The Construction Advantage

Brand Names and Or Equal Clauses

In a recent case, the United States Civilian Board of Contract Appeals considered whether a product supplied to a Veterans Affairs medical center in Pittsburgh was an adequate or equal substitute, and the case has some unique facts. In R. A. Glancy & Sons v. The Department of Veteran Affairs, Glancy was hired to construct and provide renovations at a building at the VA medical center in Pittsburgh, Pennsylvania. Among the items that Glancy had to provide and install was a patient headwall system identified in the specifications as “Elements Headwall System Manufactured by Hill-Rom Co. or approved equal.” The VA concluded that the contract language indicated that only what was required was the product that included both thermal foil (for cabinetry) and quartz (for countertops) rather than Corian and laminate which are integral features of the Hill-Rom brand-name headwall system. Accordingly, Glancy put the Hill-Rom product in its bid despite the fact that it did not have the thermal foil and quartz materials.

The Board of Contract Appeals reviewed the specifications and found that in some instances the use of quartz for countertops and thermal foil for cabinets were present in the specifications and drawings. The contract documents, however, also included a brand-name or equal clause that allowed for equal products to be used. When Glancy prepared its bid, it was told by Hill-Rom representatives that Hill-Rom had no headwall product with thermal foil or quartz and that its standard product was to use the Corian countertop with high pressure laminate finishes on the cabinets. The Board of Contract Appeals concluded that there was no reasonable way to read the language in the brand-name or equal clause other than to permit Glancy to provide the identified brand headwall specified (Hill-Rom) even though it did not contain quartz and thermal foil. The government argued that there was a patent ambiguity based on the characteristics of the Hill-Rom product; however, the Board of Contract Appeals concluded that because the specifications included the actual brand-name, Glancy was allowed to choose that brand-name.

The Board of Contract Appeals also stated that when the government designates a product as a brand name “the government needs to understand that a contractor can bid on that product, notwithstanding whether the product conforms to otherwise listed salient characteristics or not. If the government needs features that are different from those on the brand-name, then the government should not designate the brand name.” The Board of Contract Appeals also indicated that if the government wants a particular product to be modified to include other features, it has to say so in the specifications that contractors are bidding on.

This is an important lesson on an issue on the front line for contractors. If an “or equal” clause is present, contractors should still try to ensure that they and the government agency see eye to eye on the characteristics of the product. Although the contractor was victorious in this case, that result only occurred based upon litigation. Hopefully in the next case, such litigation will not be necessary.

Failure to Comply Can Cost: OSHA Penalties on the Rise

Starting August 1, Occupational Safety and Health Administration penalties are set to increase by 78 percent. After remaining stagnant for nearly 16 years, these penalties have been increased to comply with Federal Civil Penalties Inflation Adjustment Act Improvement Act of 2015.The Adjustment Act requires many agencies, such as OSHA, the Environmental Protection Agency, and Department of the Interior, to adjust their penalties to account for inflation through a two-step process: An initial one-time catch-up adjustment which is capped at 150% of a penalty’s November 2, 2015 value, and subsequent annual adjustments for inflation.

Proper compliance is therefore essential, because the consequences of these adjustments will be costly. Prior to the Adjustment Act, each OSHA violation was subject to a maximum penalty of $7,000, but now companies will face up to a $12,471 penalty. Failure to correct violations will also result in maximum daily penalty of $12,471. Penalties for OSHA violations classified as “willful” or “repeated” are now subject to a maximum penalty of $124,709, up from $70,000.

OSHA violations are subject to the old penalty amount if:

• The violation occurred on or before November 2, 2015
• The penalty assessment was incurred before August 1, 2016 for a violation which occurred after November 2, 2015

Therefore, be sure to contact counsel if you have questions regarding the timing of any outstanding compliance issues.

For more information, consult the following resources to learn about the changes to OSHA, EPA, and DOI penalty amounts.

• EPA Memorandum: Modifications to EPA Penalty Policies to Implement the Civil Monetary Penalty Inflation Rule (Pursuant to the Debt Collection Improvement Act of 1996)
• Department of Labor: OSHA Penalty Adjustments to Take Effect August 2016
• Cornell Legal Information Institute: 40 CFR 19.4 – DOI Penalty Adjustment and Table

Overtime Changes Will Take Effect December 1, 2016

Based upon the updated Department of Labor regulations that were released last month, the minimum annual salary for exempt employees will be $47,476 ($913 per week) as of December 1, 2015.  This minimum annual salary for exempt employees will be subject to adjustment every three years to make it consistent with the 40th percentile of the earnings of full-time salaried workers in the lowest-wage census region, which is currently the South.  Although the DOL did not make any changes to the “duties tests” for exempt employees, as they previously suggested they might, they have indicated that they will be paying close attention to the duties tests in future enforcement actions.  For more information about new regulations visit  the DOL website.

Why this Matters

The DOL has in the past reported that it finds some sort of wage and hour violation in 78% of the investigations it conducts. Many of those violations involved the misclassification of employees who should have received overtime as “exempt” employees and the resulting failure to pay those employees their overtime pay. The financial impact of such misclassifications on employers can be enormous. The new regulations will cause everyone, including your employees, to focus on the issue of overtime. It is expected that there will be an increase in the number of claims that are filed by disgruntled employees and the number of investigations that are launched by the DOL.

To Do List

If you have not done so already, you should immediately take these next steps:

• Review all of your employee classifications
• Determine what impact the new regulations may have on you
• Develop a plan to minimize that impact

It also would be prudent to conduct a full audit of your employee classification system focusing on your exempt employees, your policies and practices for record keeping and overtime calculation for your non-exempt employees, and your use of independent contractors. We can assist you with that process.

Learn more about our Labor and Employment Practice Group or contact us with questions.