Paradoxes

For the past six months or so, I've been using ConsensusDOCS agreement forms wherever I can reasonably do so ---- meaning that I'm using them for projects on which there is not an owner or architect who insists on using AIA documents. I usually represent owners, have used many AIA standard form agreements over the years (with modifications) and continue to use them.



But where there is not a vested interest in staying with AIA forms, I have tried to use ConsensusDOCS, because my twenty-plus years of experience as a construction lawyer has demonstrated that the premise on which they are based is valid --- a collaborative rather than an adversarial relationship among project participants will, without fail, result in more successful projects.



It is distressing, then, to say the least, to read in a recent Engineering News Record (June 29, 2009) that slow pay has now become a huge issue for contractors and subcontractors throughout the construction sector and in all parts of the country. Pay cycles for contractors have stretched from the customary 30 days, to 45 or 60 days. For subcontractors, pay cycles of 90 days are common. In addition, contractors and subs report that retainages are being held beyond any reasonable time frames, and change orders for indisputably changed work are more frequently being withheld by owners.



It is truly paradoxical that while the ConsensusDOCS are being endorsed by many and varied industry participants (including owners, contractors and subcontractors), the reality is that the economic straits in which we exist make it all but impossible to forge the collaborative relationship the documents contemplate and on which they are based. (This entry published by Karen Estelle Carey, a construction attorney and member of Womble Carlyle's construction group.)

ConsensusDOCS for Public Contracts? Yes, In South Dakota

It will be interesting to see how quickly South Dakota begins using ConsensusDOCS for public contracts after the February 2009 legislation permitting the use of the "ConsensusDOCS 200 Standard Agreement and General Conditions Between Owner and Contractor." It seems safe to assume that the South Dakota chapter of the AGC will be working hard to encourage the use of this contract form, and indeed, it probably is in use now for some public projects.




Several press releases covering passage of the law permitting the use of ConsensusDOCS 200 hailed the law as revolutionary in showing other states how to have a better and more efficient contracting process (for one such release, click here). This could be true, if the ConsensusDOCS 200 is used pretty much "as is". However, H B 1212, the law that gives permission for the use of the form, also provides that any public corporation can modify or delete any portion of it. As with most other things like this, the devil will be in the details of what changes a given public corporation makes to the form. (Post published by Karen Estelle Carey).

How do you measure damages when a construction blunder saves an owner $200 million?

A recent story out of Las Vegas, covered in the NY Times, poses an interesting question for construction and real estate lawyers ---- what would be the measure of damages for defective construction, the result of which is estimated to save the owner at least $200 million?

The Harmon hotel tower, part of MGM Mirage's acclaimed $9 billion development called the CityCenter, had been designed as a 48-story tower, the upper 20 floors to be luxury condominiums. But recently it was discovered that the rebar installed in the concrete beams in the first 15 stories already constructed had been positioned incorrectly, and could not safely support a 48-story tower. Correcting the problem would involve extensive and very expensive demolition and rebuilding.

So MGM Mirage made the decision to top out the building at 28 stories, and not build out the 200 condo units planned for the upper stories --- resulting in a savings estimated at $200 million. And also not being stuck with a lot of unsold condos in the very soft Las Vegas market. The chairman of MGM Mirage said "It takes pressure off of selling more condominiums; it takes pressure off of occupying more rooms."

The measure of damages for defective construction is normally the cost to repair the defective work. However, if the cost to repair is so enormous relative to the value of the structure that it would constitute economic waste to fix it ("economic waste" is a term of art with varying meanings depending on the facts and circumstances), then the measure of damages is usually the diminution in value of the structure.

Under these facts and circumstances, it appears there is a good argument that demolishing and rebuilding the existing 28 stories correctly would constitute economic waste, and that the appropriate measure of damages is the diminution in value of the hotel tower. But this appears to present a problem. In the absence of any obvious market for condos in Las Vegas these days, has the value of the building really been diminished at all?

It would seem not.

But there is something else to consider. The Harmon will be the closest building to the Strip in the CityCenter, so the shortening of the tower is going to change how the development looks. It seems that a lot of work has become necessary to figure out what the new skyline of the CityCenter should be and to satisfy City government on that score. Maybe that's the way to approach the damages calculation.

To read the articles in the NY Times, click here and here. (This blog was published by Karen Carey, a member of Womble Carlyle's Real Estate Development and Construction Law practice groups.)

Employee Free Choice Act Reintroduced; Battle Lines Are Already Drawn

On Tuesday, March 10, George Miller (D-CA), Chairman of the House Education and Labor Reform Committee, introduced the Employee Free Choice Act (H.R. 1409). Asserting that the bill would “give workers the ability to stand up for themselves” and heralding the effort as a key component of economic recovery, Chairman Miller insisted the EFCA would restore employee rights. Co-sponsor Tom Harkin (D-IA) explained, “just as the National Labor Relations Act, the 40-hour week and the minimum wage helped to pull us out of the Great Depression and into a period of unprecedented prosperity, so too will the Employee Free Choice Act help reinvigorate our economy.”

The bill, essentially the same as one passed by the House but killed in the Senate two years ago, faces a stiff fight. Although President Obama has pledged his support to the legislation, employer organizations have mobilized a well-coordinated campaign to highlight what they perceive as significant weaknesses in the Act, also countering with their own proposal, the Secret Ballot Protection Act. To make matters even more confusing, on March 11 Joe Sestak (D-PA) proffered yet another alternative, the National Labor Relations Moderation Act (H.R. 1355), which Congressman Sestak describes as a “middle ground” compromise to preclude a divisive confrontation. As the rhetoric on either side escalates, examination of the key features of EFCA is essential.

To read about the key features of EFCA, continue here.

(This entry was published by Charlie Edwards, a member of the firm's employment law practice group.)

Real Estate Developers Ask for a Bailout

The WSJ and the Washington Post report that some of the country's biggest commercial property developers have sought out government assistance as debt comes due.

Although the numbers vary by source, roughly $530 billion in commercial mortgages will be coming due in the next three years, with $160 - $400 billion coming due in 2009. Delinquency rates have begun to rise as rent prices fall and vacancies rise for commercial properties; despite the rise, delinquency rates are still below historic levels (i.e the vast majority of these loans are performing).

The problem is these types of loans are underwritten for five, seven, or 10 years with a balloon payment due at maturity. At maturity the loan is typically refinanced by the property owner. But the credit markets are virtually frozen (in large part because hardly anyone is securitizing commercial mortgages) and little, if any credit is available for refinancing (except for loans being made by HUD, Fannie Mae, and Freddie Mac).

To address this problem, property owners are asking the Treasury and the Federal Reserve to include the commercial real estate industry in the $200 billion loan program to rescue the consumer debt market, money intended to help investors purchase securities backed by those assets. Property owners hope that including commercial real estate will encourage banks to refinance mortgages coming due because the banks could securitize the mortgages. Some property owners have gone one step further and asked the Treasury to set up a separate fund just for commercial real estate.

The Treasury and Federal Reserve have said they will consider including commercial real estate in the $200 billion loan program.

Unfortunately, including commercial real estate in this loan program may not be enough to save the industry if only $200 billion is available and $160-400 billion in loans are coming due in 2009. Even if the program includes enough money to cover commercial real estate, Lenders may not be able to underwrite the loans; they may not be able to accurately price the assets because of plummeting property values.

Family Online Safety Institute (FOSI) Releases Online Safety Proposals

The Family Online Safety Institute ("FOSI") released its report Making Wise Choices Online in which it provides a survey of ongoing initiatives to ensure the safety of children using the Internet as well as four policy proposals for the coming Administration to consider. The release coincides with the Second Annual FOSI Conference, held today in Washington, D.C., themed "Safe At Any Speed: Rules, Tools & Public Policies to Keep Kids Safe Online."
Womble Carlyle is pleased to have sponsored the FOSI Conference and to have forged a friendship with this organization.

Click here to learn more about FOSI's Internet safety proposals.

Entrepreneur Removes Home From the Power Grid with the Help of LEDs

Eric Taub of the New York Times posted an interesting story this morning about Dean Kamen, the eccentric inventor of the Segway scooter. Mr. Kamen owns a small, three-acre island off the coast of Connecticut where he built his home, and he recently decided to take his entire island off the power grid--that is, produce his own electrical power (in this case through wind and solar).

To do that, Mr. Kamen had to dramatically reduce his power consumption. He accomplished that goal by using LEDs, or light-emitting diodes, to light his home's interior and exterior. Mr. Taub explains that an LED light fixture uses one-fifth to one-tenth of the power of a standard incandescent fixture. As a result of this change, Mr. Kamen was able to reduce energy consumption in the house by 70 percent. As an added benefit, the bulbs will not need to be changed for years.

The downside of this switch is cost. Although the price of LED fixtures are dropping, they are still significantly more expensive than an incandescent fixture. For that reason, it may be years before builders use this technology in spec homes and buildings.

Source: New York Times

Infrastructure Projects In the Obama Administration --- a Bright Spot In An Otherwise Gloomy Future

From the early days of his presidential campaign, President-Elect Obama has emphasized the importance, and priority, of rebuilding our nation's infrastructure. At first, this was not particularly tied to the goal of job creation, or at least that part of the equation was not stressed. But as the economic downturn spiraled out of control in the past months, rebuilding infrastructure became explicitly tied to creating a large number of new jobs.

State and local governments are very much on board with investing in infrastructure, and doing it quickly. At a meeting of the National Governors Association earlier this week in Philadelphia, the governors told Mr. Obama that over $130 billion worth of infrastructure projects have already won regulatory approval and just need funding to "get the shovels in the ground". Thousands of jobs could be created if these projects could get underway.

It seems that the specific types of projects mentioned most frequently are roads, bridges and schools. This is certainly good news for construction companies who are in the business of horizontal construction and manufacturers of road and bridge-building materials. It is also good news for the many construction companies who have long done business with local counties and school boards.

There are other kinds of infrastructure projects that also should be undertaken --- light rail and other forms of mass transit, wide-ranging installation of broadband, and other things that are badly overdue and will help move our country forward. To read more about President-Elect Obama's conversation with the governors about this subject, click here. (This blog entry was published by Karen Carey, a member of Womble Carlyle's construction law and real estate development practice group.)

AASHE Conference Highlights Sustainability Agenda, Colleges and Local Governments

The second biennial conference of the Association for the Advancement of Sustainability in Higher Education (AASHE) was held at the new Raleigh (NC) Convention Center from November 9-12. The purpose of the conference was to provide a "unique opportunity for every sector of higher education in the United States & Canada to come together to demonstrate how colleges and universities can lead the way to a sustainable future." AASHE lined up host institutions Appalachian State University, Duke University, North Carolina State University and the University of North Carolina at Chapel Hill with the theme of "working Together for Sustainability -- On Campus and Beyond." Admission also included a tradeshow highlighting sustainable solutions from a range of providers from Cree, Siemens and Duke Energy to Aramark, Ecolab and Johnson Controls.

The stated goals for the AASHE conference were to:

• Advance sustainability practices on campus and beyond through partnerships and collaborations.
• Increase the integration of social responsibility & social justice into mainstream campus sustainability.
• Promote new pathways for elevating sustainability education and student leadership development.
• Magnify the role of campuses as responsible members of communities, both local and global.
• Involve a wider range of participants in advancing sustainability in higher education.

Further conference detail may be found at http://www.aashe.org/conf2008/schedule.php.

As reported in The Chronicle of Higher Education, the closing panel highlighted ways that colleges and other sustainability interests can work with local governments. Speakers included moderator Jim Elder, the director of the Campaign for Environmental Literacy, the clerk of courts from Miami-Dade County Florida, the mayor of Chapel Hill and Debra Rowe, a professor at Oakland Community College. Professor Rowe, "who is famously involved in countless sustainability organizations and efforts, said that many campus career offices don’t tell students about the sustainability jobs that city governments will need to fill in the future. Sustainability advocates, she said, should use that potential demand to push sustainability education on campus." (This entry published by Liz Riley, a member of Womble Carlyle's construction and real estate development practice group.)

Ten Battle-tested Rules for Communicating Well in Hard Times

The line of organizations delivering bad news these days is a long one. And with the financial market challenges causing a ripple effect across the broader economy, that line may be long across America for some time. Communicating tough news is an unenviable task, and legal advisers are increasingly called upon to guide clients through the delivery of news that can be jarring: layoffs, declining profits, product recalls and ethical breaches, to name a few. Henry Fawell, a Strategic Communications consultant at Womble Carlyle based in the firm's Baltimore office, outlines how you can communicate effectively as an organization during difficult financial times.

Click here to read more...

Architects Feel the Hit

A recent article in Architectural Record describes the economic downturn's effect on design firms, and the gloomy forecast for the forseeable future. According to the article, retail and hotel building will fall 10 per cent in 2009, with office construction constricting by 12 percent. While some regional banks for still making loans for projects that are not speculative, even this activity is undercut by fundamental problems in the construction industry, one of the most important being the steep rise in prices of construction materials.

Institutional projects are being impacted as well. Public projects are typically financed by bonds, and voter support this year is extremely uncertain. As for private schools, endowments are typically invested in the stock market, the volatility of which is front page news every day.

The article finds one potential bright spot --- for firms that are able to diversity with international projects. Since this article was published (October 15, 2008), however, it has become painfully clear that the economic downturn is global. To read the entire article, click here. (This entry published by Karen Carey, a member of Womble Carlyle's Real Estate Development and Construction Law practice groups.)

Housing Construction Decline Hits Long-time Construction Supply Company

Stock Building Supply, established 86 years ago in Raleigh, North Carolina as Carolina Builders, "is slashing 3,000 jobs and closing 86 facilities in six states as it struggles with the biggest housing slump in more than six decades" reports the News & Observer. Parent company Wolseley Plc (UK), made the announcement on October 23. The story notes that other building suppliers are also cutting back as a result of the economic slowdown, although the Triangle and Charlotte may fare better than other areas such as Florida, California and Louisiana. (This entry posted by Liz Riley, a member of Womble Carlyle's Real Estate Development and Construction Practice Group.)

Zero Trans fat Homes?

Michelle Kaufmann, an architect known for her line of prefab homes, recently proposed a standardized "nutrition" label to communicate the benefits of a green building to potential buyers. She notes that we traditionally buy a home based on qualities like location, curb appeal, size, and upfront costs, but exclude important factors like sustainability, healthfulness of the indoor environment, and the cost of operating a home.

The purpose of the sustainability label is to quantify the advantages of a green home in easy to understand terms. Her proposed label, similar to the nutritional label found on packaged food products, lists key figures such as energy consumption, carbon dioxide emissions, and insulation values. The label would allow consumers to compare the long-term cost benefits of homes on the market and a home's contribution to improving the environment. In the same way that nutritional labels have changed the way people buy food (for example, the recent push for zero trans fats), Michelle Kaufmann hopes that a standardized sustainability label will change the way people buy homes.

The label could also be married to existing green building standard, such as LEED. The LEED distinction on the label would promote USGBC's brand, and listing key figures on the label will help distinguish a LEED building from one built using traditional building standards.

For more information and an example of a "sustainability label" see Michelle's blog entry and her whitepaper.

House Energy Bill Seeks Improved Energy Efficiency and Green Development for the Built Environment

On Tuesday of last week, the U.S. House of Representatives passed the much talked about energy bill, H.R. 6899, by a vote of 236 to 189. Politicians and the press have spent a great deal of energy focusing on this year's hot button issue, offshore drilling, but the bill also includes a number of provisions that could have an impact on sustainable development and construction. For example, Title VI of the bill is a reformulation of a bill originally proposed by Rep. Ed Perlmutter (D-Co) last spring, the Green Act of 2008.

Among other things, Title VI seeks to cause a 20% reduction in energy consumption for single and multifamily structures built or rehabilitated with HUD assistance; creates an energy efficiency demonstration program that applies to multifamily properties in certain enumerated federally assisted program (e.g. Section 8); establishes incentives for increasing the energy efficiency of multifamily housing, including discounts on premiums for mortgage insurance and allowing mortgages to exceed certain dollar amount limits prescribed by law; and authorizes HUD to make grants to states, cities, and counties to carry out energy efficiency programs for new and existing multifamily housing.

Rep. Perlmutter stated in a recent press release, "The Green Act measures will help revitalize our economy by making energy efficiency practices more affordable, accessible and achievable by consumers, businesses and government entities. By prioritizing energy efficiency practices, we can ease the woes of homeowners, lenders, financial markets, builders and our environment."

Earlier this summer, Karen Carey summarized the testimony of representatives of the National Multi-Family Housing Counsel (NMHC) and the National Apartment Association (NAA) who offered a number of recommendations to improve the original Green Act of 2008. Some, but not all, of these recommendations were incorporated into Title VI, such as including the new National Green Building Standard as one of the applicable green building standards. See Karen's entry on Womble Carlyle's Multifamily and Mixed Use Development Blog for a summary of the other recommendations and a link to the full testimony.

Sen. Saxby Chambliss (R-Ga) predicted that the House energy bill would go nowhere in the Senate. The Senate intends to unveil its own energy bill before it recesses next week, but does not intend to address it until after the November elections.

Sources: HR 6899, Atlanta Journal Constitution