The Construction Advantage – Issue 2

We hope you enjoy Bernstein Shur’s second edition of The Construction Advantage. This newsletter will provide you with insight into the current legal issues in construction, news and updates. Our goal is to provide practical information for your everyday construction issues.

EPA Regulation of Greenhouse Gases: Can They Do That?
By Mike Bosse

On February 24^th, the United States Supreme Court heard oral arguments on a challenge to the Environmental Protection Agency’s power to regulate greenhouse gases, which could affect development in the construction industry. Companies in the utility industry and chambers of commerce in 13 states have asked the court to rule that the EPA has overstepped its authority by trying to further regulate greenhouse gases through a Clean Air Act permitting program.

Parts of the Clean Air Act require permits for all stationary sources that can annually emit 100 tons, or in some cases 250 tons, of the relevant pollutant. Such levels are reasonable for air pollutants like lead, sulfur dioxide, and carbon monoxide, but if applied to carbon dioxide, it would extend coverage and regulation to millions of locations, including hospitals, medium sized office buildings, churches and even some large homes. The EPA argues that this cannot have been Congress’s intended result, and a federal appeals court agreed with the EPA, upholding the administration’s position that the EPA had broad discretion to recalibrate the thresholds to facilitate an effective regulation of greenhouse gases. Challengers argue that if existing limits in the statute do not work, then Congress, and not the EPA, should revise the thresholds.

In this case, the EPA’s power to regulate such gases is not in question, rather at issue is the procedure or application of that power to stationary emitters. The court stood behind its ruling in 2007, Massachusetts v. Environmental Protection Agency, that the EPA has the power to regulate greenhouse gases, based on the agency’s finding that such emissions present an urgent threat to health or welfare. President Obama has already used the Massachusetts v. EPA to regulate greenhouse gas emissions from new motor vehicles.

Challengers to the agency’s actions are presumably taking a calculated risk that if EPA permitting program is overturned by the Court, the agency, rather than seek to enforce the Act as written, will seek revised thresholds from Congress, opening up a legislative debate on the Clean Air Act.

This case will have important implications for those in the utility and construction industries. We are watching this case (Utility Air Regulatory Group v. Environmental Protection Agency) and will report when it is decided on the affect to development in the construction industry.

It’s Not Always Just What You Say, So Watch What You Do
By Asha Echeverria

Last summer, a Washington state appellate court upheld a lower court ruling that parties’ conduct can waive contractual requirements that performance of additional or extra work be approved in writing. This should remind everyone in the construction industry that even the best terms in a contract could be waived depending on the conduct of the parties on a construction project.

In William Dickson Co. v. Misenar Construction, Inc., Dickson provided development services for Misenar’s housing development project. The parties’ written contract included a standard written change order requirement, but throughout the project the parties discussed verbally and by email several changes to the contract that required the contractor to perform additional work at an increased cost and time. The parties never entered into formal written change orders. At the end of the project, developer paid the contractor the original contract amount plus approximately $46,000 in changes but, left several charged amounts unpaid.

The appellate court determined that “[a] contract condition requiring that performance of extra work be approved in writing may be waived by the parties’ conduct.” Here, the evidence showed that the parties emailed and orally discussed changes in lieu of formal written change orders. Therefore, the developer had waived any right to enforce the written change order provision. The trial court ordered the developer to pay the contractor $80,341 for the additional work. On appeal, the appellate court affirmed the trial courts findings and conclusions and granted developer recovery of its attorneys’ fees as the prevailing party.

This is another example of a situation where clear contractual terms can be waived by the parties’ conduct. If you have a written change order provision in your contract, you should caution project managers and individuals in the field to follow the written change order procedure to avoid any argument that you have waived your contractual rights under that provision. If on-site project managers are orally agreeing to changes, a court may very well find that those oral agreements are binding, despite the failure to meet the expressed contractual requirement for a written order.

Proposed Long-term Transportation Funding
By Meredith Eilers

On February 26^th, President Obama announced that he intends to send to Congress a budget proposing a new four-year $302 billion transportation bill that will be partially funded by reforms to the tax code, including closing wasteful tax loopholes and lowering tax rates for businesses that create jobs in the U.S. Mr. Obama noted, “As a percentage of GDP, countries like China, Germany, they’re spending about twice what we’re spending in order to build infrastructure – because they know that if they have the fastest trains on the planet or the highest-rated airports or the busiest, most efficient ports that businesses will go there.” According to Mr. Obama, “doing it over four years, [] gives cities and states and private investors the certainty they need to plan major projects.” Mr. Obama continued his speech by kicking off the next round of competition for the $600 million allocated for Transportation Investment Generating Economic Recovery grants in 2014.

The TIGER program was originally created as part of the American Recovery and Reinvestment Act of 2009 to fund infrastructure projects. So far, the government has awarded $3.5 billion in TIGER grants to 270 programs in all 50 states, including roads, bridges, transit rail and ports. The program will emphasize projects that support reliable, safe, and affordable transportation options that will improve connections for urban, suburban and rural communities.

To learn more about current proposed legislation or other proposals to increase funding to provide much-needed repairs to the country’s infrastructure, contact any member of Bernstein Shur’s Construction Practice Group.