Mistake No. 8 of the Top 10 Horrible, No-Good Mistakes Construction Lawyers Make: Know the Benefits and Perils of a Privately Administered Arbitration
I have practiced law for 40 years with the vast majority as a “construction” lawyer. I have seen great… and bad… construction lawyering, both when representing a party and when serving over 300 times as a mediator or arbitrator in construction disputes. I have made my share of mistakes and learned from my mistakes. I was lucky enough to have great construction lawyer mentors to lean on and learn from, so I try to be a good mentor to young construction lawyers. Becoming a great and successful construction lawyer is challenging, but the rewards are many. The following is No. 8 of the top 10 mistakes I have seen construction lawyers make, and yes, I have been guilty of making this same mistake.
Most (but not all) commercial construction contracts contain binding arbitration clauses. Whether the contract is between an owner and architect/designer, an owner and prime contractor, or a subcontractor and prime contractor, the decision to arbitrate or litigate a dispute is always negotiable. You can refer back to one of my previous blog posts in this series discussing the pros and cons of binding arbitration vs. litigating in court. But when parties have decided to arbitrate a dispute, the next question is what rules will apply and how will the arbitration be administered?
Most arbitration clauses (especially those in the standard AIA form set of construction project documents) specify that the American Arbitration Association (AAA) will “administer” the arbitration and that the construction rules of the AAA will apply (the “AAA Rules”). Per the AAA Rules, a party filing an arbitration pays a filing fee to the AAA, the amount of which is based on the amount of the claim. For example, the total non-refundable fee (with few exceptions) for a claim (or counterclaim) from $500,000 to $1 million is $12,675. A claim from $1 million to $10 million is $17,450. There are other AAA fees to pay as the process continues. The other primary costs are the compensation (normally hourly) of the selected arbitrator (or panel).
There are many experienced construction lawyers who are unhappy with the administrative services provided by the AAA (I am not one of them) when taking into consideration the amounts charged by the AAA to the clients. Their arguments are as follows: “I know who the good and bad arbitrators in my area are. My clients do not need to pay the huge AAA filing fees to just get a list of potential arbitrators. And once chosen, a good arbitrator takes over the administration of the arbitration and all the AAA case manager does is set up calls (when the arbitrator does not do so), collects the estimated arbitrator fees from the parties, sends out notices and pays the arbitrator.”
Because of the arguments above, and other concerns, there is a growing trend for parties and their construction lawyers, even with an arbitration clause that calls for AAA administration, to completely “bypass” the AAA and have the arbitration administered “privately.” Over the past five years, I would estimate that 33% of the arbitrations for which I have served as an arbitrator (including on a panel of 3 arbitrator) over the past 3 years have been privately administered. What this means is that the parties agree to amend the arbitration clause; enter into a private arbitration agreement (which may call for portions of the AAA Rules to apply); and agree on an arbitrator(s). There can also be an agreement to a private arbitration without a pre-existing arbitration clause. While the arbitrator’s rates will normally be the same as the rates charged by the AAA, the obvious savings to the clients is that the AAA’s initial filing fees and other charges are avoided.
On first blush, especially for large claims and counterclaims, this may look like a win-win for the clients. However, before you go off and recommend this to your clients, you better be fully aware of the risks and issues that can arise.
Avoid issues by having an agreed private arbitration agreement.
If the arbitration clause calls for AAA Rules, and the parties agree to private arbitration, there should always be a carefully well-drafted private arbitration agreement signed by the clients. It should, among other items, set forth what rules will be applicable; what pre-hearing discovery will be allowed; identify the agreed arbitrator (and at what hourly rate); outline the requirement to split the arbitrator compensation; and determine a process if, for whatever reason, the existing arbitrator must withdraw prior to the hearings. I do not agree to serve as a private arbitrator without such an agreement in place (which is where I obtain my authority to issue a binding award). Also, do not forget that such an agreement is a “contract,” and there can be clauses included that were not in the original contract, such as a prevailing party attorneys’ fees/arbitration expenses clause or even an agreement for the most convenient hearing location (not the location of the project). Last year I served as a private arbitrator on a project located in Alabama with counsel in Atlanta, Tennessee and Colorado, and the hearings were in my firm’s offices in Nashville.
Involve your client in the arbitrator selection.
In the AAA process for selecting an arbitrator, the AAA sends a list of potential arbitrators to both counsel, who then send in a confidential list to the case manager with names crossed off and an order of preference (much like jury selection). The case manager then reviews the list and appoints the arbitrator (subject to conflicts). In a private arbitration, both sides must agree on an arbitrator. In most instances, the client will not have any idea of any potential arbitrator, so the client will be heavily relying on your advice, albeit tempered by the admonition that there cannot be any guaranties on how an arbitrator might rule. Another previous blog post in this series discussed the issues of not vetting potential arbitrators. The point here is to involve your client and explain who has been suggested as the private arbitrator. Because if the agreed upon arbitrator rules against your client, despite your fantastic efforts, a losing, disgruntled client may ask (when presented with your final post-hearing invoice), “I don’t recall agreeing to this arbitrator: why did you recommend we use that guy? You told me he would call balls and strikes, and he did not.”
Managing post-arbitrator selection conflicts can be tricky.
While any potential private arbitrator will disclose any conflicts (same process as the AAA), arbitrator conflicts can come up after selection. An example would be the later disclosure of expert witnesses or fact witnesses. If that arbitrator uses or has used one side’s designated expert, there should be a disclosure. The difference is that when the AAA administers the case, if a disclosure is necessary, the arbitrator discloses to the case manager who then deals only with counsel. Under the AAA Rules, the AAA has the sole discretion to rule on whether the arbitrator can continue to serve. In a private arbitration, the arbitrator must manage the conflict directly with counsel. One solution is to designate, in the private arbitration agreement, another qualified arbitrator who is authorized by the parties to rule on any conflict.
Handle party nonpayment issues.
When the AAA administers a case, the arbitrator provides an estimate of his total compensation/expenses, and the AAA bills each side one-half of the estimate. The payments go into the AAA “bank.” The arbitrator sends invoices to the AAA, and the AAA pays the arbitrator from the deposits. The difference is if one side does not pay its share. If a AAA administered arbitration, the case manager manages it internally and does not inform the arbitrator which side has not paid. If the payment is not timely made, the arbitrator is then given the option of proceeding with the hearings or putting the arbitration on hold. The AAA does give the paying party the option to pay the other side’s portion (but most of the time this does not happen). In a private arbitration, the arbitrator is the “bank.” The pre-payments are made to her, and obviously she knows which side has or has not paid.
The bottom line is not making the mistake of allowing the “benefit” of a client not having to pay the AAA fees with the real and material issues that can occur with a private arbitration. Having good, experienced counsel on both sides helps, as well as knowing that many of the identified issues can be anticipated in a well-drafted private arbitration agreement.
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UK Appeal Court Provides Authoritative Guidance on Construction All Risks Insurance Policies
In the UK Court of Appeal decision in Sky UK Limited and Mace Limited v Riverstone, authoritative guidance has been provided on the key principles that apply to Construction All Risks (CAR) insurance policies.
The decision is of great importance to all those involved with the insurance of construction projects because it provides clarification on: (i) the meaning of “damage” under these policies, (ii) recovery of foreseeable damage occurring outside of the policy period, (iii) the recoverability of investigation costs, and (iv) the mechanics of aggregation and deductibles.
Background
From 2014 to 2016, Sky’s global headquarters (Sky Central) was constructed by Mace Limited (Mace) as the main contractor under a Design and Build Contract. For the purpose of the construction, Mace alongside Sky UK Limited (Sky) were insureds under a Construction All Risks (CAR) insurance policy, which ran from 1 February 2014 (commencement of the project) to 15 July 2017 (one-year post-completion).
Sky Central’s roof covers an area of about 16,000 square meters and is said to be the largest timber flat roof in Europe. The roof is made up of 472 individual wooden cassettes, which were installed between December 2014 and May 2015. Following installation, the cassettes were left waiting for permanent waterproofing and it later became apparent that rainwater had entered the cassettes from an early stage. By March 2015, standing water was found inside the gutter compartments of 27 cassettes which had entered these cassettes and remained there, leading to a wetting of internal timbers. The ingress of water mostly occurred during the construction and therefore within the policy period. The appeal concerned crucial issues under the CAR policy arising from of this extensive water damage.
Court of Appeal decision
The Meaning of “Damage” Within the Insuring Clause
The insuring clause in the CAR policy provided that insurers would “indemnify the Insured against physical loss or damage to Property Insured, occurring during the Period of Insurance, from any cause whatsoever…”1 The parties disagreed on whether the wetting of the internal timbers was itself “damage”. The insurers argued that, to constitute “damage”, the timbers needed to have reached a condition where they required immediate replacement or repair. They argued that wetting that could be cured by drying out was not “damage”.
The Court disagreed and determined that, in line with criminal law authorities, “damage” amounted to “any change to the physical nature of tangible property which impair[s] its value or usefulness to its owner or operator.”2 There was no reason to take a different approach—this was the natural and ordinary meaning of “damage”.
It followed that the insurers’ position—that “damage” required the cassettes to have reached a stage which impaired their structural performance and integrity—was rejected. The entry of moisture into the cassettes was a tangible physical change to the cassettes as long as the presence of water, if left unattended, would affect the structural stability, strength, functionality, or useable life of the cassettes (or would do so if left unremedied).
Recovery of Foreseeable Development and Deterioration Damage Occurring Outside the Policy Period
The Court noted that, by a well-established line of authority, a property insurance claim is a claim for unliquidated damages, which means the measure of recovery is based on the common law principles governing damages for breach of contract. The general objective of damages for breach of contract is to put the innocent party back in the position they would have been in had the breach not occurred. While it is open to the parties to the insurance contract to modify the measure of damages that the general law provides for, the exclusion of the usual remedies must be expressed in clear words. As a result, the cost of remedying the foreseeable deterioration and development damage—which occurred after the policy period but resulted from insured damage occurring during the policy period—was within the measure of recovery under the policy.
The Court also noted that this conclusion accords with business common sense. A businessperson in the shoes of the insured would “reasonably expect to be compensated for the consequences of the insured damage deteriorating or developing, absent a contract term excluding such recovery.”3 If this was not the case, there would be “serious and unacceptable adverse consequences” because it would make deterioration and development damage occurring after the policy period uninsurable under any subsequent insurance cover.4
Investigation Costs
Concerning the recoverability of investigation costs, the Court determined that, as a matter of principle, where insured damage has occurred for which damages are recoverable under the policy of insurance, the costs of investigating the extent and nature of the damage (including any development and deterioration damage) are recoverable if they are “reasonably incurred in order to determine how to remediate it”.4 Thus, the reasonable costs of investigation of what is reasonably necessary to remedy insured damage was “self-evidently” part of the “full cost of repairing or reinstating” insured damage.6
Aggregation / Deductibles
Lastly, the Court considered whether a deductible of £150,000 “any one event” (the Retained Liability Provision) applied once to the whole of the claim or applied separately in respect of damage to each individual cassette. At first instance, the judge had decided that one deductible of £150,000 applied to Sky’s claim because the proximate cause of the water ingress was the deficient design of the works that failed to provide for a temporary roof over the cassettes during construction. The decision not to provide this roof was therefore the “any one event” for the application of the deductible.
The insurers appealed on the basis that the judge had erred in his construction and application of the Retained Liability Provision by: (a) treating the relevant single “event” as the design decision not to use a temporary roof; and (b) in failing to identify each individual cassette as the “part” or “parts” of the property insured to which the Retained Liability Provision applied. The insurers argued that the term “event” applies to the damage suffered not the cause of the damage—meaning there were numerous “events” for the purposes of this deductible.
The Court dismissed the insurers’ appeal, noting that “any one event” is an expression used in aggregation clauses both for the purposes of deductibles and policy limits and, in this context, has a well-established meaning, which both parties were taken to have been aware of. “Event” refers to the cause of the damage, not the damage itself, and a decision (in this case not to provide a temporary roof) could amount to an “event” for these purposes. “Any one event” is a classic term for aggregation of losses by reference to the cause of the losses.
Conclusion
The key points for policyholders are:
Damage can involve any change to the physical nature of tangible property that impairs its value or usefulness. Property can be damaged even if such damage is capable of remedy.
Recovery is not necessarily confined to damage physically present at the time the policy expires. Unless the policy provides otherwise, the costs of remedying the foreseeable deterioration and development damage are recoverable under the contractual principles that govern common law damages, even if such damage extends beyond the policy period.
Once it is established that there is insured damage, reasonable investigation costs incurred in investigating the cause and extent of the damage should be recoverable.
Lastly, reference to “any one event” in the context of an aggregation clause determining the number of policy deductibles meant the event causing the damage—not the damage itself.
Footnotes
1 [2024] EWCA Civ 1567, [2].
2 [2024] EWCA Civ 1567, [107].
3 [2024] EWCA Civ 1567, [80].
4 [2024] EWCA Civ 1567, [81].
5 [2024] EWCA Civ 1567, [89].
6 [2024] EWCA Civ 1567, [90].
Executive Order Update on Construction Materials
Executive Order Adjusting Imports of Aluminum into The United States
On February 11, 2025, in an executive order titled Adjusting Imports of Aluminum into the United States, President Trump increased, from 10% to 25%, the ad valorem tariff rate on imports of aluminum and aluminum-derivative articles from most countries. The tariff rate on imports of aluminum from Russia will be 200%. President Trump cited national security grounds as the reason for the tariff increases.
The executive order also ended previous exemptions on these imports for allies such as Argentina, Australia, Mexico, Canada, the EU, and the UK.
The tariffs begin on March 12, 2025.
The President stated that these actions aim “to protect America’s steel and aluminum industries, which have been harmed by unfair trade practices and global excess capacity.”
Executive Order Adjusting Imports of Steel into The United States
On February 10, 2025, in an executive order titled Adjusting Imports of Steel into the United States, President Trump increased, from 10% to 25%, the ad valorem tariff rate on imports of steel and steel-derivative articles from most countries. President Trump cited national security grounds as the reason for the tariff increases.
The executive order also ended previous exemptions on these imports from Argentina, Australia, Brazil, Canada, the EU, Japan, Mexico, South Korea, and Ukraine.
The tariffs begin on March 12, 2025.
The President stated that these actions aim “to protect America’s steel and aluminum industries, which have been harmed by unfair trade practices and global excess capacity.”
Important Terms for Price Escalation Clauses to Mitigate the Inflationary Effect of Tariffs on Construction Materials
The prospect of 25 percent tariffs being imposed on all steel and aluminum imports by the newly elected Trump administration, together with the 10 percent increase on tariffs already levied on Chinese imports, has created uncertainty in the construction industry. The uncertainty is permeating existing construction projects because of likely inflation in product and material costs due to shortages and supply chain interruptions. It is also affecting contract negotiations between owners and contractors for new projects. If fully enacted, the tariffs could inflict higher costs for many products and materials, including concrete, lumber, steel, aluminum, drywall, appliances and electrical component parts. Estimates for the increased monetary costs imposed by these new tariffs range in the billions of dollars.
The new tariffs are particularly problematic for GMP contracts where owners and their lenders desire some degree of certainty about how much a project will ultimately cost, especially public or quasi-public projects that rely on bond financing. Left unaddressed, rising tariffs threaten to discourage parties from engaging on new projects, or worse, scuttle projects that are ongoing. Indeed, a recent construction contract negotiation that Bracewell was involved in was significantly prolonged and complicated by protracted haggling over language in force majeure, contingency, allowance, change order and other contractual provisions that could be impacted by the new tariffs.[1] Ultimately, the parties were able to move forward because of an agreed price escalation mechanism that was written into the construction contracts.
The current circumstances beg the question: how can parties involved in construction projects adequately protect against cost overruns caused by the inflationary effect of the new tariffs? As discussed in the 2018 update from Bracewell referenced above, the most common mechanism used to address this issue is a detailed price escalation clause.[2] Unlike 2018, the current Trump administration’s tariffs could be exponentially more expensive by affecting products and materials beyond just steel and aluminum, including Chinese appliances, component parts, and lumber from Canada and Mexico. Prior to the Trump tariffs in 2018, it was uncommon to find price escalation clauses in typical construction contracts. Surprisingly, even after the imposition of steel and aluminum tariffs in 2018, these types of escalation clauses are still uncommon and are not included in standard forms from construction contract authorities like the AIA, which instead rely on the change order process to address inflation.
A price escalation clause, where parties agree at the outset of a project to specific terms and mechanisms to address inflation (in this case imposed by tariffs), is the best solution. Parties are more likely to be able to agree on the parameters of how increased costs will be managed before those increased costs occur, unlike the change order process where one party will generally have leverage over the other and disputes are more common. However, price escalation clauses can be complex and must be fully thought out and sufficiently detailed to address as many contingencies as possible – the fewer variables the better.
Perhaps the most important term in a price escalation clause is the trigger, i.e., when is the clause activated? It does not make sense for a price adjustment mechanism to be triggered for trivial or nominal increases in product and material costs, and most parties, whether it is an owner in a cost-plus agreement or a contractor in a GMP contract, understand that it is customary for certain economic fluctuations to be absorbed by one side. Therefore, a triggering mechanism that is activated beyond smaller price increases is important. The most effective triggering mechanisms relate to a specific percentage increase in the cost of a product or material measured from the time the contract is executed and tied to a reliable and accepted index, like the Producer Price Index published by the Bureau of Labor Statistics (PPI). For example, a cost-sharing arrangement could be triggered when the cost of steel increases by 10 percent over and above the cost at the beginning of the contract as reflected in the PPI.
Another triggering mechanism may involve comparing the contractor’s purchase orders at the beginning of a project to purchase orders issued later in the project. This form of trigger is generally harder to enforce and may be subject to varied interpretation and manipulation, but in some cases it may more accurately capture local economic trends.
It is important in any price escalation clause to clarify that only the increased costs beyond the trigger price are subject to sharing, and not all of the underlying cost increases. Of course, both parties should have rights to review and/or audit all documents used to justify the implementation of a cost-sharing mechanism once it has allegedly been triggered. It is also important to specifically set forth the cost-sharing mechanism between the parties for all increases beyond the trigger price. A customary way to document that mechanism is through percentages, i.e., owner pays 30 percent and contractor pays 70 percent of all increased costs for the product or material at issue. Other ways to handle the cost-sharing arrangement are through an express right of the contractor to draw off a contingency fund or through an allowance that is funded by the owner prior to the beginning of the project.
Finally, price escalation clauses should contain a ceiling that when reached allows the parties to either suspend or terminate the project. The protection of a ceiling provision is important because even with a cost-sharing mechanism in place, there is usually a point at which cost increases become so substantial that it is not economically feasible for one or both parties to continue the project. The ceiling should be negotiated up front by the parties and should use the same mechanism as the trigger component of the clause, i.e., a percentage above a certain price index. The price escalation clause should contain language providing options to the parties once the ceiling has been reached. The options may include suspension of the project, a termination for convenience, a declaration of a force majeure or other forms of agreed procedures. A project termination under these circumstances would normally allow the parties to recover their reasonable costs and overhead and would not give rise to a default or a claim for breach.
Price escalation clauses are a valuable tool for both owners and contractors to consider in today’s economic climate to provide at least some level of control against rising product and material costs, but they can be tedious to draft and negotiate, so including outside counsel in the process can be helpful to expedite negotiations.
[1] Bracewell previously provided guidance on whether force majeure clauses can be implicated by steel and aluminum tariffs back in 2018, when the previous Trump administration imposed substantial steel tariffs on China. See “Steel and Aluminum Tariffs: Time to Dust Off the Price Adjustment Clause?,” Bracewell Update, August 28, 2018, and “Steel and Aluminum Tariffs? Can You Turn To Your Force Majeure Clause?,” Bracewell Blog Post, March 22, 2018.
[2] See “Steel and Aluminum Tariffs – Time to Dust off the Price Adjustment Clause?,” Bracewell Update, August, 28, 2018.
First Circuit Broadly Interprets Exclusion in Commercial General Liability Policy Under Current Massachusetts Law
In Admiral Insurance Co. v. Tocci Building Corp., 120 F.4th 933 (1st Cir. 2024), the federal Court of Appeals ruled that, under current Massachusetts law, a general contractor’s Commercial General Liability (CGL) policy does not cover damage to non-defective work resulting from defective work by subcontractors.
The defendant contractor was retained as a construction manager for an entire residential construction project. After several work quality issues and delays on the project, the contractor was terminated before the project’s completion. The owner of the project filed suit against the contractor for breach of contract and related claims but did not allege negligence by the contractor. The complaint included allegations of defective work by the contractor’s subcontractors leading to various instances of damage to non-defective work on the project including: (1) damage to sheetrock resulting from faulty roof work; (2) mold formation resulting from inadequate sheathing and water getting into the building; and (3) damage to a concrete slab, wood framing, and underground pipes resulting from soil settlement due to improper backfill and soil compaction. The contractor’s request for defense and indemnification coverage under its CGL policy was denied by its insurer. The insurer filed suit seeking a declaratory judgment confirming it had no obligation to defend or indemnify the contractor. The district court granted summary judgment in favor of the insurer and the contractor appealed.
The Court examined the “Damage to Property” exclusion outlined in subsection (I)(2)(j) of the CGL policy, which provides that there is no coverage for “property damage” to “(6) [t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The CGL policy defines “your work,” in relevant part, as “work or operations performed by you or on your behalf.” Since the complaint alleged damage resulting from the contractor’s “incorrectly performed” work on the entire project, the Court interpreted the (j)(6) exclusion as applying to the entirety of the project where the contractor was the construction manager charged with supervising and managing the whole project, the Court enforced the exclusion against coverage for the contractor.
The Court also examined the exception to the exclusion in (j)(6), which provides that the exclusion does not apply to “‘property damage’ included in the ‘products-completed operations hazard.’” The “products-completed operations hazard,” in turn, “includes all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’ except … (2) work that has not yet been completed or abandoned.” Since the contractor was terminated and did not complete or abandon the project prior to damage, the court of appeals concluded that the coverage exclusion in (j)(6) still applied.
In closing, the court of appeals left the door open for potential coverage for damage to non-defective, work arising from a subcontractor’s defective work even with the (j)(6) exclusion. Since the Massachusetts Supreme Judicial Court has yet to rule on the issue, it could interpret “property damage” caused by an “occurrence” to encompass this type of damage, which could allow a general contractor to potentially receive coverage if the work is completed or abandoned, as the exception to the exclusion would then apply.
General Contractor Defeats Owner’s Notice Argument and Prevails in Seattle Condo Dispute
The Washington Court of Appeals recently affirmed a jury verdict and $30 million judgment for general contractor Skanska. The case involves the construction of the 41-story Nexus condominium tower in downtown Seattle. As is often the case, one of the central issues was whether Skanska was entitled to be paid for alleged changes to its scope of work. The owner made a familiar argument: Skanska had not followed the contractual procedures for giving notice and obtaining authorization to perform change order work but had instead relied on more informal communications, including oral directives, emails, and meeting minutes.
The Court of Appeals rejected those arguments finding sufficient evidence for the jury to have concluded that the parties agreed to modify or waive strict compliance with the formal requirements of the contract. This evidence included the owner’s practice of regularly approving change order work that did not follow the contract requirements. Based on the parties’ course of conduct the court found sufficient evidence to support the jury’s award in Skanska’s favor. In addition to recovering its unpaid balance, Skanska was also awarded interest and attorneys’ fees as the prevailing party, including its appellate attorney fees. The court remanded the case for a recalculation of prejudgment interest on certain change order work but otherwise affirmed.
A copy of the court’s decision is available here.
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Biden’s Executive Order on Project Labor Agreements Violates CICA
In a recent decision, the Court of Federal Claims (COFC) ruled on bid protests filed by 12 construction companies challenging the implementation of a February 4, 2022, Executive Order 14063 that mandated the use of project labor agreements (PLAs). FAR Council implemented EO 14063 in January 2024, and it was the first executive mandate to use PLAs for all large-scale government contracts (see FAR 22.503 (Jan. 2, 2024) and FAR 22.501 (Jan. 2, 2024)). The purpose of these PLAs is to limit the prime contractor to the use of union labor to perform the subject contract. EO 14063 defines “project labor agreement” as “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project and is an agreement described in 29 U.S.C. 158(f).”
Plaintiffs argued (among other things) that Biden’s EO FAR regulations violated the Competition in Contracting Act’s (CICA) “full and open competition” requirements because it served as a blanket disqualification for offerors who would otherwise be considered responsible. Citing to National Government Services, Inc. v. United States, 923 F.3d 977 (Fed. Cir. 2019), the COFC agreed that Biden’s EO violated CICA’s “full and open competition” requirements and that the PLA mandates “have no substantive performance relation to the substance of the solicitations at issue…”
The COFC further determined that the PLA did not qualify for any exceptions to the full and open competition requirement. In particular, the court looked at § 3301(a), which provides for an exception to the CICA’s “full and open competition” requirements where there are “procurement procedures otherwise expressly authorized by statute…” The COFC rejected the government’s argument that the FAR provisions fall within the “expressly authorized by statute” language of § 3301(a) and therefore no exception applied.
Particularly noteworthy in this decision was the evidence that many of the agencies that were subject to this protest conducted market research that indicated PLAs would not contribute to the economy or efficiency of the subject project, or that a PLA would reduce competition, increase costs, and create inefficiencies for contractors and procurement officials. The agencies’ 2024 implementation of the mandate ignored their own market research that had concluded PLAs would be anticompetitive. Instead, these agencies relied solely on the executive order presidential policy – which the COFC found to be arbitrary and capricious.
By February 3, 2025, the parties are to file a joint status report explaining the agencies’ plans for each solicitation moving forward.
Immigration Insights Episode 8 | Decoding the RIA: The Essential Role of Fund Administrators in EB-5 Regional Center Offerings [Podcast]
In this episode of Greenberg Traurig’s Immigration Insights series, host Kate Kalmykov is joined by Jill Jones, Head of Specialty Administration/General Counsel US, JTC, to discuss the EB-5 Reform & Integrity Act of 2022; how the post-RIA fund administrator is different from pre-RIA; the value of a fund administrator in EB-5 securities offerings; and the need for construction consultants.
2025 Outlook: Recent Changes in Construction Law, What Contractors Need to Know
The construction industry is at a crossroads, influenced by shifting economic landscapes, technological advancements, and evolving workforce dynamics. With 2025 under way, businesses must stay ahead of key trends to remain competitive and resilient. Understanding these industry shifts is critical—not just for growth, but for long-term sustainability and safety.
Here’s what to expect in 2025:
Job Market
According to the Michael Bellaman, President and CEO of Associated Builders and Contractors (“ABC”) trade organization, the U.S. construction industry will need to “attract about a half million new works in 2024 to balance supply and demand.” This estimate considers the 4.6% unemployment rate, which is the second lowest rate on record, and the nearly 400k average job openings per month. A primary concern as we enter 2025 is to grow the younger employee pool, as 1 in 5 construction workers are 55 or older and nearing retirement.
While commercial construction has not yet been as heavily impacted as residential construction by the lack of workers, the demand for commercial will increase as more industries are anchored on U.S. soil. Think of bills such as the CHIPS and Science Act that allocated billions in tax benefits, loan guarantees, and grants to build chip manufacturing plants here. This is true regardless of political party; investing in American goods and manufacturing seems to be a bipartisan opinion.
AI and Robotics
At the end of 2024, PCL Construction noted that AI will be an integral part of the construction industry. Demand for control centers will drive up commercial production, though the workforce lack may present some challenges when it comes to a construction company’s productivity and workload capacity.
AI will not just change the supply and demand market, but also will be integrated in the day-to-day mechanics and sensors for safety measures within a construction zone. On top of the demand for microchips catalyzed by the CHIPS and Sciences Act, AI is used to “monitor real-time activities to identify safety hazards.” AI-assisted robotics can take on meticulous work such as “bricklaying, concrete pouring, and demolition while drones assist in surveying large areas.” We will start to see where the line is drawn between which jobs require a skilled worker and which can be handled by AI without disrupting the workforce.
Economic Factors
The theme of the years following COVID-19 has been to return the economy to what it was pre-pandemic, including slashing interest rates and controlling inflation. With this favorable economic outlook for 2025, construction companies can look to increasing their projects. On the residential side, the economic boom may drive housing construction to meet demand. On the commercial side, less inflation and lower interest rates for the business can lead to more developmental projects such as megaprojects and major public works. Economist Anirban Basu believes that construction companies may not reap these benefits until 2026 due to the financing and planning required.
Bringing production supply chains back to U.S. soil can help alleviate some of the global concerns such as the crisis in the Red Sea, international wars, and the high tariffs proposed by the Trump Administration. Again, economists are predicting this bountiful harvest in a few years rather than immediately.
Environmental Construction
Trends toward sustainability are leading the construction industry toward greener initiatives such as modular and prefab structures. Both options find the construction agency developing their structures outside of the building sites.
AI can also play a hand in developing Building Information Modeling (“BIM”) to better understand the nuances, possible pitfalls, and visualization of the project before construction begins. Tech-savvy construction agencies are already using programs such as The Metaverse or Unreal Engine for BIM and can significantly reduce project time, resources, and operational costs.
Employee Safety and PPE: Emphasis on employee safety – smart PPE and “advanced monitoring systems”
PPE requirements will far surpass the traditional protective gear (such as helmets, masks, and gloves). Construction sites may soon be required to supply smart PPE products that can scan a worker’s biometrics and environment to prevent medical anomalies or hazardous environmental conditions. Smart PPE devices will be enabled with Internet of Things (“IoT”) to ensure real-time data transmission and to use data analytics to track patterns or predict risks.
Conclusion
The construction industry’s future hinges on adaptability and innovation. By addressing workforce shortages, integrating AI-driven solutions, and adopting sustainable practices, companies can position themselves for success in a dynamic market. Whether it’s preparing for the long-term economic upswing or enhancing employee safety through smart PPE, proactive measures today can lead to stronger, more resilient operations tomorrow. Staying informed and prepared will be crucial for navigating the challenges and seizing the opportunities ahead.
Does Filing a Construction Lien Guarantee Payment?
I am often approached by contractors who wish to file a construction lien regarding either a residential or a commercial project. It is not atypical for many of these contractors to believe that filing a lien claim will guarantee the payment of the amount which is due to them. This belief is entirely incorrect, however, as filing a lien claim does not guarantee payment. Instead, all that it does is place a lien on a property, for no more than one year, during which the property cannot be sold or transferred without first addressing the lien claim. In order to receive payment for a lien claim, the lien must be foreclosed upon, which is discussed below.
Unless the property owner voluntarily pays the amount of the lien claim, the only way to receive payment once the lien is filed is to commence a lawsuit against the property owner. In that lawsuit a contractor would seek to foreclose on the lien claim in order to receive payment. During the lawsuit, the contractor would have to demonstrate that it had a contract, that it provided services, and that the owner failed to pay it for the materials and services it provided. In response, the owner could claim that the contractor breached the contract or assert other defenses. Once the lawsuit is finalized, whether by settlement or a trial, the contractor would then be entitled to enforce the lien claim to receive payment.
It is important to note, however, that a lien claim is only good for one year from the date it is filed. Prior to the expiration of that time, the contractor must file suit. Otherwise, the lien claim is no longer valid and must be discharged. If the owner demands, however, the contractor can be forced to file suit within 30 days. As such, a contractor must be aware of this possibility.
If you are a contractor that is considering filing a lien claim it is suggested that you consult with an attorney, as the process for filing a lien claim is technical, and thereafter, filing a lawsuit to perfect the lien claim is likewise technical. You should also be aware, however, that even if you do not file a lien claim that you may pursue an action against the owner to recover the fair value of the materials and services that you provided pursuant to your contract. Nonetheless, it is always suggested that you consult with competent counsel as to the best course of action in pursuing payment from a delinquent owner who has failed to pay for your services.
New Jersey Appellate Court Rejects Bid Protest: Archeologist Not Required to Be Registered under Public Works Contractor Registration Act
We recently blogged about New Jersey’s bid protest requirements for procurements solicited under the New Jersey Division of Purchase and Property (DPP) here. As we noted, public procurements by local governmental authorities fall outside the jurisdiction of the DPP. A recent intermediate appellate court opinion from January 10, 2025, Anselmi & Decicco, Inc. v. J. Fletcher Creamer & Son, Inc., provides some additional guidance on how local bid protests are administered and reviewed.
In Anselmi, the Passaic Valley Water Commission issued a solicitation for bids on a project to construct prestressed concrete tanks at the Levine Reservoir in Paterson, New Jersey. The solicitation included a requirement that all bidders and their subcontractors be registered in accordance with the requirements of the Public Works Contractor Registration Act (PWCR Act). The solicitation also included a requirement that an archaeologist be listed to monitor all construction activities on the site, a registered historic place.
An unsuccessful bidder on the project challenged the award to J. Fletcher Creamer alleging that the archeologist included in Creamer’s bid was not properly registered under the PWCR Act. The commission heard and rejected the protest finding that no archeologist or archeology practice is required to register under the PWCR Act.
The commission’s decision was then challenged in New Jersey Superior Court. The Superior Court upheld the commission’s decision finding that:
Creamer, as the lowest responsive bidder, was correctly awarded the Project. Further, the bid specifications, as well as state law, do not require that Creamer’s archaeologist be registered under the [PWCR Act] for this Project. Further, even if state law did require it, this defect would not be fatal and therefore would not automatically disqualify Creamer’s bid. Because Creamer’s bid is not disqualified, the [Commission] correctly awarded the Project to Creamer as the lowest responsive bidder.
Undeterred, the unsuccessful bidder then appealed the trial court’s decision to the Appellate Division of the New Jersey Superior Court.
On appeal, the unsuccessful bidder argued, in part, that the trial court erred in concluding that Creamer’s failure to identify an archaeologist registered under the PWCR Act was not a statutory, material defect. The appellate court described its standard of review regarding disputes on publicly bid contracts as follows:
When reviewing disputes concerning publicly-bid contracts, ‘the function of [the trial c]ourt is to preserve the integrity of the competitive bidding process and to prevent the misapplication of public funds. We use a deferential standard of review for governmental decisions in bidding cases. The standard of review on the matter of whether a bid on a local public contract conforms to specifications…is whether the decision was arbitrary, unreasonable[,] or capricious. If a public entity’s decision is grounded rationally in the record and does not violate the applicable law, it should be upheld.’
In contrast, we review issues of statutory interpretation de novo. Accordingly, when reviewing a local entity’s or trial court’s interpretation of a statute, we exercise plenary review. (internal citations omitted)
The appellate court affirmed the trial court’s and commission’s decisions rejecting the bid protest.
The appellate court found that the archaeologist on the project was not required to be registered under the PWCR Act because it was not being hired to perform “public work” as defined in New Jersey law:
Read in full context, the language of both the PWCR Act and the PW [Public Works] Act requires subcontractors to be registered when those subcontractors will be performing public work as defined by the PW Act and they are required to pay ‘prevailing wage[s]’ to their workers under State law. The archeologist on the Project will not be performing public work as defined by the PW Act. The [contract] makes clear that the archeologist will not be engaging in or performing any construction, reconstruction, demolition, alteration, custom fabrication, duct cleaning, repair work, or maintenance work. N.J.S.A. 34:11-56.26(5). Instead, the archeologist will be monitoring ‘all excavation activities’ and preparing ‘monitoring report[s].’
… In short, if the subcontractor is not performing public work as defined in the PW Act, the subcontractor does not have to be registered under the PWCR Act.
The Anselmi case illustrates how state-level bid protests outside of the jurisdiction of the DPP may be handled. Contractors working on state or local projects in New Jersey can expect some variation depending on the local authority issuing the procurement. As indicated in Anselmi, New Jersey courts are likely to be deferential to the governmental decision on the initial protest, so unsuccessful bidders may want to keep that in mind when evaluating whether to appeal a protest denial to a trial court or beyond.
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Key Considerations for the Construction Industry in 2025 Under President-Elect Trump
As President-elect Trump prepares to take office on January 20, the construction industry must anticipate shifts in trade policy, particularly concerning tariffs. These changes are expected to have significant implications for various sectors, including energy and clean technology.
The industry’s growing reliance on energy-efficient and clean technology components is driven by sustainability goals and regulatory requirements. For example, the US Department of Energy (DOE) guidelines on “Zero Emissions Building” provide a framework for sustainable practices, offering benchmarks for energy efficiency, zero on-site emissions, and clean energy use. Similarly, New York City’s Local Law 97 (LL97) sets ambitious emissions reduction targets for buildings, focusing on energy efficiency and renewable energy.
However, potential tariffs on imported clean technology materials could lead to increased costs, hindering compliance with regulations that rely on the imports of energy-efficient materials, and posing challenges to the adoption of sustainable building practices.
As these developments unfold, the construction sector must remain vigilant in monitoring policy changes that could affect the availability and cost of clean technology components in 2025.
Key Points to Watch in 2025
1. Evolving Tariff Policies:
The topic of tariffs under Trump’s second Administration has been a source of concern as President-elect Trump has already threatened to impose universal tariffs in addition to other country-specific tariffs.
At this juncture, we can anticipate an increase in tariff measures, but the specific measures are still unknown in part due to the uncertainty surrounding the rate of potential new tariffs, the countries they may affect, and the mechanisms that will be used to impose them, which will impact the timing any tariffs will take effect.
Because the Trump Administration’s trade policies have particularly focused on imports from Mexico, Canada, and China, such targets could significantly impact the import of construction materials, such as steel, aluminum, softwood lumber, concrete, glass, and binding materials.
For example, tariffs could benefit domestic manufacturers by increasing demand for locally produced materials, such as mass timber, but could create vulnerabilities for the construction sector that relies on imports raw materials used for energy efficiency and sustainable buildings that are sourced from Canada, Mexico, or China.
2. Material Cost Fluctuations:
Be prepared for possible increases in material costs due to tariff adjustments. This could lead to higher project expenses and necessitate budget recalibrations.
Contractors may face challenges in predicting material costs and securing project financing due to economic uncertainty and potential price volatility.
3. Supply Chain Adjustments:
Anticipate disruptions in supply chains as suppliers adapt to new trade regulations. This may result in delays and increased lead times for material availability.
Evaluate current supply chain dependencies and explore alternative sourcing options to mitigate risks.
How Can We Help?
As the new administration takes office, the construction industry must remain vigilant and proactive in addressing potential challenges posed by evolving tariff measures. Companies may need to adjust their project plans to account for potential cost increases and supply chain disruptions. Strategies such as seeking alternative suppliers, exploring domestic options, and reevaluating project budgets and timelines will be crucial in navigating these challenges.
Strategic planning and collaboration with trade experts and legal advisors will be crucial in navigating these changes. Here are some strategic ideas to consider:
Diversify Suppliers: Consider expanding your supplier base to reduce reliance on any single source, particularly those affected by tariffs.
Explore Alternative Materials: Investigate the use of alternative materials that may offer cost advantages or are less impacted by tariffs.
Contractual Safeguards: Review and update contracts to address “escalation,” “force majeure,” or other potential political risks, trade restrictions, and cost fluctuations.
Engage in Advocacy: Participate in industry advocacy efforts to influence policy decisions and promote favorable outcomes for the construction sector.
Monitor Trade Policy Developments: Monitor announcements from the new administration regarding free trade agreements (FTAs) and tariff adjustments that could affect material costs. These could include benefits from the United States-Mexico-Canada Agreement (USMCA) and exclusions from tariffs, such as the Section 301 tariffs on products from China.
Industry members seeking detailed analysis and guidance are encouraged to consult with trade experts and legal advisors specializing in construction and trade policy.