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

By: Lori Wisniewski Azzara and Jennifer M. Horn

As a follow up to its 2006 report, the Natural Resources Defense Council (NRDC) has issued a new report – Rooftops to Rivers II – that provides case studies for 14 geographically diverse cities that employ green infrastructure solutions to address stormwater challenges. These leading cities, which include Philadelphia and Pittsburgh, have recognized the beneficial uses to stormwater, thereby reducing pollution and overall costs.

The NRDC estimates that 10 trillion gallons of untreated stormwater runs off of roofs, roads, parking lots and other paved surfaces a year. By implementing a green infrastructure, cities can not only save money but also minimize stormwater pollution and sewage overflow problems. The report recognizes the multitude of benefits a green infrastructure provides over conventional infrastructures (i.e., underground storage systems and pipes), particularly its cost-effectiveness, flood resilience and augmented local water supply.

The report identified six key actions that cities should take to maximize their green infrastructure investment and become “Emerald Cities,” including:

• Developing a long-term green infrastructure plan;
• Enforcing a strong retention standard for stormwater;
• Requiring the use of green infrastructure to reduce and manage runoff;
• Incentivizing residential and commercial property owners to install green infrastructures;
• Providing assistance in accomplishing green infrastructure; and
• Ensuring that a long-term and dedicated funding source is available to support the green infrastructure investment.

Of the 14 cities, Philadelphia was the only city to achieve all six Emerald City criteria and is the nation’s first city to formally commit to using green infrastructure as the primary means to satisfy its sewer overflow obligations. Pittsburgh achieved one of six Emerald City criteria by passing an ordinance that establishes stormwater volume reductions standards, including a requirement that developments larger than 10,000 square feet retain the first inch of rainfall on-site.

Lori Wisniewski Azzara is an associate at Cohen Seglias Pallas Greenhall & Furman PC. Mrs. Azzara practices in the areas of construction and commercial litigation and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, and all types of contractual disputes.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

By: Lori Wisniewski Azzara and Robert G. Ruggieri

On October 20, 2011, Senate Bill No. 1227 was introduced to the Pennsylvania Senate. The bill requires that funds paid by an owner to a contractor for work performed and/or materials furnished by a subcontractor be held in trust by the contractor, as trustee, for the purpose of paying the subcontractor. Titled the “Contractor Commingling of Funds Held in Trust Act,” the proposed bill does not require that the funds be maintained in a separate bank account, and the trustee can commingle the funds with other non-trust funds without being subject to civil or criminal penalties. However, the trustee will be subject to personal liability if he or she knowingly uses the funds for any purpose other than to pay the subcontractor. A “trustee” is defined as an officer, director or managing agent of the contractor who has control of, or direction over, the funds.

The proposed bill does not apply to residential property on which there is or will be a residential building not more than three stories in height, not including the basement, or to home improvement contracts as defined by the Home Improvement Consumer Protection Act.

Several other states, including New Jersey, Delaware, Maryland, and New York, have enacted similar construction trust fund statutes in an attempt to ensure that subcontractors are paid the monies owed to them for labor and/or materials supplied to construction projects. If passed in Pennsylvania, the proposed bill will provide useful remedies for subcontractors and will also impose significant obligations and penalties on contractors. We will continue to follow this proposed bill as it makes its way through the Pennsylvania legislature.

Lori Wisniewski Azzara is an associate at Cohen Seglias Pallas Greenhall & Furman PC. Mrs. Azzara practices in the areas of construction and commercial litigation and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, and all types of contractual disputes.

Robert Ruggieri is an associate at Cohen Seglias and a member of the Construction Group. He concentrates his practices in the area of complex construction litigation.

By: Jennifer M. Horn

On September 14th, Lancaster General Health (LGH) is set to break ground on the new Ann B. Barshinger Cancer Center.

According to the press release from the LGH, the 70,000 square foot, $44 million center will, “bring medical oncologists, radiation oncologists, surgeons and other cancer specialists together in one location…The Suzanne H. Arnold Center for Breast Health will be integrated into the two-story cancer center.”

Stand out features of the new cancer center include:

• A new radiation wing, considered the “hub of technology,” with the latest diagnostic and treatment technologies available;
• Infusion therapy/chemotherapy suites configured with patient comfort in mind;
• A conference and education center with the most advanced technology and connectivity; and
• A tranquil Healing Garden with a natural landscape where patients, families and friends can find a quiet space between treatments.

Philadelphia based architecture firm Ballinger designed the center and Benchmark Construction Co. Inc. is set to manage the project.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

By: Robert Ruggieri

Last week we blogged about an important decision recently handed down by the Third Circuit Court of Appeals on the enforceability of pay-if-paid provisions in Pennsylvania. In Sloan & Company v. Liberty Mutual Insurance Company, a surety, Liberty Mutual, was found not liable to pay Sloan, a subcontractor, on a payment bond claim because of a valid pay-if-paid provision in the subcontract between Sloan and Shoemaker, the general contractor who had secured the payment bond. The Court held that Shoemaker did not have to pay Sloan in full because it did not get paid in full from the project owner. Because Shoemaker was not liable under the contract, the Court held that its surety could not be liable on the bond claim.

The Sloan case certainly clarifies many issues regarding pay-if-paid provisions and liquidating agreements in Pennsylvania. However, language in the Court’s opinion calls into question the opinion’s lasting impact, and suggests that particular aspects the Court’s ruling may be limited by developments in Pennsylvania’s Mechanics’ Lien Law (Lien Law) that went into effect after the subcontract in question was formed.

Pennsylvania’s Public Policy in Favor of Subcontractors’ Right to Secure Payment

In the Sloan case, the subcontract between Shoemaker and Sloan required that Sloan waive its right to file a mechanics’ lien. Sloan argued that if the surety was able to rely on the pay-if-paid provision in the subcontract as a defense to payment on Sloan’s bond claim, this would result in a situation that is contrary to Pennsylvania’s public policy that favors subcontractors’ right to secure payment.

This public policy is spelled out in a 2007 amendment to the Lien Law. Specifically, Section 1401(b) of the Lien Law makes lien waivers invalid, and unenforceable, unless they are given in exchange for payment for work performed by the subcontractor, or, unless the contractor has posted a bond guaranteeing payment for labor and materials provided by subcontractors.

The purpose of this provision is to provide subcontractors with an alternate avenue for recovery of payment in exchange for their waiver of lien rights. A subcontractor gives up the protection afforded by the lien in consideration for the protection of a surety bond. In Sloan, that protection was taken away by the pay-if-paid provision. Importantly, however, this provision of the Lien Law was not in effect at the time Sloan entered into the subcontract.

Surety’s Ability to Rely on Pay-if-Paid Provision May Be Contrary to Public Policy

In a footnote, the Court stated that its ruling in favor of the surety was not contrary to public policy because the Lien Law amendment came into affect after Sloan entered into the subcontract, and Sloan, without relying on this policy, freely accepted the tradeoff between a mechanic’s lien and a surety bond.

However, this footnote begs the questions:

• Would the Court have ruled the same way if Sloan entered into the subcontract after the 2007 Lien Law amendment? and;
• Going forward, will courts allow a surety to rely on a pay-if-paid provision in a contract entered into after the 2007 Lien Law amendment where the subcontractor was required to waive its lien rights?

The Court did not address these questions in its opinion. However, arguments can certainly be made that after the 2007 Lien Law amendments, it is against Pennsylvania public policy to allow a surety to rely on a pay-if-paid provision as a defense to a subcontractor’s payment bond claim, where the subcontractor was required to waive its right to file a lien; and, had the Sloan Court been interpreting a contract entered into after the amendments that its ruling would have been different.

Whats Next?

The Sloan decision does nothing to prevent a subcontractor, who waived its lien rights after the 2007 Lien Law amendment, from arguing that a surety’s reliance on a pay-if-paid provision is against Pennsylvania’s public policy. Subcontractors can, and will, argue that the purpose of the Lien Law amendment is to ensure that a subcontractor who is required to waive its lien right will have the protection of a payment bond; and that allowing a surety to rely upon a pay-if-paid provision to deny payment on a bond claim thwarts the very purpose of the surety bond and defeats the purpose of the Lien Law amendment.

On the other hand, sureties will rely on the Sloan decision, as well as other established principles of surety law holding that a surety’s liability is only triggered when the principal’s (general contractor’s) debt matures. Because the pay-if-paid provision prevents the general contractor’s debt from maturing, the surety cannot be held liable. Finally, sureties will argue that surety bonds are provided for the primary benefit and protection of the obligee, usually the owner, not the subcontractors, and therefore, a subcontractor’s reliance on the bonds is misplaced.

So, while the Sloan decision is certainly an important one in the line of cases dealing with pay-if-paid provisions, its impact may be limited and subject to change. In the realm of pay-if-paid provisions, many questions remain. It is likely that in the near future a court will have to answer the tough questions the Sloan Court was able to avoid.

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

By: Jason A. Copley and Kathleen M. Morely

Contractors and subcontractors, and really any business associated with construction, should be pleased with a new law that just took effect in Pennsylvania. In cases where there is more than one defendant, a plaintiff can only recover from each defendant the proportionate value of each defendant’s liability. In other words, each company found liable for negligence can only be required to pay the portion of liability that is attributed to them by a judge or jury.

What is Pennsylvania’s New Fair Share Act and How Does It Change Prior Law?

On June 28, 2011, Pennsylvania joined the majority of other states in adopting an act known as the “Fair Share Act”. In negligence actions where multiple defendants are at fault, the Fair Share Act limits the liability of each defendant to their share of responsibility for the loss. Prior to the adoption of the Fair Share Act, if multiple defendants were found to be liable for negligence, each defendant could be forced to pay the plaintiff for the full amount of the judgment.

To illustrate the change in the law, consider the following example under both the “old law” (prior to June 28, 2011) and the new law (the Fair Share Act): suppose a plaintiff is awarded $10,000 in damages in a negligence action involving three different defendant contractors, which the jury found to be 70% at fault (Contractor A), 25% at fault (Contractor B) and 5% at fault (Contractor C). Under the old law, even though the extent of each contractor’s fault varied considerably, each contractor was liable to the plaintiff for the full amount of the $10,000 judgment in the event the other defendants were unable to pay. That means that in this example, even though Contractor C was only 5% at fault ($500), that contractor or its carrier might be forced to pay the full $10,000. This concept is also referred to as “joint and several liability.”

In contrast, under the Fair Share Act, liability is only “several,” and not “joint,” meaning that each defendant is liable only for its percentage of liability. Therefore, in our example, under the new law, Contractor C would only be liable to plaintiff for $500 of the $10,000 award even if Contractor A and Contractor B were bankrupt and unable to pay.

Under the old law, defendants shared the risk of each defendant being able to pay his or her share of the judgment; whereas, under the Fair Share Act, a plaintiff now bears the risk of being able to collect from each defendant their actual share of liability.

Are There Any Exceptions or Limitations to the Fair Share Act’s Application?

Like most laws, there are exceptions to the Fair Share Act and limitations on the scope of its application. First, under the Fair Share Act, any defendant found to be 60% or more at fault for a plaintiff’s injuries can still be forced to pay the entire judgment just like under the old law. Second, the Fair Share Act does not affect contractual indemnity provisions. For instance, if a contract requires a subcontractor to indemnify a general contractor for injuries to third parties irrespective of fault, the contractor may seek contribution from the subcontractor pursuant to the terms of the contract. Third, the Fair Share Act only applies to claims arising after it went into effect on June 28, 2011. Therefore, the Fair Share Act would not apply to currently pending or newly instituted negligence actions that involve injuries occurring prior to June 28, 2011. Finally, the Fair Share Act does not apply to intentional torts and misrepresentations, as well as environmental and liquor law violations.

How Will the Fair Share Act Impact Contractors, Subcontractors and Pennsylvania Businesses Generally?

As with any new law, the Fair Share Act is subject to judicial interpretation and it is too early to predict with certainty what effect it will have on contractors, subcontractors and Pennsylvania businesses in general. Critics of the Fair Share Act argue that the new law will negatively impact innocent plaintiffs by limiting their ability to fully recover for injuries caused by multiple parties. Despite this criticism, however, the passage of the Fair Share Act appears, at least initially, to be a victory for Pennsylvania businesses who have frequently found themselves, or their carriers, paying a disproportionate amount of a loss.

Pennsylvania business groups, including the Pennsylvania Chamber of Business and Industry, Insurance Agents & Brokers of Pennsylvania and the Pennsylvania Association of Mutual Insurance Companies, supported the passage of the Fair Share Act and view it as favorable and necessary tort reform that will improve the Pennsylvania business climate, foster job creation, and reduce the cost of goods and services for consumers in the state.

Supporters of the Fair Share Act believe that the old law (i.e., joint and several liability) wrongly promoted frivolous litigation and lawsuits aimed at “deep pockets.” In this regard, the Fair Share Act relieves previous unwarranted pressure on solvent businesses to settle frivolous lawsuits out of fear of having to pay damages disproportionate to fault. Accordingly, at least on its face, the Fair Share Act ensures that a party’s level of financial responsibility is based upon matters of fairness and equity, rather than the extent of its coverage or ability to pay.

Our Construction Group will continue to monitor and track developments in this area of the law. A more detailed discussion of the Fair Share Act will also appear in the upcoming fall issue of Cohen Seglias’s quarterly newsletter, Construction in Brief.

Jason A. Copley is the Managing Partner at Cohen Seglias and a Partner in the Construction Group. His practice is focused on representing contractors, subcontractors and owners in the areas of construction and commercial litigation.

Kathleen M. Morley is an associate in the Construction Group.

As many contractors know, Pennsylvania’s attempt to formulate and use innovative procurement methods has incurred a series of setbacks from the Commonwealth’s appellate courts. The latest setback came when the Pennsylvania Supreme Court found that PennDot’s Design-Build Best Value (DBBV) procurement method violated the Pennsylvania Procurement Code.

Unless there is a potential for harm to the travelling public, Pennsylvania agencies, such as PennDot, are prohibited from procuring construction contracts through DBBV. Traditional methods of procurement require that contracts be awarded to the lowest responsible and responsive bidder. DBBV, however, allowed agencies to pre-qualify a short-list of design-build teams, and then select a design-build team’s proposal utilizing a best-value assessment methodology, that includes subjective and objective factors, to determine which proposal supplies the best value for the cost of the bid.

In the case of Brayman Construction Corp., et al. v. Commonwealth of Pennsylvania Department of Transportation, the Supreme Court of Pennsylvania enjoined Pennsylvania agencies from using DBBV because the practice does not comply with the Procurement Code’s requirement that construction contracts be awarded through the processes of sealed competitive bidding or sealed competitive proposals.

What Is PennDot’s Design-Build Best Value Bid Procedure?

DBBV is outlined in PennDot’s “Publication 448, Innovative Bidding Toolkit" (Publication 448) Publication 448 describes various innovative bidding methods for selecting contractors for highway projects. It explains that innovative bidding seeks, among other things, to account for social costs, such as disturbance to the traveling public, in addition to taxpayer dollar costs.

According to Publication 448, DBBV provides the agency "with the most potential for multiple design solutions and innovation in the use of materials." Its goal is to "reduce overall time from design start to completion of the project, which provides for a shorter project completion time at a lower cost."

DBBV is a two step process. The first step is aimed at creating a "short list" of three to five design-build teams which will eventually submit proposals for the contract. Prospective design-build teams submit statements of interest detailing their qualifications, the resumes of key personnel, and organizational charts. The statements of interest do not include a monetary bid. From the statements of interest, PennDot picks a short list of three to five teams that it considers best suited for the project.

In the second step, each short-listed team submits a technical approach and a price, which becomes the basis for a negotiated stipend agreement. To accomplish this, PennDot enters into a separate stipend agreement with the teams on the short list to develop a proposed design for the project. Thereafter, the design partner for each team develops a proposed technical approach and submits it, along with a price bid, to PennDot. PennDot then selects a design-build team based on which proposal offers the best value, not on a lowest competitive price basis.

Why Did the Supreme Court Severely Limit DBBV?

The general rule for procurement under Pennsylvania’s Procurement Code is that “[u]nless otherwise authorized by law, all Commonwealth agency contracts shall be awarded by competitive sealed bidding under section 512[.]”. One notable exception allows a procuring agency to contract for design professional services through a two-step proposal process.

In the case of Brayman v. PennDot, Brayman challenged PennDot’s attempt to procure design-build services urgently needed for replacement of the Six Mile Creek Bridge in Erie county. PennDot had proposed to select a design-builder via the DBBV process. As part of DBBV’s first step, Brayman, and its design partner, submitted a statement of interest. However, PennDot did not select Brayman for its short-list, and therefore, Brayman was precluded from submitting a proposal for the project.

Brayman initiated a lawsuit in an effort to prevent PennDot from awarding the bridge contract through the DBBV process. Brayman claimed that DBBV violated the Commonwealth Procurement Code. PennDot argued that the Procurement Code did permit public procurement on a design/build basis, and did not prohibit best-value selection. Alternatively, PennDot argued that design/build services were professional services, which were exempted from the competitive bidding requirements of the Procurement Code. The Commonwealth Court rejected PennDot’s arguments, holding that design-build contracts, because they include construction and not merely professional engineering and architectural services, were subject to the Procurement Code’s requirement of competitive sealed bidding.

The Commonwealth Court’s order enjoined PennDot from awarding design/build contracts "using the best-value method or any other ‘innovative method’ that does not award the bid based on sealed competitive bids." On appeal, the Pennsylvania Supreme Court agreed that the design-build contract was a construction contract and therefore its procurement must comply with the objective requirements of competitive sealed bidding.

However, both the Commonwealth and Supreme Courts refused to enjoin PennDot’s award of the contract for the Six-Mile Creek Bridge project because the new bridge was so urgently needed to prevent a potential catastrophe.

What Does the Curtailment of DBBV Mean for Contractors?

The bottom line is that Commonwealth procurement agencies must use the competitive sealed bid process of the Procurement Code for all construction-contracts, including design-build contracts, unless the contract or project falls within an express statutory exception to competitive bidding or where there is an imminent danger to the public. While the Commonwealth appears determined to utilize non-traditional methods of procurement which it believes allows for a more rapid and efficient project delivery, for now, bidding on public road projects will be business as usual until PennDot is able to develop innovative methods that comply with existing procurement laws.

This article is the first of a series on Pennsylvania bid procurement practices and protests. Please look for part two of this series coming in August.

Last week, Pennsylvania’s House Labor and Industry Committee considered PA House Bill 1602  (HB 1602). Construction industry experts, including Cohen Seglias’ own Jason A. Copley, critiqued the bill in testimony presented at a televised public hearing. If approved, HB 1602 would require additional notice provisions and reduce a claimant’s time to file a lien from six to four months.

What is HB 1602?

Under HB1602, any subcontractor, contractor, or second tier subcontractor who fails to provide the newly proposed Notice of Furnishing within 20 days after first performing work or rendering services or material at the property could forfeit its lien rights. The Notice of Furnishing requires disclosure of, among other things, the estimated price of the labor, materials, and tools furnished. If approved, HB 1602 would also require owners, owner’s agents, and/or general contractors to file and post at the property a Notice of Commencement disclosing the true owner of the property, among other things.

Possible Effects on the Construction Industry

House Bill 1602 has negative implications for the construction industry as a whole because:

1. The lien law exists to protect all contractors and make sure that they get paid for work when unscrupulous owners fail to pay their bills. Making any changes that curtail those rights must only be done with great caution and to correct a "wrong" resulting from the current law. In this regard, the reduction of time to file from six to four months works to the detriment of both subcontractors and general contractors in that it would inadvertently increase the number of lien filings and prevent the amicable resolution of claims as parties rush to satisfy the shortened deadline.

2. Some subcontractors and second-tier contractors, that the lien law is designed to protect, will likely unwittingly forfeit their lien rights for the labor and materials they supply on projects by failing to satisfy the new Notice of Furnishing requirement.

3. The current Mechanic’s Lien Law is intended to protect contractors and promote economic growth by providing needed protection to contractors who provide labor and materials on projects. It is counterintuitive to the law’s purpose to restrict its scope and application by requiring notice prior to a dispute. Also, since the amendments in 2009, no floodgate has opened with respect to the filing of liens. Therefore, there is no economic or governmental interest to support an amendment to more narrowly tailor the application of the current version of the Mechanic’s Lien Law.

4. The potential for a general contractor’s forced “double payment” (once to the subcontractor and again to a supplier or sub-subcontractor) should be otherwise avoided by limiting the liability of general contractors in relation to the amount they have already paid under a contract, similar to the defense owners enjoy pursuant to Section 1405 of the current Mechanic’s Lien Law. In addition, a "fund" could be established by an amendment to set up a trust fund mechanism like exists in New Jersey, which would provide for unpaid second-tier subcontractors to receive a pro rata distribution of unpaid funds.

5. Only 21 states have currently enacted legislation similar to the notice provisions proposed in HB 1602. Also, given that Pennsylvania law already offers other avenues of protection for owners and general contractors, the additional protections proposed by HB 1602 are unnecessary.

Cohen Seglias will continue to monitor HB 1602 and any amendments. If you have any questions about HB 1602 or the June 13, 2011 public hearing, please contact Jason Copley at jcopley@cohenseglias.com or Jennifer Horn at jhorn@cohenseglias.com, 215-564-1700.

The Philadelphia Water Department (PWD) has enacted a new method for charging customers for Storm Water Management Services (Services). It is important to understand the new rating system, as it could significantly impact all property owners in Philadelphia, especially nonresidential property owners, by charging considerably higher rates.

Terms you Need to Know

In the past, the charge for Services was based on an account's meter size. As of July 1, 2010 the PWD began calculating the Services on an individual account basis, using the square footage of the Gross Area of the property and square footage of the Impervious Area of the property. PWD defines the Gross Area (GA) as the entire property area contained within the legally described boundaries of a property, not including portions of sidewalks that are in the public “Right-of-Way.” PWD defines the Impervious Area (IA) as the total square footage of any hard surface area, including buildings, any attached or detached structures, paved or hardscaped areas, and compacted dirt and gravel that either prevent or restricts the absorption of water into the soil, thereby causing water to run off the surface.

For each property that is 5,000 square feet or greater, IA will be calculated by using Philadelphia’s Geographic Information System, along with ortho-images of each property. For undeveloped properties that are less than 5,000 square feet, the IA is 25% of the GA of the property. For developed properties that are less than 5,000 square feet, the IA is 85% of the GA of the property.

Calculation of Charges

The new rate structure will be phased over a four year period as follows:

Under the new rate structure, the GA factor and IA factor are determined by dividing the GA and IA of a property by 500 and rounding up to the next whole unit. Each unit is then multiplied by the unit charge, which for example, the period from July 1, 2011 through June 30, 2012 will be 0.528/500 square feet per month for GA and 4.169/500 square feet per month for IA.

Available Credits

PWD offers a variety of ways to receive credits. There are three categories of credits:

• Impervious Storm Water Credits (IA Credits)
• Gross Area Storm Water Credit (GA Credit)
• National Pollutant Discharge Elimination System Industrial Permit Storm Water Credit (NPDES Credit)

Storm water credits involve the utilization of methods such as green roofs, porous paving, rain gardens and storm water harvesting, including: irrigation, fire suppression systems, toilet and urinal flushings, and custodial uses.

Even if a property receives the maximum amount of any available individual credits and/or combination of credits, it will still be subject to a monthly minimum charge. Credits will be in effect for a four year period and can be renewed so long as the renewal application is made at least 30 days prior to the expiration of the credit. The effective date for a credit is the first day of the month when the fully completed credit application and all supporting documents were filed.

Appeals

Property owners may appeal Services charges for technical accuracy, such as:

• Incorrect parcel
• Inaccurate property classification
• Inaccurate GA
• Inaccurate IA
• Residential side yard
• Water and Sewer Rents

Before property owners can submit an appeal, their water and sewer bill must be paid in full and their account must be up-to-date.

The new rate structure is anticipated to be costly for nonresidential property owners in Philadelphia. All property owners, developers and contractors affected by the changes should study the rate structure and be sure to identify how your future buildings plans may be altered and also how to appeal and/or mitigate the charges.

The attorneys at Cohen Seglias are prepared to advise companies regarding how these new rates will affect them, as well as how they can plan for future changes. For more information about the new rate structure, or other real estate issues, please contact Lonny S. Cades at (215) 564-1700 or lcades@cohenseglias.com, or the Cohen Seglias attorney with whom you normally consult.

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.”

A recent study of Pittsburgh’s David L. Lawrence Convention Center (DLCC) showed that the building has been “wasting energy” for years. The finding has brought much criticism from taxpayers.

The study performed by the Green Building Alliance, and funded by the Sports & Exhibition Authority (SEA) and The Heinz Endowments, found that the electrical system in the DLCC has resulted in $70,000 to $100,000 in wasted-power penalties each year since 2003- a cost that has been passed on to taxpayers. While taxpayer-funded power penalties are undesirable on any public building, it is particularly egregious in this case because the DLCC is a LEED Gold rated building that was designed to be energy efficient.

Upon a review of the extra electrical charges from Duquesne Light Company, it was determined that the 1.5 million square foot DLCC was not running as efficiently as possible and that six to eight percent of the annual bill, or $1.27 million was for wasted electricity. Mary Conturo, Executive Director of the SEA, which owns DLCC, explained that the SEA was aware of the problem and undertook a study to cost-effectively address the waste. The eventual solution was to purchase two large capacitors. The capacitors get rid of inactive energy in order to make the electrical system more efficient. Conturo explained that “[l]arger buildings routinely have these power factor penalties unless they have these capacitors”. Of course, the solution begs the question as to why the capacitors were not included in the initial design of the electrical system. Once installed, it will only take approximately three years of power savings for the capacitors to pay for themselves.

The study of the DLCC raises far-reaching questions related to the LEED rating system: what is the correlation between a LEED rated building and an energy efficient building and whether operation and maintenance testing should be required in order for buildings to maintain their LEED rating.

Cohen Seglias Partner Lane F. Kelman contributed to this post.

International Energy Conservation Code Upgrades

The 2012 International Energy Conservation Code (IECC) has been upgraded to require that newly constructed and renovated residential and commercial buildings achieve energy savings 30% higher than the IECC’s 2006 predecessor. The revisions represent the largest single-step efficiency increase in the history of the national model energy code. A majority of state and local jurisdictions around the country have adopted energy codes modeled after the IECC standards, and the recent 2012 revisions represent a significant step forward for efficiency gains. It is anticipated that the changes will be widely adopted by various jurisdictions.

Approximately 500 state, county and city building and fire code officials from across the country voted, by overwhelming majority, to pass a series of energy-saving changes to the IECC. The most notable changes to residential buildings include:

• An increase in stringency for insulation efficiency requirements;
• A mandatory air infiltration test in all homes to reduce heating and cooling loss;
• A requirement that ducts be tested to a tighter duct leakage standard to reduce wasted energy; and
• A set of options to improve hot-water distribution systems and reduce wasted energy and water.

As for commercial buildings, changes include:

• More efficient air leakage requirements by mandating continuous air barriers;
• The option to choose between renewable power generation;
• Improved lighting systems or more efficient HVAC equipment; and
• A commissioning requirement for HVAC systems, mandatory automatic daylighting controls, and increased HVAC piping insulation provisions.

Pennsylvania’s Uniform Construction Code, which is mandatory statewide and applies to residential and commercial buildings, is based on the 2009 IECC. With the publication of the 2012 IECC, it is anticipated that Pennsylvania’s next code change will occur sometime in late 2011 with a tentative effective date of December 31, 2011. We will keep you posted on any updates regarding the Construction Code.

Philadelphia Among the Nation’s Leaders in Green Roofs

Green Roofs for Healthy Cities (GRHC) recently announced the results of its 2011 Annual Industry Survey, which revealed that the green roof industry grew by 28.5% over the course of 2010. This growth is a significant increase from the 16% growth recorded in 2009.

The GRHC Survey lists the top 10 U.S. cities leading the way for green roofs installed in 2010. Chicago topped the list for the seventh year in a row with more than 500,000 square feet of green roofs installed. Philadelphia ranked fourth with nearly 150,000 square feet of green roofs installed. Notable green roofs in Philadelphia include the Free Library of Philadelphia, PECO’s headquarters, Comcast Center, the Friends Center of Philadelphia and Morris Arboretum of the University of Pennsylvania.

The government’s investment in green roofs for their stormwater, air quality, green space and city cooling, largely fuels the growth of the green roof industry, according to Steven W. Peck, Founder and President of GRHC. “Cities such as Chicago, Washington, New York, Portland, Seattle and Philadelphia continue to lead the way with incentives and regulations that recognize the many benefits from green roofs, including much needed green jobs in their communities.”

The Green building industry continues to grow each year, with new technologies and green building ideas coming into play every day. Contractors need to stay on top of all these changes and advancements, and be able to offer clients the newest and most cost effective options. We will continue to report on new green building advancements as they occur.

Cohen Seglias Partner Lane F. Kelman contributed to this post.

With Marcellus Shale natural gas continuing to grow in demand, it has become increasingly important to update the rail systems used to transport the product. With this in mind, U.S. Transportation Secretary Ray LaHood on April 18, 2011, announced a $6.8M grant to update the rail systems in four Pennsylvania Marcellus Shale counties, which include: Lycoming, Centre, Blair and Northumberland.

Included in the upgrades will be 200 miles of track and bridge improvements, which is estimated to create more than 300 construction jobs. These projects will “expand the capacity, efficiency and safety of Pennsylvania’s short line rail network.”

According to LaHood, “Projects like this advance President Obama’s vision to create jobs, support U.S. energy sources and reinvigorate the economy…Building an innovative, transportation network with world-class railways will help local businesses compete now and in the future.”

This grant was awarded as a part of President Barack Obama’s infrastructure plan, under the U.S. Department of Transportation’s TIGER II (Transportation Investment Generating Economic Recovery) initiative. A recent press release issued by the Federal Railroad Administration stated that the grant will be matched by $4.6 million from the Susquehanna Economic Development Association – Council of Governments Joint Rail Authority.

Through the TIGER II program, $600 million has been granted to 42 capital construction projects and 33 planning projects in 40 states for critical improvements to highways, bridges, transit systems, rail lines, bicycle and pedestrian paths and ports.

With the TIGER II program well underway, contractors should continue to look for ways to become involved in the numerous projects breaking ground throughout the country.

Rail Projects in Maryland

Maryland Governor Martin O’Malley has formally announced that he is submitting two applications to the Federal Railroad Administration for projects that would create more than 2,300 jobs.

O’Malley is applying for funds that recently became available after Florida Governor Rick Scott declined $2.4 billion in federal aid, that had been earmarked for a high-speed rail line between Tampa and Orlando.

The two Maryland projects that are up for consideration are:

• BWI Area Improvements: $299 million for final design and construction of the BWI Area Improvements, including a critical new fourth track in the area of the station, and redevelopment of the station and pedestrian bridge to create access to all four tracks. Maryland is offering $41 million in matching funds for this project to improve rail infrastructure and service on Amtrak’s Northeast Corridor along the MARC Penn line. The total investment for this final stage of the project will directly support an estimated 1,830 jobs.
• Maryland Bridge Replacement: $116 million for Preliminary Engineering and National Environmental Policy Act analysis for the Northeast Maryland Bridge Replacement and Capacity Expansion project. This funding will advance studies to replace and add capacity to three bridges built in 1906 and 1913 across the Bush, Gunpowder and Susquehanna rivers. During this planning and environmental study phase the project will directly support an estimated 547 jobs.

We will continue to monitor developments on the status of Maryland’s applications and keep you updated on any new information available regarding other regional rail developments.

Two weeks ago, April 3-5, the 2011 PV America conference was held in Philadelphia. More than 3,000 attendees, including PV manufacturers, distributors and installers, industry financiers and project developers, converged upon the Pennsylvania Convention Center to receive the latest updates on PV technology, industry trends and business opportunities. Co-presented by the Solar Energy Industries Association (SEIA) and Solar Electric Power Association (SEPA), PV America is the premier solar photovoltaic (PV) industry conference and trade show in the United States.


According to the U.S. Solar Market Insight™ Year-in-Review 2010, released by SEIA and GTM Research in March 2011, the solar industry’s total market value grew 67% from $3.6 billion in 2009 to $6 billion in 2010. The report’s executive summary can be downloaded for free, or the full report can be purchased. Both are available here.

SEIA President and CEO Rhone Resch, further described the growth of the solar industry during his keynote address at PV America. Resch told conference-goers:

I am thrilled to announce that the solar energy industry is now the fastest growing industry in America. Let me repeat that. The solar energy industry is the fastest growing industry in America. We are growing faster than wind energy, faster than telecommunications, and, thank goodness, we are even growing faster than the mortgage foreclosure industry.

To capitalize on the networking opportunities that PV America provided, Cohen Seglias co-hosted with Independence Solar a post-conference reception on April 4 at the Le Meridien in Center City. The event offered a chance for conference attendees and non-attendees alike to make new connections and discuss information learned at the conference. Attended by more than 100 people, the reception was an expanded version of the regularly scheduled quarterly Philadelphia Solar Happy Hour which the Firm also hosts in conjunction with Independence Solar .

The Philadelphia Solar Happy Hour is a complimentary event to provide networking opportunities and strengthen the ties of the solar community in the Mid-Atlantic region.

If you would like to receive notification of the next Philadelphia Solar Happy Hour, please send an email to lkelman@cohenseglias.com.

The on-again off-again Graterford Prison project has just met another hurdle. Pennsylvania Governor Tom Corbett’s administration just announced that the Department of General Services will re-bid the project to include a new death row wing, and a women’s unit.

The new bidding process will likely further delay the project, which is considered one of the largest corrections projects in the country.

The prison, when complete, will be divided into sections, separating medium- and maximum-security inmates. A capital case unit will be added as well as construction of the state’s first, self-contained female transitional facility on prison grounds. Graterford is expected to hold up to 4,100 inmates. The project has yet to break ground.

In response to the re-bid, John Wetzel, acting Corrections Secretary, said that:

This is, by no means, a failure in design. It's an opportunity for us to improve upon the design. Before we spend millions of dollars building a new prison, we need to ensure the money is being spent in an appropriate manner and that the prison design is in line with our department's mission.

The news of the re-bid came hot on the heels of a lawsuit filed by contractors who accused the state of violating bidding practices and fair agreements. With the new bid, that case becomes moot, as the process begins all over again.

We will continue to closely monitor the situation as it develops and keep you informed of any changes.

The Lancaster County Board of Commissioners announced on January 26, 2011, that they passed an ordinance banning the use of project labor agreements (PLAs) “on all county-funded construction projects.” With the passage of Ordinance 99, all Lancaster County projects will now have open bidding, instead of exclusively being available to only union contractors. Of course, union workers will also be able to bid on projects, but the hope is that Ordinance 99 will even the playing field.

Commissioner Scott Martin, of the Lancaster County Board of Commissioners, says:

As I see Project Labor Agreements starting to be utilized in other areas of the Commonwealth, I believe it is important that this action be taken to preserve fair and open contracting for government projects, ensure that we attain the most competitive costs for taxpayers and to offer a process that doesn’t exclude 85% of the workforce from competing for government projects.

This marks the first time that PLAs have been banned in Pennsylvania, at the county level. With this new ordinance in place, it should help to guarantee that local taxpayers receive the best construction work at the most competitive price.

The developer of 10 Rittenhouse, the luxury Philadelphia condominium building with 33 floors and units priced from $600,000 to $15 million, recently filed for bankruptcy protection under the court’s Chapter 11 procedures. In doing so, the developer, Philadelphia Rittenhouse Development L.P., prevented the senior lender, Istar Tara L.L.C. (Istar), from placing the property in receivership. Istar is said to have invested $251 million in the project. Unit sales have helped reduced the amount owed to about $190 million.

10 Rittenhouse is comprised of 135 condominium units, retail and restaurant space. Of the 135 units, to date only about 40 have been sold.

"There is no risk" to the current unit owners, said Steven H. Shepsman, executive managing director of New World Realty Advisors in New York, which is assisting the developer in its financial restructuring.

10 Rittenhouse is not the only troubled condominium project linked to Istar, as they also served as the senior lender for the Aria, a condominium building located at 1419 Locust Street. When Aria’s developer defaulted on its loan, Istar petitioned for and achieved the receivership of that building. This move resulted in sales of Aria units being halted for more than a year.

Smart contractors now more than ever must be vigilant about preserving their rights to mechanics’ liens. Lien rights provide another avenue of protection if and when payment is not made for work performed. Contractors should beware however, when performing work or supplying materials on Pennsylvania projects that cover multiple plots of land.

Recently, a contractor in Philadelphia County performed concrete and masonry work on a strip mall that covered multiple plots of land, with multiple owners. In court, this contractor’s attempt to lien the project was unsuccessful because the contractor filed two liens for the same work against both plots and did not apportion the liens based upon the improvements made to each plot.

The practical message here is that Pennsylvania contractors who work on projects that span multiple land plots and involve more than one owner should be mindful of exactly where they are performing their work, and where the materials they supply are ultimately installed and/or deposited. The statutory expectation under the Pennsylvania lien law in this multiple-plot circumstance is that work performed on each plot is specifically apportioned. This means that the contractor must account for and divide the work and associated costs according to each plot of land where the work occurred.

Pennsylvania contractors would be well-advised in this multiple plot situation to maintain specific daily reports that delineate which work is being performed on which plot of land. Additionally, maintenance of delivery tickets and shipment receipts that specifically note where particular materials are installed is helpful.

The Pennsylvania Superior Court has decided to reconsider its own recent ruling that made information considered by an expert fair ground for full discovery by other parties in the lawsuit.

Barrick v. Holy Spirit Hospital

On September 16, 2010, in the case of Barrick v. Holy Spirit Hospital, the Pennsylvania Superior Court decided that emails and letters between a defendant’s litigation expert and the defendant’s lawyer were “discoverable,” i.e. they had to be turned over to the other party in the lawsuit. These letters and emails included the lawyer’s trial strategies and tactics. Such communications were previously considered privileged and confidential attorney work product and therefore not subject to discovery.

The basis for the Court’s ruling was that all parties to a lawsuit should be entitled to discover the extent of a lawyer’s influence over an expert’s opinions in order to test the truthfulness of the expert’s conclusions, and to determine whether the lawyer directed the expert to reach certain conclusions, to disregard certain facts or take other facts into consideration.

The Superior Court’s landmark decision has come under severe fire during the few months following its rendering. The decision has been criticized for flying in the face of customary legal practice in Pennsylvania, and bucking the trend in federal courts that such communications are protected from discovery. In fact, the Federal Rules of Civil Procedure, which govern cases filed in federal court (as opposed to state court where the Barrick decision was made), were recently amended to specifically protect the exact same type of communications from discovery.

Impact of Decision

The Barrick decision, should it stand, will completely change the practice lawyers and litigation experts have been operating under: that communications between litigation experts and lawyers is work product that is not subject to discovery. The decision will make a lawyer think twice before bouncing ideas off an expert, and possibly prevent him or her from making comments or asking questions about a draft expert report, for fear that someone would obtain those communications and accuse the lawyer of writing the expert’s report for him.

Reconsideration of Decision

In an unusual change of events, the Court recently withdrew its decision and is going to hear re-argument on the case “en banc”, meaning that a larger panel of judges (up to nine) will hear the argument and participate in the decision as opposed to only the traditional three judge panel. A re-argument date has not been scheduled.

Although the Barrick case was a personal injury case, the Superior Court’s ultimate ruling will critically impact construction litigation cases as well. Experts, including architects and engineers, are frequently used in construction litigation cases and are often critical in developing and proving a party’s claims or defenses. Should the Barrick decision stand, attorneys will have to carefully manage their communications with experts to ensure that trial strategies, tactics and discussions regarding the strengths and weaknesses of their clients’ case are not subject to discovery.

We will continue to monitor the Superior’s Court’s argument schedule, and will keep readers advised on this important matter.

Pennsylvania Governor Ed Rendell announced Monday that new state investments for Warren and Erie counties have been approved. The new projects will receive $45 million in state funding and $68 million in private funding and will create more than 400 temporary construction jobs. In addition, the new projects will create more than 325 permanent jobs for local residents.

"It's so important to make smart investments to spur economic development. When the state invests in a project, private companies or other organizations match or exceed those funds with their own investments," Rendell said. "These investments are revitalizing communities, creating jobs and opening the door to new opportunities and future growth."

New Projects Include:

• A $7 million investment through the Redevelopment Assistance Capital Program (RACP) into the GAF Bayfront project that will remediate the land where the former GAF Materials Corporation plant was once located. The project will open up new tourism and development opportunities and is anticipated to create 100 permanent jobs and 50 construction jobs. It will leverage $43 million in outside funding.
• A $3.5 million RACP investment to Mercyhurst College that will help develop the Center for Academic Engagement. The new “green” building will house the school’s intelligence studies and hospitality majors and will incorporate laboratory space and state-of-the-art equipment. The project will create 22 permanent jobs, more than 150 construction jobs and will leverage $5.5 million in outside funding.
• A $32 million investment through the Public Improvements Program to help renovate and expand the Louis J. Tullio Arena in Erie. The project will leverage $10 million in private investments and is anticipated to create 145 permanent jobs as well as 125 temporary construction jobs.
• A $2.5 million RACP investment in the Innovate Warren project. This project encompasses a seven-block area and builds on more than five years of work the city has done to revitalize and re-invent the downtown business district and accelerate the opportunity for current and new businesses to prosper. The $2.5 million investment will bring credit and non-credit courses to northwestern Pennsylvania through the development of the Center for Advanced Education, which will teach people about community revitalization and energy. The project will leverage $10.3 million in outside funding and is expected to create 80 temporary construction jobs and at least 60 permanent jobs.

Rendell continued to say that, "Programs like RACP and investments like these have helped to keep Pennsylvania's construction industry going despite the economic downturn. These investments -- and others like it -- that we've made across the state for the past 8 years have helped to keep Pennsylvania's unemployment rate below the national average for 91 of the 94 past months."

A new trend in sports stadiums becoming environmentally friendly has begun to take off. The new Meadowlands Stadium, home to the New York Jets and New York Giants, was built “green” using 40,000 tons of recycled steel and features solar panels and energy-efficient light bulbs. The Consol Energy Center , home of the Pittsburgh Penguins, became the first National Hockey League arena to achieve Gold LEED certification. Most recently, Lincoln Financial Field, home to the Philadelphia Eagles, has unveiled plans to upgrade their stadium to be the, “first major sports stadium in the world to convert to self-generated renewable energy using a combination of onsite wind, solar and dual-fuel generated electricity.”

Jeffrey Lurie, Philadelphia Eagles team owner and CEO said:

The Philadelphia Eagles are proud to take this vital step towards energy independence from fossil fuels by powering Lincoln Financial Field with wind, solar and dual-fuel energy sources. This commitment builds upon our comprehensive environmental sustainability program, which includes energy and water conservation, waste reduction, recycling, composting, toxic chemical avoidance and reforestation.

The Eagles have teamed up with Solar Blue to complete the project. With a completion goal of September, 2011, Solar Blue will “build, install, maintain and operate this new power system that will include approximately 80 spiral-shaped wind turbines, 2,500 solar panels and an onsite dual-fuel cogeneration plant.” The project is estimated to cost $30 million, and will create about 200 local jobs. Additionally, the Eagles stand to save an estimated $60 million in energy costs, as Solar Blue will maintain and operate the stadium’s power system for the next 20 years at a fixed annual price increase in electricity.

Contractors should be on the lookout for job opportunities as other stadiums and arenas around the country renovate to incorporate renewable energy.

Owners and contractors should be aware of a significant October, 2009 Pennsylvania Superior Court decision, Zimmerman v. Harrisburg Fudd I, L.P., which clarifies the standard for the award of post-judgment interest and attorneys’ fees under the Pennsylvania Contractor and Subcontractor Payment Act (CASPA). In this case, the Superior Court held that a contractor who has obtained a judgment against an owner under CASPA may recover post-judgment interest and penalties, as well as attorney’s fees and expenses incurred to collect the money owed.

The Pennsylvania Contractor and Subcontractor Payment Act

CASPA is a Pennsylvania statute that dictates the proper timing for payment for construction work. CASPA also provides for interest, penalties (when appropriate) and attorneys’ fees when owners or contractors fail to comply with these payment obligations. According to the Zimmerman Court:

The underlying purpose of [CASPA] is to protect contractors and subcontractors... [and] to encourage fair dealing among parties to a construction contract . . . The statute provides rules and deadlines to ensure prompt payments, to discourage unreasonable withholding of payments, and to address the matter of progress payments and retainages. Under circumstances prescribed in the statute, interest, penalty, attorney fees and litigation expenses may be imposed on an owner, contractor or subcontractor who fails to make payment to a contractor or subcontractor in compliance with the statute.

Background of the Zimmerman Case

In this case, Zimmerman, a contractor, entered into a construction contract with Fudd, an owner, for the installation of floor and wall improvements for a new restaurant that Fudd was building. Following completion of its work, Zimmerman submitted an invoice for $10,108.70. Over 4 months later, he was still waiting for payment.

Refusing to wait any longer, Zimmerman elected to invoke CASPA, and filed a claim for breach of contract against Fudd. On the day the matter was scheduled for compulsory arbitration, the parties agreed to the Board’s entry of a stipulated award in favor of Zimmerman for $21,673.99, consisting of the $10,108.70 contract claim plus $11,565.29 of statutory interest, penalty and attorneys’ fees.

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Recently, Pittsburgh city council members voted unanimously to pass an ordinance banning natural gas drilling in order to avoid the “significant threat to the health, safety and welfare of residents and neighborhoods within the city.” The ordinance to ban gas drilling was drafted by the Community Environmental Legal Defense Fund, and sponsored by Councilman Doug Shields, who stated that “[t]his is an important statement being made today, and it’s not just the city of Pittsburgh . . . People are looking to this council and I think they are seeing something extraordinary here in that regard,” in discussing the city council’s decision.

Pittsburgh Mayor Luke Ravenstahl has 10 days to decide if he will pass, veto or not sign the bill. As of last week his office had no comment on the ban, but Ravenstahl has indicated that he opposes a ban. If he vetoes the ban, the city council will need 6 votes to override his decision. If he doesn’t sign the bill, it will become law.

Marcellus Shale in Pennsylvania

Pennsylvania is the center of Marcellus Shale activity. In the last 3 years, more than 2,000 wells have been drilled and thousands more are planned, as exploration companies are investing billions to pursue the natural gas reserves sitting underground. Although the gas drilling industry could dramatically stimulate Pennsylvania’s economy, Pittsburgh City Council President Darlene Harris indicated that the potential jobs created by Marcellus Shale drilling do not justify the significant risk to the community, “They're bringing jobs all right . . . There's going to be a lot of jobs for funeral homes and hospitals. That's where the jobs are. Is it worth it?”

Just one day before the ban was passed, the commissioners of the Pittsburgh suburb of South Fayette unanimously approved a zoning ordinance that would prevent gas drilling in residential and conservation areas. Both the South Fayette and Pittsburgh bans prompted standing ovations upon their announcement, but not everyone is happy about the news of the prohibition on gas drilling. According to a statement issued by Kathryn Klaber, president of the Marcellus Shale Coalition,:

At a time when the natural gas industry is generating jobs and prosperity for tens of thousands of Pennsylvanians and economic development across the Commonwealth, it's unfortunate that the council continues to maintain a shortsighted view regarding responsible shale gas development and its overwhelmingly positive economic, environmental and energy security benefits.

Klaber also stated that “the [Pittsburgh] vote represents a blow to the city's weak financial standing, and at the same time is a straightforward attack on individual property rights.”

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Recently we reported on the Pennsylvania Senate's amendment to House Bill 1196 (HB 1196). This amendment would have delayed the implementation of the residential sprinkler mandate until January 2012.

As promised, the Pennsylvania House of Representatives returned to Harrisburg for one last session day on November 15. However, HB 1196 did not get to the floor for a concurrence vote on the Senate's amendment. Thus, HB 1196 is dead, and the residential sprinkler mandate will become effective on January 1, 2011. Industry insiders have promised to introduce new legislation next session.

If you have any questions or would like additional information about the residential sprinkler mandate, please contact Steve Williams at (717) 234-5530, or the Cohen Seglias attorney with whom you normally consult.

Pennsylvania Governor Ed Rendell announced yesterday that a $32.5 million state investment will be made for 38 rail projects in 28 counties. At a press conference held in York, Pennsylvania, Rendell explained that the freight investment would “upgrade and add capacity, stimulate local economies and provide as many as 2,500 jobs.” The governor also elaborated on the other benefits the state is expected to reap from the infusion of funds:

Transportation investment equals jobs. The rail freight projects being funded across the state…will help companies create good-paying jobs and inject billions into local economies. These grants are excellent examples of how public-private partnerships can benefit businesses, workers and communities.

Funding for these projects is set to come from the Pennsylvania Department of Transportation's (PennDOT) 2010-2011 Rail Capital Budget/Transportation Assistance Program and the 2011-2012 Rail Freight Assistance Program. The majority of the funding will come from the former, which is funded through state capital bond dollars, and the remainder will come from the latter, which is funded through the state’s General Fund. Both grant programs are organized by PennDOT's Bureau of Rail Freight.

Local service providers around the state are thrilled with what these funds mean for their communities. “Lycoming County welcomes the news,” says Mark Murawski, chief county transportation planner. Murawsi went on to say that he was, “pleased the money would go toward projects to help ease the traffic burdens” associated with the demands of the booming Marcellus Shale industry in the region.

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Steven M. Williams contributed this post.

In December 2009, Pennsylvania became the first state in the country to require that fire sprinklers be installed in all new residential construction. The law took effect on January 1, 2010 for townhouses and is scheduled to become effective for one- and two-family homes on January 1, 2011.

Controversy Over Pennsylvania Sprinkler Mandate

This new requirement has been met with some controversy. Home builders and builders associations have strenuously fought the requirement, complaining that mandatory sprinklers would add significant costs to the construction of new homes. They argue that such additional costs should not be imposed on home buyers in an already sluggish economy.

Firefighters and sprinkler installation contractors have applauded the new requirement as a long-awaited step in the fight to save lives from home fires. They dismiss the cost factor argued by contractors, and maintain that the lives saved by sprinklers would far outweigh the costs involved. According to Gary Keith, vice president of the National Fire Protection Association:

The reality is if you have a smoke alarm in your house compared to nothing your chances of survival are improved by about 50 percent. If you have both smoke alarms and sprinklers, your chances are about 80 percent . . . We think that level of protection is completely warranted when you add in that extra benefit to keeping those fires small to minimize injuries and minimizing property damages.

HB 1196-Possible Delayed Implementation of Residential Sprinkler Mandate

The fight over sprinklers in one- and two-family homes is not over. In April 2009, House Bill 1196 (HB 1196) was introduced in the Pennsylvania House of Representatives to address the implementation of the residential fire sprinkler mandate. HB 1196 floundered in the Pennsylvania General Assembly until mid-October 2010, when the Pennsylvania Senate, generally in favor of delaying the sprinkler requirement, inserted into HB 1196 a provision that would do just that. In its amended form, HB 1196 would delay the implementation of the sprinkler requirement for one year - until January 1, 2012 - in all new one- and two-family homes.

On October 14, 2010, the Pennsylvania Senate passed the amended version of HB 1196, and sent it back to the Pennsylvania House of Representatives for a concurrence vote. However, the House recessed before it could take up the matter, announcing that it would not be back in session until after the election. After this announcement, it was reported that the House would not come back into session this year to consider any legislation. Subsequently, official reports indicated that the House would take up HB 1196 when it reconvenes after the election. More recently, however, the Democratic majority in the House notified House members that all remaining session days for 2010 were being cancelled and that no bills would be considered. A small group of Democratic members have asked the leadership to reconsider so that the House can vote on outstanding legislation. Whether this will actually happen is not certain.

If the House does not approve the Senate’s amendment to HB 1196, it is almost certain that the sprinkler requirement will become effective on January 1, 2011. However, if the House does approve the Senate’s changes, the bill will go to Governor Rendell for consideration. While nothing official has come out of the Governor’s office, it is well known that Rendell generally favors delaying the sprinkler requirement and supports the Senate’s amendment to HB 1196. It remains to be seen, however, whether Rendell will, in fact, sign HB 1196 in the lame duck session.

Cohen Seglias will continue to monitor the progress of this pending legislation and update you on any developments.

Pennsylvania Gov. Ed Rendell is currently reviewing a new state capital budget that is calling for numerous new development projects across the state. Within this budget, through the Redevelopment Assistance Capital Program (RACP) Philadelphia developer Bart Blatstein is poised to receive $100 million. If granted the money, these are just some of the projects that Blatstein is planning:

• Rehabilitation of the State Office Building at Broad and Spring Garden Street - $25 million
• Opening a 45-room hotel with a banquet hall near the Piazza at Schmidts - $45 million
• Opening a 86-suite hotel with a banquet hall at 2nd and Poplar St. - $25 million

Blatstein says his projects “would create jobs, generate tax revenue, and help sustain revitalization in many city neighborhoods.”

While these projects are praised by some city officials, others are wary of the fact that the money would be going to a private developer. Representative Michael O’Brian says, “I’m deeply disturbed by the state’s recent trend of financing for-profit entities.” One reason behind this concern is the nature of RACP - nominating parties are kept anonymous - creating a system with very limited accountability.

RACP began in 1986 and has funded many projects throughout Pennsylvania. Blatstein is not the only developer on the list to receive RACP funds this year.

Other projects that are awaiting approval under the new budget include:

• Sen. Arlen Specter’s library at Philadelphia University - $20 million
• Ardmore Transit Center - $9 million
• A golf course in Chester County - $20 million

Although it is unclear which state representative is backing Blatstein, it is plausible that not all of his projects will be approved by Rendell. Rendell will be reviewing Blatstein’s projects along with others that were green-lit by the Pennsylvania House of Representatives this summer.

Sen. Larry Farnese would like to see Blatstein’s projects approved because of his “proven track record of success,” and because of the potential “economic boost to the city.”

Rendell is expected to decide what projects will get the green light this month, and we will continue to update you on any developments.

It is not uncommon, especially in today’s economy, for a subcontractor to perform work on a project but not get paid. Under Pennsylvania law, there are several courses of action a subcontractor can take to recover payment. One option is for a subcontractor to seek payment directly from the general contractor under a breach of contract claim. When bringing such a claim, it is important to remember that, even if successful, a subcontractor may not be able to recover payment for many reasons, including bankruptcy or non-payment from the project owner. Accordingly, it is wise for a subcontractor to seek other avenues for payment, such as filing a mechanic’s lien against the project or asserting an unjust enrichment claim against the owner and possibly even the project lender.

Valid mechanic’s liens ensure that a contractor has a secured interest in the property where the work was performed, whereas a successful unjust enrichment claim allows a contractor to obtain payment from a third party, such as an owner or lender, when that third party benefits from the work performed under the contract.

In order for an unjust enrichment claim to be successful, a subcontractor must prove:

• That there was an enrichment, i.e., a benefit conferred by the claimant, and
• That an injustice will result if the claimant is denied recovery for the enrichment

A recent Pennsylvania Superior Court decision has further defined and clarified the requirements of an unjust enrichment claim, and in doing so, has severely limited the situations in which a subcontractor can recover payment from an owner or lender.

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Renovations are underway to restore the historic Wheeling, West Virginia Independence Hall. The Independence Hall building was constructed in the 1800’s and served as the capital building even before West Virginia was formally recognized as a state. As with any older structure, the passage of time has led to the deterioration of the exterior of the building, particularly its leaky roof. The visual effects of the wear and tear, along with the desire to upgrade the interior of the building to make it more functional and user-friendly while maintaining its historic exterior, are the catalysts behind the renovations. The state of West Virginia has pledged $1 million for the project and general contractor Walters Construction Inc. of Wheeling, West Virginia began the project in May, 2010.

Similar projects to modernize buildings while preserving their historic exteriors have been popping up all over the country. In Philadelphia, the city has begun the fourth and final phase of a 17 year renovation project for City Hall. Philadelphia’s City Hall renovation project involved scrubbing the entire perimeter of the exterior of the 1.2 million-square-foot building. In New York City, a $106 million renovation project is underway to restore the 198-year-old City Hall building that is one of the country’s oldest, continuously-used city halls.

Wheeling, Philadelphia and New York are just the latest of many cities to undertake significant renovations of historic government buildings. With private construction projects slowing due to the economy, contractors are wise to look for similar government renovation projects in their local areas.

The April 20, 2010 BP oil spill in the Gulf of Mexico has been called the worst environmental disaster in American history. Although the well was recently capped, the spill has resulted in tightened regulations on oil drilling which may unexpectedly benefit other segments of the energy industry, such as Marcellus Shale and coal.

Public uproar over the BP spill has prompted government officials to impose new, restrictive regulations on oil drilling. These regulations make oil drilling costlier and may drive companies out of the oil drilling market altogether.

Pennsylvania-Marcellus Shale 

As oil drilling becomes more expensive and more heavily regulated, the energy industry may turn to alternative energy sources. One alternative is drilling for the natural gas trapped in Marcellus Shale, which is prevalent in areas of Pennsylvania. As Robert Johnston, Director of Energy and Natural Resources for Eurasia Group in Washington DC explains, “[b]oth shale gas and oil sands have their own challenges but the problems we have seen in the Gulf could lead to a capital shift away from deepwater drilling and toward other sources.”

West Virginia-Coal Mining

Another alternative is mining coal, which is prevalent throughout West Virginia. Some sources even consider coal to be one of the big “winners” of the spill, at least in terms of energy policy.  This is especially true because the coal industry was already growing before the spill occurred. President Obama has previously indicated an intent to invest in clean coal, traditional coal that is processed to reduce the emissions and pollution normally released when coal is burned. With federal funds available and coal plants being built, backlash from the BP spill may encourage additional investment in coal rather than oil.

Increased Construction Jobs for Both Pennsylvania and West Virginia

Marcellus Shale drilling could be a boon for jobs in Pennsylvania as coal mining already accounts for approximately 30,000 jobs in West Virginia. If the effects of the BP oil spill continue to positively impact the alternative energy industries, Pennsylvania and West Virginia stand to see an increase in construction jobs surrounding these alternative energy sources.

As a result of two recent Pennsylvania decisions, insurance carriers are now aggressively taking the position that there is no insurance coverage under commercial general liability policies (“CGL)” for property damage claims caused by faulty workmanship.

In the recent cases, Kvaerner v. Commercial Union Insurance Co., and Millers Capital Insurance Company v. Gambone Brothers Development Co., Inc., the Courts essentially held that faulty workmanship is not an accident and, therefore, property damage claims arising from faulty workmanship are not an “occurrence” within the meaning of a CGL policy. This means that contractors are now faced with significant uninsured exposure when their allegedly faulty workmanship causes property damage to a part of the building on which they did not work.

By way of illustration, a roofer installs new roofing shingles on a home. As a result of faulty installation, the roof begins to leak, causing damage to the roof decking, which the roofer had not replaced, and interior drywall. Prior to these new cases, if the homeowner submitted a claim to the roofer’s CGL carrier, there would be coverage to pay for the resulting property damage to the decking and interior drywall, but there would not be coverage to fix the improperly installed roof. Now insurance carriers are taking the position that there is no coverage for the resulting property damage.

In response to these decisions and the demands of contractors for coverage for property damage arising from faulty workmanship, many insurance carriers that provide CGL coverage to contractors are now offering a so-called “Resultant Damage” endorsement for CGL policies. This endorsement has the effect of restoring, or partially restoring, insurance coverage for property damage arising from faulty workmanship that has been eliminated by the new rulings.

Accordingly, it is now very important that:

• All contractors talk to their insurance agents and brokers to ensure that their CGL policies have the Resultant Damage endorsement
• If necessary, take immediate steps to obtain the endorsement

General contractors should consider adding a requirement in their form subcontract to require that all subcontractors:

• Obtain the Resultant Endorsement on their CGL and umbrella policies
• Attach a copy of the endorsement to the required Certificate of Insurance

The land under parts of central Pennsylvania contains rock known as “Marcellus Shale.” Trapped within the shale are pockets of natural gas. Gas companies have long been aware of the shale, but until recently, the trapped gas was difficult to capture. Nonetheless, many gas companies entered into leases with landowners and agreed to pay royalties for any gas removed.

Technology has evolved to allow greater access to the gas, making drilling far easier and more profitable. Suddenly, properties with access to the gas are more valuable and gas companies are paying higher royalties for access to these properties. Landowners who already signed leases are looking for ways to renegotiate their leases to get higher royalty amounts from the gas companies. Many landowners have filed lawsuits attempting to invalidate their leases.

On March 24, 2010, the Pennsylvania Supreme Court issued an opinion regarding one landowner’s attempt to invalidate a Marcellus Shale lease in the case of Kilmer v. Elexco Land Services, Inc. In 2007, the landowner in this case signed a lease that entitled him to a one-eighth royalty, minus any expenses, for gas removed from his property. In other words, instead of simply getting one-eighth of the profits from the gas well, the landowner’s profits were reduced to cover a portion of the expenses in drilling for the gas. Two years later, the landowner initiated a lawsuit, seeking to invalidate the lease on the basis that royalties had to be paid without a reduction for expenses.

This case marked the first time the issue had been heard by the Pennsylvania Supreme Court, and the potential outcome posed a significant threat to the drilling industry. If the Court permitted the landowner to invalidate and renegotiate his lease, other landowners would likely do the same. The Pennsylvania Supreme Court held that the lease was valid, paving the way for continued drilling. The impact of this case has already been seen with the announcement of new drilling projects. For example, on August 13, 2010, UGI Corp. announced its plans to invest $300 million in Marcellus Shale development projects over the next two years.

Although companies such as UGI Corp., are moving forward with Marcellus Shale development projects, not everyone is in favor of these projects. On August 17, 2010, Councilman Doug Shields announced his intention to introduce a bill to ban natural gas drilling in the city of Pittsburgh. Those who oppose the drilling cite concerns including the loss of green space, noise and light pollution, environmental contamination, and the potential for accidents as reasons to ban these projects. These concerns may prompt additional legislation and litigation aimed at curbing natural gas drilling, and contractors hoping to bid on drilling projects should stay informed of new legal developments.

If you’re interested in finding out more about Marcellus Shale development in Pennsylvania, The Interstate Oil & Gas Compact Commission, Penn State Cooperative Extension, and Penn State Outreach are partnering to host the 2010 Marcellus Summit, formerly the PA Natural Gas Summit, scheduled for October 10-12 at The Penn Stater Conference Center Hotel.

Mayor Michael Nutter recently announced that construction will move forward on the proposed $70 million Mormon Temple. 

The temple is expected to open in 2013 and the proposed location is 18^th and Vine Streets.   While the temple’s opening will be historic moment for the Mormon community, its construction is significant to the Philadelphia community.  Once the temple gets zoning and other approvals, 300 new construction jobs will be associated with the project.

Also on deck, a number of Philadelphia projects that are part of the Pennsylvania Bureau of Revenue, Capital and Debt’s Redevelopment Assistance Capital Program have recently been approved by the state’s General Assembly.   Once approved by Governor Rendell, these projects will be a go. 

One of the projects awaiting approval is $5 million worth of capital improvements on the Independence Visitors Center.  Making the Center a green building is a priority.  “One of my goals is to make this a green building, if possible.  It could include solar panels, lighting, HVAC systems,” said Jim Cuorato, the director of Center, and former Philadelphia city Commerce Director.   Philadelphia has a long history of being green and the City of Brotherly Love is currently the 8^th-most sustainable city in the country.   The number of green construction opportunities both in Philadelphia and across the country is expected to grow in the future.  Accordingly, it’s no surprise that green construction is a topic that has been generating a lot of Buzz. 

To read more about green construction and LEED certification, click here.  Christopher P. Soper is an associate at Cohen Seglias and focuses his practice on construction law.  Mr. Soper is among the few attorneys in Philadelphia accredited by the U.S. Green Building Council as a LEED® Accredited Professional (LEED AP).