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

By: Jason Tomasulo

A number of outlets including Infrastructure Investor and the Washington Post are reporting the announcement by the Obama Administration of 14 projects that will be expedited through the permitting and environmental review processes. Several of the projects are located on the East Coast including:

• A new Tappan Zee Bridge in New York (estimated to be $5.2 billion);
• A 14-mile rail transit line (Baltimore Red Line) connecting suburban areas west of Baltimore to downtown Baltimore, the Inner Harbor and Fells Point areas, and the Johns Hopkins Bayview Medical Center Campus; and
• A mixed-use property (City Market at ‘O’ Street, District of Columbia) comprising 400 market-rate residential units, 16,000 square feet of retail space and a 57,000 square feet supermarket.

Jason Tomasulo is senior counsel in the Construction Group of Cohen Seglias Pallas Greenhall & Furman, PC. He focuses his practice on construction law and government contracts.

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.”

It is hard to dispute that the past three years have been difficult for West Virginia's construction industry, and so far 2011 hasn’t seen much improvement. Employment in the construction industry is down approximately 10% this year over last year, according to The Contractors Association of West Virginia Executive Director Mike Clowser, "We don't see a lot of improvement for 2011. We're hoping to see a greater upturn in 2012."

Clowser pointed out there are areas of growth in West Virginia, including Morgantown (West Virginia University) and Fairmount (High Tech Corridor), where contractors and construction crews are working non-stop. But he says the Eastern Panhandle, once a hot bed of construction, and many other areas of the State, still haven't recovered from the housing bust and the recession.

However, there have been several recent signs of improvement in the West Virginia construction industry, mostly in the infrastructure, education and energy sectors. These include:

• The U.S. Department of Agriculture awarded more than $1 million for water and sewer projects in Logan and Putnam counties. The funds are part of an $840,000 grant and $230,000 low interest loan. The projects will replace sewer collection lines for certain customers and also build new lines to serve hundreds of additional households. The Department of Agriculture awarded the loan through its rural-development program, which provides funding to rural communities across the country for infrastructure projects.
• Developers are ready for groundbreaking at the Mingo County site of the proposed TranGas Development Systems, LLC coal-to-gasoline plant. The $4 billion Adams Fork Energy plant, which will be the largest of its kind in the world and the first of its type in the United States, will produce 756,000 gallons of gasoline from coal each day. Construction is expected to take four years and create 3,000 construction jobs.
• Acting Gov. Earl Ray Tomblin's administration has doubled the number of low-traffic roads the state highway department intends to pave in 2011. According to the Department of Transportation spokesman Brent Walker, a new $11 million program, called the Secondary Road Renovation Program, will target roads that are traveled by 500 or fewer vehicles per day. Last year, before the secondary roads program existed, the state paved about 450 miles of low-traffic roads. "It's our hope that we'll be able to repair, fix and pave about 1,000 miles around the state that would not normally be a part of the paving program," said Walker.
• New River Community and Technical College intends to construct a $13.5 million administration building on its Raleigh County Campus. The college unveiled plans for the 55,000-square-foot building Friday. New River says it's also going to renovate an 18,000-sqare-foot building on its Greenbrier Valley Campus in Lewisburg.

In West Virginia’s case, the numbers may not be showing the whole picture. While construction is down 10% from last year, there are a number of new construction projects planed throughout the state that may be the key to turning things around.

Cohen Seglias attorney Robert Ruggieri contributed to this post.

On April 12, 2011, the Pennsylvania Senate voted to pass House Bill 377 (HB 377). The Senate's version of the bill contained some changes, and HB 377 was sent back to the House for a concurrence vote. A day later, the House voted to approve the bill as it came out of the Senate. HB 377 is now on its way to Pennsylvania Governor Tom Corbett for signature.

HB 377, if enacted, will remove the residential sprinkler mandate from the Uniform Construction Code for single- and two-family homes that became effective as of January 1, 2011. It would also require that builders provide homebuyers with the option to install a sprinkler system and inform them of the benefits of sprinklers. If the homebuyer opts not to install sprinklers, the home must be built with extra fireproof material on the floor boards in order to slow the spread of fire. The home building industry highly supports HB 377, while firefighters and insurance professionals are generally opposed to it.

We will keep you posted on the progress of HB 377, but as always please contact us if you have any questions or need further information.

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.

According to a recent study released by McGraw Hill Construction, “Contracts for future commercial construction in the Baltimore-Towson Metropolitan statistical area for January 2011 were up 72 percent when compared to the same month in 2010.”

In an article that appeared on Citybizlist Maryland this week, it stated that, “January 2011 saw future construction contracts top $41 million, a 72 percent increase over January 2010. Although residential construction contracts fell 17 percent, total building in the Baltimore region topped $103 million in January 2011, a five percent increase over the same month in 2010.”

The statistics released cover only Maryland’s Baltimore-Towson area, which consists of Anne Arundel, Baltimore, Carroll, Harford, Howard and Queen Anne’s counties.

The recent surge in activity in Baltimore seems to mirror the experience of the rest of the country. As Anirban Basu, Chief Economist for the Associated Builders and Contractors, Inc., stated in a Q&A conducted by Construction Law Signal on January 24, 2010, “In terms of U.S. production, we are now more than one and a half years into the current economic recovery… some construction indicators, such as the architecture billings index, have begun to show signs of life.”

Governor Martin O’Malley recently announced that through the Sustainable Communities Tax Credit Program, ten different projects throughout Maryland received grants totaling $11.1 million towards sustainable construction.

O’Malley said the ten projects, “will help create 740 construction jobs in projects that will revitalize communities and promote green building practices around the state.” He continued to explain, in the State issued press release, that the Sustainable Communities Tax Credit and its predecessor, the Historic Tax Credit, have invested more than $358 million in Maryland revitalization projects in the past 15 years, supporting 15,000 jobs and revitalizing communities.

The ten winning projects were selected from 36 applications, who sought approximately $40 million in state funds.

The projects and their state grants are:

• Sheppard Pratt Gatehouse in Towson: Renovation of the gatehouse to create two guest apartments for the Sheppard Pratt Health System, $232,200.
• Oella Community Hall in Oella: Conversion of a community center to office space, $100,000.
• A. Hoen Lithograph plant in Baltimore: Conversion of a vacant factory to office and commercial space, possibly a "healthy foods" commissary for the city school system, $3 million.
• Algonquin Building in Baltimore: Renovation to convert building from offices to 56 apartments, $1.8 million.
• Clifton Park Mansion in Baltimore: Conversion into a community center, $1.5 million.
• Crown Cork and Seal Machine Shop in Baltimore: Conversion of a vacant factory to an art- and design-oriented high school, $3 million.
• Raffel Building in Baltimore: Conversion of a vacant factory for residential use, $348,900.
• Buildings at 9-11 and 13-17 W. Antietam St. in Hagerstown: Renovation of vacant commercial properties for use as apartments, $284,000.
• Building at 101 S. Potomac St. in Hagerstown: Conversion of a vacant commercial building into apartments, $289.900.
• Oxford Community Center in Oxford: Conversion of a former school to a community center, $625,000.

The luxury hotel chain, the Four Seasons, has been building an 18-story, 256-room hotel in Harbor East, Baltimore for over a year now. Until now, they have not been able to fully finance the $197 million project. On Thursday, January 6, 2011, Maryland Governor Martin O’Malley is expected to sign off on a deal to provide the hotel with partial financing from the proceeds of $45 million in tax-exempt bonds (in the form of “recovery zone facility revenue” bonds) issued by the Maryland Industrial Development Financing Authority. This money was made available through President Obama’s Recovery and Reinvestment Act.

The hotel is expected to create $221 million in economic activity, 1,273 construction jobs and 577 permanent hotel jobs.

Timothy P. Doyle, a program manager with the Maryland Department of Business and Economic Development, said “the authority decided to back the package based on its economic impact and job creation projections.”

With this assistance, the hotel is scheduled to open in late 2011. Upon completion of the project, the plan is to then build condominiums above the hotel, bringing the building to 44 stories. This would make the Four Seasons building the tallest in the city. The bond money will be used solely for the creation of the hotel, and related retail space, not the condominiums.

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.

The Delaware Department of Transportation (DelDOT) recently unveiled its plans to update the Cape Region over the next five years.

Funded Projects

On the agenda of funded projects are intersection and sidewalk improvements, such as realignment of the Plantation-Cedar Grove-Postal Lane intersection, as well as plans to develop the Destination Station Center near Rehoboth Beach. Another highlighted project is the $14 million plan to connect all the sidewalks and provide additional pedestrian crosswalks across Route 1 between Five Points and the entrance to Rehoboth Beach. Work on this project will occur in fiscal years 2012 and 2013.

Unfunded Projects

Included in the unfunded upgrades are a new Route 9-Route 1 interchange, and the relocation of Route 9. Both of these projects are estimated to cost over $50 million each and will receive engineering money, but no construction funding has been budgeted. Other unfunded projects include widening and improvement of Route 24 from the Love Creek Bridge to Route 1, and improvements to Plantation Road between Route 24 and Route 9. Engineering funding has been made available for the improvements to Route 24, but neither project will receive construction funding.

Funding DelDOT Projects

Money for Delaware’s road projects comes from the state’s transportation trust fund, which is funded by vehicle documentation fees, the gas tax and tolls from Route 1 and Interstate 95, all of which have suffered as a result of the poor economy. In addition to reduced capital, DelDOT must also contend with rising land costs. The Route 26 project in eastern Sussex County marks the first time in DelDOT history that the cost of the land is greater than the cost of engineering and construction.

In light of the economic downturn, and increased land costs, the state is seeking alternative sources of funding. According to Sandy Roumillat, DelDOT spokesperson, “[w]e are looking at the trust fund to see what changes we can make.”

There is conflict between the state and its counties when it comes to transportation funding, especially in Sussex County. Sussex County Councilwoman Joan Deaver has stated that the perception of county officials is that roads are DelDOT’s responsibility. According to Sussex County Council President Vance Phillips:

“There is a disconnect between land use and infrastructure funding. We were told the state would build roads where development would occur, and the state dropped the ball.”

However, in Deaver’s opinion, there is a disconnect between the county and DelDOT. Because of the projects and subdivisions the county approves in non-growth areas and other areas with existing traffic and road condition issues, it should share some of the responsibility. “We have to work with the state and we can’t continue to approve developments in Level 4 rural areas where no road work is planned or will ever be done. We can’t even get road work done in Levels 1 and 2.” Levels 1 and 2 are designations given to high growth areas where development is preferred in the state, whereas Level 4 areas are nongrowth farming areas. According to Deaver, “there needs to be intergovernmental cooperation.” Deaver has also said that developers of big projects need to contribute to road upgrades, which is a policy that DelDOT has adopted.

Mid-Atlantic contractors can expect to see more “rails-to-trails” work opportunities in the near future. In 1916, at the height of railroad expansion in the United States, there were more than 275,000 miles of railroad track across the county. By the 1970s, many railroad companies had declared bankruptcy and large areas of track had fallen into disuse. As a solution for the miles of unused track, the railbanking movement began. Railbanking is the conversion of abandoned rail lines into usable recreational trails, such as hiking, biking, horse riding, that can easily be converted back to rail lines if necessary.

Railbanking allows a railroad company to transfer the interest in the land formerly used as a rail line to a private organization or public agency that may then use the land for any purpose consistent with future restoration of railroad track and service. This development is commonly referred to as the “rails-to-trails” movement.

Railbanking has been the subject of legal challenges, especially in areas where developers would prefer the land be put to commercial use. One such legal challenge arose from the land known as the Armstrong Trail in Western Pennsylvania. This land was railbanked by Conrail, a provider of rail service to freight customers, and transferred to the Allegheny Valley Land Trust after railroad service was terminated. The Allegheny Valley Land Trust converted the land into a public hiking and biking path.

In Moody v. Allegheny Valley Land Trust, the Pennsylvania Supreme Court was asked to decide whether Conrail had properly railbanked the land. The challengers argued that Conrail’s attempt to railbank the land was ineffective because the land was not maintained in a manner that allowed Conrail to immediately restore railroad service. The Allegheny Valley Land Trust argued that use of the land as a trail was not inconsistent with later reinstallation of railroad track in that area. The Court adopted an expansive view of railbanking, holding that Conrail could restore railroad service and that the land did not have to remain free from use in the interim.

The Moody decision was viewed as a great victory for the rails-to-trails movement. Since the decision, there has been an increased interest in rails-to-trails developments. For example, in mid-August, the Commonwealth of Pennsylvania solicited electrical and general contractor bids for a rails-to-trails project in Swatara State Park.

With the momentum from the Moody decision and the large amount of unused track in the mid-Atlantic area, contractors may see increased rails-to-trails projects on the horizon.