempt UNC campuses from the often protracted construction reviews performed by the Department of Insurance. Citing public interest, the Departments of Insurance and Administration oppose the legislation. The question is why? The projects are designed by licensed professionals, and built by qualified contractors. Public inspectors who regulate safety issues are ever-present, and must be satisfied. So, where costs are spiraling out of control and time is money, is the Insurance Department review redundant? At least 46 North Carolina senators think so.