Construction Law Signal - Insights & Information on Current & Emerging Developments affecting the Construction Industry

On April 11, 2013, the United States Small Business Administration (SBA) announced that $19 million in grants will be made to SBA resource partners to support small business recovery in the wake of Hurricane Sandy. The funding is part of a package approved by Congress in January to meet the demand for expanded SBA assistance including counseling, training, and technical assistance through Small Business Development Centers (SBDs), SCORE, and Women’s Business Centers (WBCs).

The first phase of the counseling and technical assistance funding totals $5.8 million, and will be distributed among the SBA resource partners in 11 states. The majority of this funding will be focused in New York ($2,394,000), New Jersey ($1,385,000), Connecticut ($527,000), and Pennsylvania ($410,000).

The second phase of funding, totaling $13.1 million, will be issued through the SBA resource partners to provide long-term small business recovery and expansion, with an emphasis on building creative community-based partnerships.

The SBA has so far approved disaster loans totaling $1.8 billion to individuals, and $279 million to businesses and non-profits recovering from Hurricane Sandy.

Shawn R. Farrell is a Partner in the Construction, Labor & Employment and Insurance Groups at Cohen Seglias Pallas Greenhall & Furman PC.

Peter Plevritis is an Associate with Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. He focuses his practice on complex construction litigation.

By: Tony Byler and Daniella Gordon

Suppliers frequently provide supplies on lines of credit to contractor customers who are involved in multiple construction projects.  In an ideal world, both the customer and the supplier would maintain accounting records keeping each construction project and the payments attributable to those construction projects separate and accurate.  Out of practical convenience, however, contractors and the suppliers sometimes lump projects and payments into a single account, making it difficult, if not impossible, for the supplier to determine which payments apply to each ongoing project, i.e., a task that is necessary for a supplier seeking to assert a mechanics’ lien claim against a particular project when its customer fails to timely pay.

Several weeks ago the Appellate Division of the New Jersey Superior Court, in L&W Supply Corporation v. Joe Desilva, described the affirmative duty suppliers have to determine the source of its customers’ payments for materials, by requiring suppliers to ask.  According to the Court, a supplier who fails to do so “sacrifices its rights under the Construction Lien Law.”   A brief review of the evolving mechanics’ lien laws relating to suppliers helps explain the Court’s potentially severe ruling.

New Jersey’s Construction Lien Law

The New Jersey Construction Lien Law (“Lien Law”) allows contractors and suppliers who are owed payment for work or materials on privately procured projects to file a lien against the property where the improvements (labor and supplies) were constructed.  The lien encumbers the property, which prevents the owner from selling or transferring the property without first dealing with the contractor’s or supplier’s payment claim. 

The purpose of the Lien Law is twofold: first, to secure payment of money due to contractors and suppliers; and second, to protect owners from paying more than once for the same work or materials.  In order to protect owners from being forced to pay twice for the same work or materials, the Lien Law provides that the value of a lien cannot exceed the value of the “lien fund,” which, in the simplest terms, is the amount of money that remains unpaid on the job. 

Suppliers’ Evolving Affirmative Duty to Inquire into the Source of Payments

In 2004 the New Jersey Supreme Court held, in Craft v. Stevenson Lumber Yard Inc., that a material supplier who files a construction lien has a duty to allocate payments from the material purchaser to the appropriate construction project when the supplier has “reason to know” that the payment is associated with a particular project.  In other words, if a general contractor pays a subcontractor for work on a specific job and the subcontractor then pays its supplier, the supplier must apply the subcontractor’s payment to the same project account.  The supplier may not simply apply the payment to an older receivable from a different project.  This requirement protects the owner from double payment because it helps to ensure that when a supplier files a construction lien relating to a particular project, the supplier is not seeking monies owed from the subcontractor on a different project.   

L&W Supply: The Supplier’s Duty Explained

In L&W Supply, the Appellate Division clarified the circumstances that would give a supplier “reason to know” the source of the payment.  The Court held that in order to ascertain the source of a subcontractor’s funds, “a supplier must take some action, and an inquiry about the source of the funds is the most obvious action to take.”  In other words, suppliers providing material to New Jersey projects must now affirmatively inquire as to how payments should be allocated when the purchaser has not otherwise provided reliable instructions as to how the payment should be allocated.  As the Appellate Division held, “when the purchaser of materials has not provided specific, reliable instruction as to the allocation of its payment, or when the circumstances are such that a reasonable supplier should suspect the purchaser has not used an owner’s funds to pay for materials supplied for that owner, then the supplier must make further inquiry and attempt to ascertain the source of the payment funds so that it can allocate them to the correct accounts.”

The Court’s decision in L&W Supply means that suppliers must be diligent in ascertaining the source of the funds that it receives from its customers, and we recommend that the supplier should memorialize its efforts in writing.  This should be done in writing because a supplier who files a lien claim after this L&W Supply decision must anticipate that the owner or general contractor will defend against the lien claim by (i) challenging the accuracy of the supplier’s accounting and (ii) questioning the sufficiency of the supplier’s inquiry into the subcontractor’s accounting.  Documented efforts by the supplier to ascertain the source of payments are the best way to overcome those challenges because they demonstrate the supplier’s good faith efforts to inquire and accurately account for customer payments.

Tony Byler is a Partner at Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. As a trial lawyer, he focuses his practice on representing public and private owners, contractors, subcontractors and material men.

Daniella Gordon is a litigation Associate in the Construction Group. She represents clients in a wide range of construction related matters, including public bidding contests, construction defect claims, and appeals.

By: Lane F. Kelman and Jennifer R. Budd

Cohen Seglias hopes that you, your friends and family made it through hurricane Sandy unharmed and without great loss. This storm caused billions of dollars of damage up and down the Northeast Corridor and will have widespread implications. Understanding the different interests and factors at play is paramount to protecting further loss.

As we begin cleaning up and rebuilding, action to protect your business interests to the fullest extent possible and to mitigate loss is essential. The following are some legal considerations which may prevent you from incurring any additional harm from the storm.

• Before cleaning up, document all damage with pictures and preserve all business records.
• Follow all notice provisions required by your insurance carriers for any potential claims, including claims for damage to your property, business interruption, and any tort liability to others. Also, property damage caused by a flood is generally not covered by a typical homeowners or commercial property policy, so a separate notification will be required under a flood insurance policy, if you have such a policy.
• A storm like this should be considered an “Act of God” which will relieve performance or allow for delayed performance on a contract under the doctrine of impracticability.
• A force majeure clause in a contract is generally enforced by courts and can be an essential tool for a party who cannot perform, or whose performance is delayed due to hurricane Sandy. It is important to review any such provisions in your contracts, follow any notice requirements, and implement these provisions as soon as possible.
• Documentation of delays such as material or labor shortages, extra or repair work or resequencing is crucial.
• If a party you contracted with is unable to perform due to the hurricane, you are under an obligation to reasonably mitigate your damages.
• When your business is affected by a natural disaster such as hurricane Sandy, managing compensation, payroll and leave issues can be challenging. Review any employment contracts and if you have a question regarding these challenges, the Labor and Employment Practice group at Cohen Seglias is well equipped to navigate you through any issues.
• Complete any reporting requirements to State and Federal agencies for spills or leaks of hazardous materials.
• Check OSHA requirements and suggestions for applicable clean-up operations.
• Before commencing any rebuilding or renovation projects, check with local governments for permitting requirements.
• Government funding has been authorized for the recovery in many states and may be available to assist you in your clean-up and rebuilding efforts. Also, the Department of Labor offers grants to States for dislocated workers, which if given to your State, could be very helpful to your employees if your business operations are severely affected. Be sure to monitor the application process for these funds and make any deadlines.

It is impossible to predict how hurricane Sandy may impact your business; however the attorneys at Cohen Seglias are happy to discuss any issues that arise to assist you in minimizing or recovering your loss due to this awful event.

Lane F. Kelman is a Partner with the Firm and a member of the Construction Group. He represents developers, general contractors, construction managers and the different trades in complex matters ranging from bid protests, contract negotiations and claim prevention & management.

Jennifer R. Budd is an Associate with the Firm and a member of the Construction Group.

Separate but commonly owned or related companies are common place in the construction industry. It is also common for contractors to get squeezed by late or nonpaying owners and/or subcontractors demanding payment for work performed. A recent case in New Jersey highlighted the pitfalls contactors and their owners can fall into in these situations, and the harsh ramifications they could face if they don’t follow corporate policies and are less than honest in their representations to owners and their subcontractors.

AACON Contracting, LLC v. Glen Poppe et al

In AACON Contracting, LLC v. Glen Poppe et al. (A-1500-11T2), the Appellate Division in New Jersey upheld a trial court decision that found that Glen Poppe, individually, and the three corporations that he owned and controlled, Walter H. Poppe General Contractors, Poppe Construction (“Poppe Construction”) and Poppe Contracting (“Poppe Contracting”), were jointly liable to their subcontractor, AACON Contracting, LLC (“AACON”) for fraud. AACON contracted with one of the Poppe entities, Poppe Construction, to serve as a masonry and concrete subcontractor for the construction of a new Walgreens pharmacy. Prior to entering into the subcontract with AACON, Poppe Construction represented that it was the general contractor and had a contract with Walgreens. But in actuality, a different entity, Poppe Contracting, was the party that had a contract with Walgreens.

Project Background

During the course of the Project a dispute arose between Poppe Construction and AACON regarding the installation of a concrete floor. The third entity, Walter H. Poppe General Contractors, was the company issuing payments to AACON. These payments stopped when the dispute arose, resulting in the withholding of the contract balance from AACON. However, Poppe Contracting continued to represent to Walgreens in its payment applications that it was paying AACON, and Walgreens continued make payments. At the same time, Poppe Construction was representing to AACON that that it could not pay AACON because it had not received payment from Walgreens, and that AACON would be paid when Poppe Construction was paid by Walgreens. AACON relied upon these representations and continued working.

The Dispute

AACON then filed a construction lien claim against the project for unpaid work. Walgreens paid AACON $34,900 in exchange for AACON’s completion of its work and discharge of the lien. AACON arbitrated its payment dispute with Poppe Construction, and was awarded the majority of its contract balance. AACON then filed a lawsuit against all three corporations and Glen Poppe, individually, for, among other things, fraud. The trial court held Glenn Poppe and all three corporations liable for fraud.

Corporate and Personal Liability for Fraud

The Court’s finding of fraud was based on several key facts: (1) that Poppe Construction represented to AACON that it had a contract with Walgreens when it didn’t; (2) Poppe Contracting and Glenn Poppe represented to AACON that it would be paid when Walgreens issued payment, when in fact Walgreens had already issued payment to Walter H. Poppe General Contractors; (3) Poppe Contracting represented to Walgreens that it had paid AACON for its work, when it fact it hadn’t; and (4) AACON was induced to continue working on the project by Poppe Construction’s misrepresentation that it had not yet been paid by Walgreens.

Finally, and perhaps most significantly, the Court held that Glen Poppe was personally liable for the fraud of the corporations because he clearly controlled all three corporations and was the sole individual responsible for “the shuffling of these corporations” to avoid their payment obligations to AACON.

The Takeaway

The Poppe case reminds us of the importance of maintaining corporate formalities when operating related businesses, and that when they are not, the related entities, and the individuals who control them, can be jointly liable for their debts. Most importantly, general contractors, and their principals and officers, must avoid making false certifications to owners regarding the status of payments to owners, and also false statements to subcontractors regarding the status of payments from owners, lest be subject to claims of fraud and personal liability.

Robert Ruggieri is a Senior Associate at Cohen Seglias Pallas Greenhall & Furman PC and practices in the area of complex construction litigation.

Jennifer Budd, an Associate with Cohen Seglias contributed to this post.

By: Melissa C. Angeline

On November 7, 2011, the New Jersey Department of Labor and Workforce Development (DOL) released a new 6-page workplace notice for all New Jersey employers. The Employer Obligation to Maintain and Report Records Regarding Wages, Benefits, Taxes and Other Contributions and Assessments Pursuant to State Wage, Benefit and Tax Laws, contains a detailed description of employer recordkeeping requirements under state employment laws and provides contact information for employees or their representatives to report potential violations.

Importantly, the notice went into effect immediately for all new hires. The DOL requires that anyone hired on or after November 7, 2011 receive a copy of the notice “at the time of hire.” Thus, New Jersey employers should distribute copies of the notice to anyone hired on or after November 7, 2011.

As for existing employees, the DOL has established a December 7, 2011 deadline for distributing copies of the notice, either in hard copy or by e-mail, and for posting the notice. Employers must post the notice in hard copy at a conspicuous location in the workplace, and must post the notice electronically on any intranet or internet systems to which all employees have exclusive access.

Employers that typically buy pre-packaged posters covering various federal and state employment laws should contact their vendor immediately to obtain posters updated as of November 7, 2011. In the meantime, employers can download the 6-page notice from the DOL’s internet site and post it alongside their other mandatory notices.

Melissa C. Angeline is senior counsel in the Labor & Employment Group of Cohen Seglias Pallas Greenhall & Furman PC. She concentrates her practice on representing and counseling employers in all aspects of employment law.

Over the past couple of years the solar industry has thrived in Pennsylvania and New Jersey due to federal and state programs that have provided hundreds of millions of dollars in incentives. These programs are necessary for solar energy to compete in electrical markets. One program, utilized by both Pennsylvania and New Jersey, is a program in which producers of solar electricity receive certificates for solar power produced. In Pennsylvania the certificates are called “Alternative Energy Credits” or AECs, and in New Jersey they are called “Solar Renewable Energy Certificates” or SRECs. The certificates are earned as the electricity is produced and can be sold or traded. The certificates are purchased by electricity suppliers in order to meet minimum required levels of sustainable energy in each state and to avoid penalties resulting from noncompliance. The demand for the certificates is created by state programs requiring electricity suppliers to use renewable energy. However, since the certificates are traded on the open market the value of the certificates fluctuates based on supply and demand at any given time. Solar developers’ increased production of solar projects has resulted in an increase in the issuance of certificates.

Revenue generated from the sale of certificates is in addition to revenues or electrical savings resulting from the electricity that producers are feeding back into the grid. This allows producers of solar electricity two avenues to recover the initial installation costs of the solar panels.

Oversupply of Solar Certificates

The problem that has arisen in Pennsylvania and New Jersey is that solar developers in recent years have built such a large number of projects that there is an oversupply of certificates. In Pennsylvania, this oversupply is exacerbated by the fact that out-of-state solar energy producers are eligible to receive energy certificates. Most states, including New Jersey, only permit in state solar energy producers to receive, trade and sell certificates. Currently, Pennsylvania is projected to generate four times the amount of solar energy needed in 2011-12 to satisfy the state requirements.

Because New Jersey, on the other hand, has a protected market for its certificates (i.e. it does not allow out of state producers to participate) they have not decreased in value to the same extent as those in Pennsylvania. That being said, certificates in New Jersey have experienced a decline in price based on the expectation of an oversupply of certificates in the next 12 months. Current projected estimates show that New Jersey will have a substantial oversupply of certificates for Energy Year 2012. If the projections hold true, certificates in New Jersey will continue to decrease in value (assuming the state requirements are not increased).

An Issue that Needs to be Addressed or Left to Market Regulation?

The oversupply has caused the certificates in Pennsylvania to lose as much as 75 percent of their value in the last year. Certificates in New Jersey have also seen a decrease in value, but to a much lesser extent. Since the demand for the certificates is created by established state requirements, the certificates will either continue to lose value as more projects are built or the state is going to have to increase the amount of certificates electricity suppliers are required to purchase. There are arguments on both sides regarding whether an increase to the state requirements is appropriate. Those in the solar industry are lobbying for an increase in the state requirements. This is because solar developers rely on revenue generated by certificates to recover initial installation costs. If the certificates decrease in value then it will take solar developers significantly longer to recoup their costs. Solar developers will have to consider if it is still cost effective to move forward with solar projects in Pennsylvania and New Jersey in the future.

Those opposing increases to the state requirements argue that an increase in the requirements will raise the cost of electricity for the average consumer because solar energy is more expensive. They also argue that the devaluation of the certificates is a function of supply and demand and is properly moderating solar development. According to those opposing an increase to state requirements there is no current problem in the solar industry, instead the market is functioning as capitalism intended.

If you are a contractor bidding on public projects in New Jersey, a recent NJ case sheds light on an aggregate rating requirement which, if violated, could cause your bid to be disqualified.

What Are Aggregate Rating Requirements Under NJ Law?

Most NJ contractors who bid on public projects are aware that their company’s "Aggregate rating" refers to “the limit of the dollar value of all contracts, public and private, that a firm may perform at any given time.” [insert link] Importantly, "[a] firm shall not be awarded a contract which, when added to the backlog of uncompleted construction work ...[the value of which] would exceed the firm's aggregate rating." But are subcontractors considered “firms” that will be held to the “aggregate rating” requirements set forth in the regulation? That answer is a resounding “yes,” according to the recent NJ Superior Court Appellate Case.

If Your Subcontractor’s Aggregate Rating Limit Would Be Exceeded Upon Award of the Contract, Your Bid Could Be Disqualified

Recently, the Superior Court of New Jersey, Appellate Division, rejected a contractor's claim that its subcontractor was exempt from the aggregate rating requirements discussed above.

For a detailed discussion of the recent New Jersey case, please read the attached PDF.

The recent decision means that prudent contractors must pay attention to their subcontractor’s ratings to insure that the aggregate limit will not run afoul of the legal guidelines.

Impact Moving Forward

In light of the Court's decision, contractors bidding on public projects should be diligent in ensuring that their subcontractors rating limits will not throw off the aggregate rating calculation upon award of the subcontract. Contractors should be aware that such violations may cause their bids to be disqualified. In turn, subcontractors should also take precautions to avoid liability for errors which cause bids to be rejected, and the potential for resulting claims for damages.

Pennsylvania:

PNC Financial Services Group (PNC) is moving its headquarters to Pittsburgh. PNC, which is the largest bank in Pennsylvania, plans to build a $400 million “green” office structure in downtown Pittsburgh, which will create 2,500 construction jobs. The new skyscraper, which is to be about 40 stories high and 800,000 square-feet, will be PNC’s largest building in Pittsburgh. Currently plans include 300 underground parking spaces and street level retail. The building will be complete with green rooftops.

Maryland:

Maryland’s National Harbor is adding a “$100 million retail outlet as part of a plan by its developers to expand the convention and resort complex into a one-stop shop for visitors.” The outlets, to be built on 40 acres of land, are expected to house 80 designer stores.

The National Harbor is quickly on the way to becoming a must-see attraction. The National Children’s museum has announced plans to relocate to the harbor . Plans to break ground on a new 140,000 square-foot building to house the museum are expected to start later this year.

New Jersey:

New Jersey’s Xanadu Mall is about to get a $1.5 billion face lift. New Jersey Governor Chris Christie announced plans to renovate and expand the mall, including a “recladding of its multicolor exterior.” Refurbishing the mall, a 2.4 million square-foot structure, will create over 9,000 construction jobs. Christie who had previously dubbed the mall the states “ugliest” building, has also announced a name change to the structure. Going forward the new mall will be known as “American Dream Meadowlands.”

New Jersey Turnpike officials recently announced that they expect to advertise approximately $800 million in Turnpike related construction projects to be completed by February 2012. The projects will include road widening, bridge deck, resurfacing, sign structures, and other types of road upgrades. Next year, New Jersey Turnpike officials anticipate advertising approximately $1 billion in similar work.

For a complete list of planned projects, please click here.

New Jersey Governor Chris Christie announced that 10 schools in the state will receive a total of $584 million through the Schools Development Authority (SDA) to rebuild and renovate existing space. In addition to the allocated money, $100 million has been designated for emergency school improvements.
School districts that will receive funding include: Bridgeton, Elizabeth, Long Branch, Jersey City, New Brunswick, Newark, Paterson and West New York. Construction is expected to begin this year for a new magnet high school in the Elizabeth School District and an elementary school in the New Brunswick School District.

Christie announced that all construction will follow a standardized design process (creating one design for all new construction projects), thus greatly reducing costs for architects and project engineers. This process is estimated to save about $4 million per project. By starting with only two projects, Christie believes the state will find more ways to save through the initial process.

Richard Kaplan, superintendent of the New Brunswick School District is thrilled with the news. According to Kaplan, the district had the “only school in the state that they (state officials) tore down and didn’t rebuild.” He continued to say that since 2006, the children had been attending classes in a warehouse with no playground. The new school building will hold 675 students, grades 1-5, and will be built on a vacant lot where the former building once stood.

Emergency Construction

Just after Christie’s emergency construction announcement, a project for a new roof at the Dr. William H. Horton Elementary School was green lighted. The school, which houses students from kindergarten to eighth grade, received $732,000 for repairs.

The SDA determines emergency repairs based on health and safety concerns.

Districts That Did Not Receive Funding Are Looking for Answers

The SDA is comprised of 31 school districts, and those districts not included in Christie’s list want answers as to why.

Originally, under former New Jersey Governor Jon Corzine, 51 projects were approved. Christie established new criteria to identify the need for construction which included: total cost, cost per pupil and the efficiency of the project. In the future, the entire list of eligible projects will be reviewed each year, and funding will be evaluated. There will be no set number of projects to complete each year - it will be strictly need based.

Mark Miller, superintendent of the Warren County School District, which did not make this years list, says, “Half the students take classes in 31 trailers scattered behind the current school’s structure…there is no question in my mind…that these students deserve new schools, I have no idea why we were not on this list.”

Since public bidding began in the State of New Jersey, contractors have had to be especially diligent in the computation and review of their bid packages. This is because New Jersey has remained one of the few states that does not have an established procedure that permits bidders to request a withdrawal of the bid, under certain circumstances. Until recently, if, post bid, a bidder discovered a gross mistake in their bid, they could not rescind the bid without jeopardizing their bonding capacity and/or losing their bid bond.

On January 4, 2011, Governor Chris Christie signed S514 (now P.L. 2010, C. 108) into law. The new law goes into effect on March 4, 2011, and will permit a bidder, under certain circumstances, to withdraw a bid involving “public works”, due to mistakes in the bid, under the Local Public Contracts Law (LPCL).

Under the LPCL, “public works” is defined to mean building, altering, repairing, improving or demolishing any public structure or facility constructed or acquired by a contracting unit to house local government functions or provide water, waste disposal, power, transportation, and other public infrastructure. In other words, nearly all public projects fall under this definition.

Now, a bidder can request a withdrawal within five business days after either a bid opening or a scheduled pre-award meeting, whichever comes later, by certified or registered mail. The request for withdrawal must include evidence demonstrating that:

• An error, clerical in nature and not judgmental, occurred in the computation of the bid, which is verifiable by written evidence;
• The error is either an unintentional and substantial computational error or an unintentional omission of a substantial quantity of labor, material, or both, from the final bid computation; and
• There is no gross negligence in the preparation of the bid.

Essentially, this new law injects the concept of fairness and equity in public bidding and recognizes that both the government and bidders benefit from bidding in good faith.

One note of caution:

A bidder who withdraws a bid under this new law is disqualified from submitting future bids on the same project, even if the government entity rejects all bids.

A controversial bill, know as “LS Power Bill” has recently put New Jersey Governor Chris Christie under some pressure. The bill, A. 3442, is a reaction to regional power-grid operator PJM Interconnection's (PJM) reliability pricing model (RPM) that is designed, among other things, to encourage the construction of electric generation through incentive rates. The bill says the state must take action to ensure that enough electric generation is available in the region because the incentives under the PJM’s model have failed.

The goal of A. 3442 is to establish a long-term capacity agreement pilot program to promote construction of qualified in-State electric generation facilities.

Bill Supporters

The legislation would allow for a guaranteed long-term income for developers of several large power plants, and the bill’s supporters claim that it would significantly lower energy rates for residents.

“The guarantees were necessary to obtain financing to construct the 640-megawatt plant along the Delaware River, which would cost from $800 million to $1 billion,” said Tom Hoatson, director of regulatory affairs for LS Power.

If approved, the new plant would create construction jobs for 500 people, and 25 permanent jobs.

Bill Opponents

Opponents of the bill, which include Exelon Corp., say it is an “anticompetitive sweetheart deal that will cost consumers in the long run.”

Challengers claim a move like this would “set the clock back” years, and undo efforts to make electrical-power markets more competitive.

George M. Waidelich, vice president of energy operations for Safeway Inc., says, “we cannot afford an energy surcharge to guarantee billions of dollars of revenue to a few select developers.”

Next Steps

Currently, the bill is under review with Governor Christie. Officials expect that the Governor will likely sign the legislation after his office has secured amendments that address concerns about the bill’s potential negative impact on competition in the electric generation market. The Governor’s office was consulted in the last draft of amendments.

In terms of solar power, New Jersey is very progressive. New Jersey is a frontrunner in renewable energy production, and currently has the second highest capacity of solar power in the country - California is first. The Garden State’s successful implementation of rebate and incentive programs, as well as its commitment to renewable energy, have enabled it to reach this point.

Below are just a few of the solar projects happening in New Jersey.

Sheraton Hotels

The Sheraton Meadowlands Hotel & Conference Center has contracted with Distributed Sun, a solar power company, to bring solar power to the Hotel & Conference Center. The project will include a 1.1-megawatt solar panel system that will produce enough clean energy to offset a portion of the hotel's energy bills.

Cedar Solar Farm

The Mannington Township Planning Board unanimously approved a 10-megawatt Cedar Solar farm that will be built in Salem County. The project, set to begin in early 2011, is spearheaded by Lincoln Renewable Energy (LRE). . LRE will build the solar power facility on a 129-acre site. The $60 million construction project, said to take six months, will create approximately 100 jobs. LRE's chief executive, Declan Flanagan, thanked "the Planning Board and the community of Mannington for recognizing the benefits that solar farms can bring to rural communities."

Pilesgrove Solar Park

On October 20, 2010, developers broke ground on a $90 million South Jersey solar-energy farm, which will be the largest of its kind in the Northeast. Con Edison Development and Panda Power Funds are partnering to build the 71,400 panel solar farm in Pilesgrove Township, Salem County. The Pilesgrove Solar Farm will take about 6 months to complete, sit on about 100 acres of agricultural land, and is expected to create 100 construction jobs. The power produced by the solar farm will be purchased by Atlantic City Electric and is expected to provide power to 5,100 homes. The renewable power created by the solar farm equates to the removal of more then 3,500 cars from the road for each year of operation.

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Although nobody is immune from the effects of the downturn in the economy, contractors and subcontractors are especially vulnerable in these uncertain times. Even after investing time and labor, contractors and subcontractors face the possibility of not getting paid. To fully protect itself from a defaulting owner, a contractor or subcontractor must file a mechanics’ lien against the owner’s property once the work has been completed.

What does it mean to perfect a lien?

Because the steps regarding mechanics’ liens vary from state to state, and for residential and commercial liens, it is crucial that a contractor or subcontractor be aware of the law of the state where the project is located. In New Jersey, a mechanics’ lien must be “perfected” by the contractor or subcontractor. Perfection simply means that the contractor or subcontractor has closely followed the law, taken all of the necessary steps, and filed the correct papers with the court.

In New Jersey, construction lien rights are governed by the New Jersey Construction Lien Law. To “perfect” a lien on a New Jersey residential project, a contractor or subcontractor must take each of the following steps:

• First, the contractor or subcontractor must file a Notice of Unpaid Balance and Right to File Lien. This Notice should be filed within 50 days of the last day of work in order to ensure there is enough time to file the lien within 90 days.
• Second, a Notice and Demand for Arbitration must be submitted to an arbitrator for a factual determination as to the value of the lien. The arbitrator must render a decision within 30 days of receipt of the Demand for Arbitration.
• Third, the contractor or subcontractor must file a lien claim with the clerk of the county where the work was completed within 10 days of receipt of the Arbitration Decision. The lien claim amount must be limited to the amount determined by the arbitrator. Not only must the lien claim be filed within ten days after the decision is received, it must also be filed within 90 days after the work has been finished. The Lien Law provides a form that can be used to ensure the lien claim is properly drafted.
• Finally, the contractor or subcontractor must serve the lien claim on the owner within 10 business days after filing it with the county clerk.

If the contractor or subcontractor has performed the work, it is likely that an arbitrator will make a factual determination that a lien can be filed. Problems sometimes arise because the contractor or subcontractor cannot control how quickly the arbitrator makes a decision.

Why does perfection matter?

For a lien to be perfected, the contractor or subcontractor must complete all of the above-outlined steps of the lien process. In New Jersey, this is important because once a lien is perfected, the contractor or subcontractor has rights even if the owner later files for bankruptcy. Unlike other states, if a project is residential, New Jersey’s process for perfection requires submission of a claim to an arbitrator. Arbitrators are not always quick to decide claims. If a claim is currently awaiting decision by an arbitrator, and the owner files bankruptcy before the arbitrator makes a decision, the contractor or subcontractor will lose all lien rights. This is true even though the contractor or subcontractor cannot control how quickly the arbitrator decides the claim. Simply starting the perfection process is not enough to protect lien rights. Currently, legislation to both modify and clarify the New Jersey Construction Lien Law is pending before the New Jersey Senate Commerce Committee.

We will continue to monitor and report on this pending legislation.

After weeks of speculation, Governor Chris Christie announced his decision yesterday to cancel the $8.7 billion ARC Tunnel Project. This move came after the ARC Executive Steering Committee informed him that the project could cost New Jersey taxpayers an additional $2-5 million, recommending “immediate and orderly shutdown.” At a Trenton news conference, Governor Christie stated, “The only prudent move is to end this project. I can’t put taxpayers on a never-ending hook.” He ended the project despite urging from Department of Transportation Secretary Ray LaHood.

The cancellation of the project has disappointed many: Hudson County residents, legislators, environmental groups, transportation advocates, and long time supporters of the project-Senators Bob Menendez and Frank Lautenberg. Hudson County executive Tom DeGise stated, “[i]t's a devastating blow for our region.

Senator Menendez has claimed that Governor Christie has been “intent on killing the tunnel,” regardless of the consequences. According to Menendez:

The governor’s public statements portray surprise and uncertainty about cost estimates, but it’s hard to understand how he has so little control of and information about a project that is directed by his own administration. It would seem that a more sensible and level-headed approach on behalf of New Jersey workers, commuters and taxpayers would be to take a deep breath, work with all of the parties involved to identify ways to reign in the costs and get the tunnel built.

Senator Lautenberg’s sentiments mirrored those of Menendez:

Without increased transportation options into Manhattan, New Jersey’s economy will eventually be crippled. The Governor has sentenced New Jersey to a future of insufficient access to New York City, fewer job opportunities, and lower home values.

In discussing the impact on the thousands of citizens affected by the move, Senator Lautenberg also stated that the Governor, “should be talking to the people who are out there stuck in their cars in the morning wanting to go to work. Or the families who are worried about the air their kids breathe.”

Although supporters of the decision feel that it may save taxpayers money in the long-term, it will cost the state money now. The move will cause New Jersey to lose $3 billion in federal funding, and it may have to return the $300 million already invested in the project.

Governor Chris Christie’s decision to halt work on all projects funded by the New Jersey Department of Transportation (NJDOT) led to a total cessation of work on nearly 100 construction and 200 design projects today. Governor Christie stopped the work in response to the Legislature’s reluctance to approve a $1.25 billion sale of bonds to refinance up to $500 million for the nearly bankrupt Transportation Trust Fund (TTF).

A NJDOT press release issued Friday blamed inaction of the Legislature for the stoppage of work. According to NJDOT Commissioner James Simpson:

We have been forced to implement this work stoppage due to the Legislature’s failure to approve a routine bond transaction for the fifth and final year of a transportation program that was approved under the previous Administration. Because of the Legislature’s failure to act, thousands of engineers, planners, designers and construction workers will be put out of work and project schedules will be disrupted.

Earlier today, after a hearing that lasted almost two hours, members of the State Joint Budget Oversight Committee and representatives of the Office of the Governor finally reached an agreement and those projects previously put on hold will continue tomorrow, allowing thousands of contractors to get back to work. Four of the six committee members voted to approve the sale, Assemblyman Louis D. Greenwald (D-Camden), co-chairman, voted against the sale, while Senator Paul Sarlo (D-Bergen) abstained.

The stoppage stood to impact $1.7 billion of projects throughout New Jersey. In addition to the NJDOT construction projects and design projects, Local Aid county and municipal projects would have been affected as well. Projects funded solely with federal funds would not have been affected.

Although the NJDOT projects have been spared, the future of the ARC Tunnel project remains in limbo, pending the outcome of the review ordered by Governor Christie.

Background of the ARC Tunnel Project

Over the last two decades, New Jersey has focused intensely on how it can better meet the vastly growing demand for transportation to and from New York City. The situation was extensively studied by economists, geologists, planners, engineers, environmental and transportation experts, as well as government officials at the local, state, regional and federal levels. The collaboration of these great minds has resulted in a project known as Access to the Region’s Core (ARC) Tunnel project. Construction on the ARC Tunnel, also known as the Hudson Tunnel, began last summer, and the project is currently the largest public works project in the nation. Just a few weeks ago, advocates of the project were alarmed when Governor Christie ordered a review of the ARC Tunnel’s cost over concern that it could cost more than the latest estimate of $8.7 billion. Supporters of the project feared that Governor Christie would stop the project entirely to divert funds to the TTF.

Benefits of the ARC Tunnel Project

The ARC Tunnel project is expected to greatly benefit New Jersey. A report entitled the ARC Effect, released by the Regional Plan Association in July 2010, elaborates on these expected benefits. According to Arthur D. Silber, Project Chief:

The RPA study highlights how the ARC tunnel will create wealth and grow our economy. The tunnel creates more than 6,000 jobs in the short term and [will] ultimately boost a soft real estate market by increasing home values by billions of dollars.

According to a Fact Sheet about the ARC Tunnel Project the project will run nine miles from Kearny Yards, New Jersey to 34th Street in Manhattan, effectively breaking the trans-Hudson traffic bottleneck. The project will offer direct, transfer-free service to Manhattan for tens of thousands of residents of New Jersey and New York. In addition, the project will increase intrastate service. Proponents of the tunnel believe that, “[t]he economic and environmental benefits make this a project that will grow our economy, preserve our quality of life, and improve the environment.” Some other benefits expected from the ARC Tunnel project include:

• 6,000 construction jobs
• Reduced traffic congestion
• Reduced pollution
• Shorter commuting times
• Increased suburban property values

We will continue to closely monitor both the situation with the Hudson Tunnel, as well as the status of state-funded construction projects in New Jersey, and will provide updates accordingly.

Lane F. Kelman, partner with Cohen Seglias, contributed to this post.

New Jersey Governor Chris Christie recently signed The Offshore Wind Economic Development Act (Act). The purpose of the Act is to make New Jersey a leader in offshore wind power. According to Governor Christie, "Developing New Jersey's renewable energy resources and industry is critical to our state's manufacturing and technology future." Many believe that the passage of the Act will make New Jersey “the leading provider of offshore wind energy in the country.”

In order to accomplish its purpose, the Act assigns responsibilities to the New Jersey Board of Public Utilities (NJBPU) and the New Jersey Economic Development Authority (NJEDA). The NJEDA is tasked with providing financial assistance to companies establishing offshore wind farms and to the companies that manufacture and assemble equipment for those wind farms. The NJBPU is responsible for designating the percentage of electricity sold in the state that must come from offshore wind farms, as well as for the creation of a program that allows the operators of offshore wind farms to obtain revenue by selling offshore renewable-energy certificates. Certificates are earned based on the amount of electricity generated. Power suppliers in New Jersey are required to buy a certain number of the certificates each year to satisfy state renewable energy requirements.

The Act, through the use of the NJEDA and mandatory renewable energy requirements, attracts power suppliers to New Jersey by providing financial assistance and guaranteeing a steady revenue stream. New Jersey employed similar methods to become second in the nation in solar power production.

Initiatives similar to the Act recently passed in Delaware and are currently before the Pennsylvania legislature. We will continue to monitor any new developments and will keep you informed as the laws develop.

Contractors and subcontractors who engage in public work must be mindful of the language contained in bid solicitations.  While it is easy to presume that the solicitations or advertisements for certain types of contracts are consistent within the same municipality, agency or public entity, bid requirements could be unintentionally created by the use of particular words over others, for example, “shall” as opposed to “may.” 

In a recent New Jersey case, Cioffi’s Towing Service, Inc. v. Borough of Collingswood, et. al., the Court held that a bidder who failed to list certain equipment deemed mandatory by the municipality would be disqualified from consideration.  The Court determined that compliance with the list of equipment was mandatory because the word “shall” was used.  Although this is not necessarily a construction case, the lesson for New Jersey bidders is that they must be increasingly mindful of any list of requirements contained in a bid solicitation or advertisement, especially since failure to meet such requirements could result in “material, non-waivable” bid defects. 

In this case, the municipality included certain equipment requirements in the bid, and the list of equipment owned provided by the bidder did not comport with these requirements.  The reasoning behind the inclusion of the requirement for certain items was so that the municipality could be certain of the availability of the equipment during the performance of the project.  Because the bidder failed to comply, the municipality had no assurance that this equipment would be available, or that the job could be done properly.  Additionally, it would not have been fair to award the job to the bidder here because there may have been potential bidders who declined to bid on the project because they did not have the required equipment or the ability to obtain it, even if they could adequately perform the job.  Allowing this bid to be considered, the Court reasoned, would give an unfair advantage to the bidder despite their failure to comply with the requirements. 

The Court noted that the bid solicitation included language stating that the bid “shall meet the minimum requirement…”.  The Court ruled that this language was purposeful and, therefore, it would be impermissible for the municipality to “transform the mandatory requirement in specifications into a request”.

This case illustrates why it is so important for contractors and subcontractors to always read each portion of a bid solicitation or advertisement with extreme care, even if it looks like a template or boilerplate language.