Play Nicely in the Sandbox (or, Why GC’s and Subs Should Get Along) (guest post)

Chris HillToday’s guest post is from Christopher G. Hill, lawyer, Virginia Supreme Court certified General District Court mediator and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC, a LEED AP. Chris authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals. Additionally, Chris is active in the Associated General Contractors of Virginia and a member of the Board of Governors for the Construction Law and Public Contracts Section of the Virginia State Bar.

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First off, thanks to Melissa for this opportunity to post here at Construction Law in North Carolina. Having co-presented with her and discussed construction contracting from all perspectives, I can safely say she’s good at what she does and shares great insight here at her blog.

Now that the formalities are out of the way, I thought I’d share my thoughts as one who represents many subcontractors and general contractors on the topic of good relationships meaning good business. I am always a bit surprised at the failure of either side of the GC/Sub dynamic to act in a businesslike manner.

Remember, the General Contractor and the subs are in the boat together in many ways. They both have a job to do and, ultimately, an owner at the top of the payment food chain that is looking to get a project done on time. Ultimately, they both have an architect/engineer representing the owner that may or may not be up on the job (sorry Melissa) and may not be trained in project management. If the general and its subs aren’t “playing well in the sandbox” together, the relationships up and down the project chain get all out of whack and cause delays in completion and importantly in payment.

Another phenomenon that happens more frequently than I would like is the general contractor “burning” good subcontractors in an area through making payment (particularly final payment) difficult to receive. While this type of activity occurs on what I am sure is the minority of projects (and fully acknowledging that my practice makes me think that Murphy was an optimist) I am always flabbergasted by this sort of treatment given to a subcontractor that should be helping pull the boat.

While it is obvious that subs need to play nice with GC’s because they have the money, it may seem less obvious how the above can hurt a general contractor. The short answer (and don’t worry I won’t be going into the long one) is that burning good subs eventually means that good subs won’t work with you. Subs talk to each other. Your reputation will precede you. Eventually the economy will improve and you won’t be the only game in town. Not to mention that such actions are the stuff of which claims are made.

In short, getting along costs your local construction lawyer money because he or she doesn’t get to go to court for you. It is almost always less expensive to get along, finish the job and work out payment than to get we attorneys involved in the construction claims process.

To make a long story somewhat less long, GC’s work with the subs and subs, play nice with the GC’s. It’s the best way to a lower stress project and a higher monetary payoff.

Thanks, Chris, for your insights from the contractor’s side of things.  Even if you did (politely) slam the hard-working design professionals.  Reader, now it’s your turn.  Share your thoughts, comments, or questions with Chris or me in the comment section, below.

Tues Tip | NC HUB Requirements for state construction projects

If you bid on state work in North Carolina, or want to, you should be aware of the Office for Historically Underutilized Businesses (HUB).   [You should also be aware that there may be changes coming soon in light of a recent 4th Circuit Decision with regard to who still qualifies as a HUB.]

Historically Underutilized Businesses logo

1.  What does the HUB office do?

The HUB office is set up to:

  • help qualifying companies become listed vendors in their database
  • help contractors find HUB companies to solicit subcontractor bids from
  • answer questions about the HUB process for bidders

2.  Who qualifies as a HUB business?

By statute, a HUB business is one in which at least 51% ownership and control is held by minorities, women, disabled, and/or disadvantaged owners.  If you think you qualify, get certified! It can only give you more opportunities for public work.

3.  If I bid on a state contract, how do I comply with the HUB requirements?

Under the HUB statute, each bidder must do one of the following:

  •  identify on his bid the minority businesses that will be used and for what percentage of the contract;
  • sign an affidavit and provide documentation listing the good faith efforts to comply [see below]; or
  • sign an affidavit that all work will be self-performed

4.  What activities qualify as “good faith efforts” to identify a HUB subcontractor?

The statute provides that good faith efforts include:

(1)        Contacting minority businesses that reasonably could have been expected to submit a quote and that were known to the contractor or available on State or local government maintained lists at least 10 days before the bid or proposal date and notifying them of the nature and scope of the work to be performed.

(2)        Making the construction plans, specifications and requirements available for review by prospective minority businesses, or providing these documents to them at least 10 days before the bid or proposals are due.

(3)        Breaking down or combining elements of work into economically feasible units to facilitate minority participation.

(4)        Working with minority trade, community, or contractor organizations identified by the Office of Historically Underutilized Businesses and included in the bid documents that provide assistance in recruitment of minority businesses.

(5)        Attending any prebid meetings scheduled by the public owner.

(6)        Providing assistance in getting required bonding or insurance or providing alternatives to bonding or insurance for subcontractors.

(7)        Negotiating in good faith with interested minority businesses and not rejecting them as unqualified without sound reasons based on their capabilities. Any rejection of a minority business based on lack of qualification should have the reasons documented in writing.

(8)        Providing assistance to an otherwise qualified minority business in need of equipment, loan capital, lines of credit, or joint pay agreements to secure loans, supplies, or letters of credit, including waiving credit that is ordinarily required. Assisting minority businesses in obtaining the same unit pricing with the bidder’s suppliers in order to help minority businesses in establishing credit.

(9)        Negotiating joint venture and partnership arrangements with minority businesses in order to increase opportunities for minority business participation on a public construction or repair project when possible.

(10)      Providing quick pay agreements and policies to enable minority contractors and suppliers to meet cash‑flow demands.

Depending on which public entity is involved, different weight may be assigned to different parts of this criteria, or additional criteria may be required.

5.  What documentation is necessary to prove good faith efforts?

The short answer is, “it depends”.  The statute requires “all” documentation be provided.  If you are telephoning minority businesses and getting verbal denials, you must find a way to document that.  Better practice would be to send written requests for bids to HUB-certified businesses, so you can maintain a copy for submission with your bid.  The HUB website even has instructions for creating a HUB vendor/contractor Excel spreadsheet to track your efforts.

6.  Is the HUB process related to my local MBE/WBE [Minority-owned/Women-owned  Business Enterprise] certification?

As of last summer, there is now a statewide process to getting certified, the Statewide Uniform Certification (SWUC).  This change was made to streamline and centralize the HUB certification process and HUB database.

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Logo from NCDOA HUB website.

 

Even Subcontractors can sue other Prime Contractors Directly on State projects (Law note)

While we have previously looked at direct contractor-to-contractor lawsuits and contractor-to-design professional lawsuits, I have said very little about the role of subcontractors in the multi-prime system.

In the Bolton case addressed earlier, Bolton made a claim against another prime contractor on behalf of itself and its subcontractor.  

However, in 2004 the Court of Appeals dealt with the issue of a subcontractor making a direct claim against a prime contractor other than the contractor for which the sub performed its work.  Pompano Masonry Corporation v. HDR Architecture, Inc., 165 N.C. App. 401, 598 S.E.2d 608 (2004).

That case involved the Biological Science Research Center at UNC-CH .  HDR was the “project expeditor” under a separate contract with UNC, responsible for preparing the project schedule and coordinating work between the prime contractors.

Metric Constructors served as the prime general contractor, and Pompano Masonry was a subcontractor to Metric.  Pompano sued HDR directly as the project expeditor, and the court allowed the case to proceed, holding that subcontractors to prime contractors could sue other prime contractors directly.

The court held that HDR could be sued directly by a subcontractor to which it had no contract for economic injury resulting from its alleged negligent performance of its duties as project expediter.  Citing its earlier decision in Davidson, the court held that liability exits due to the “working relationship” and “community of interests” despite the fact there was no contractual privity between Pompano and HDR.

 Conclusion

The moral of the story with regard to this series of cases?  Never assume that you cannot be sued by someone because you don’t know them, you have no contract with them, you are a licensed professional, or they are on a different “tier” than you on the project.  You have duties to all parties on a construction project, and the multi-prime statute in North Carolina gives yet another arrow in the litigator’s arsenal which could be pointed at your chest.

Are you having fun yet?  Next blog post will be on a less “scholarly” topic, I promise!

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