AGC Law in Brief - Vol. 1, No. 4 - September 2015 (Print All Articles)

Back to Graphical Version

Compliance Programs

Compliance Programs: When They Work and When They Don't

Richard PreissPeckar & Abramson P.C., Partner


Within today’s highly regulatory environment, it is imperative that construction companies develop a structured and well-defined compliance program to avoid legal risk. As industry regulations at the federal, state and local levels continue to expand in oversight, construction companies and their employees are at greater risk of
failing to conduct business in compliance with these laws and regulations. The consequences of non-compliant conduct can reach shocking levels, including the loss of business opportunities, forfeiture of government contracts, costly civil lawsuits, and even criminal prosecution. By developing a sound and well-defined compliance program, companies can effectively minimize these risks and maintain their reputation as responsible corporate citizens.

There are several elements that are crucial in establishing and maintaining a successful compliance program. For one, a genuine compliance program and policy must be specifically tailored to the individual company and the business it conducts. So called "off the shelf" programs are rarely effective for they fail to address the individual needs of a company’s line of business. An effective compliance program should begin with a risk assessment, conducted by both the company and competent counsel, to determine potential legal risk and where its business intersects with compliance issues.

Once a clear and succinct policy is approved, the program must be championed by upper management, who establish a strong culture of compliance among company managers and employees alike.   Any disparagement of the policy among management will be quickly detected by the employees, who in turn will fail to commit fully to the program’s requirements. In order to ensure that managers and employees maintain a genuine culture of compliance, it is crucial that they understand why a compliance program is necessary in the first place.

A thorough explanation should be provided in a series of mandatory training programs that are specifically designed for the company. Training programs, which are carefully outlined to address the program, tangible risks and the importance of acting in compliance with the policy, should be conducted in person by competent
trainers in the presence of respected members of management. The sessions should be well documented, and all employees should be required to "sign off" on the compliance policy in writing or electronically, stating that they understand and agree to follow the requirements and are aware that there is zero tolerance for violations. It is important that a company hold all members—both upper management and entry-level employees—accountable for compliance policy violations and take prompt and fair corrective action. Once a compliance program is in effect, companies must encourage employees to ask any questions concerning the policy and provide them with prompt and thorough responses.

A culture of compliance is one that unconditionally recognizes compliance as a constant and integral feature of a company’s business.  If these basic approaches to compliance are adopted, companies will be far more likely to avoid legal risk and achieve long-term success in today’s competitive and highly regulated construction market.




Find Peckar & Abramson's newsletter here. Long known for leadership and innovation in construction law, Peckar & Abramson's Results FirstSM approach extends to a broad array of legal services — all delivered with a commitment to efficiency, value and client service since 1978. Now, with nearly 100 attorneys in nine U.S. offices and affiliations around the globe, our capabilities extend farther and deeper than ever.

 


The views expressed in this newsletter are not necessarily those of AGC. Readers should not take or refrain from taking any action based on any information contained in this newsletter without first seeking legal advice. 

 

Unsolicited P3 Proposals

Understanding Unsolicited P3 Proposals

Vianney Lopez, Smith Currie & Hancock LLP, Associate 

The popularity of public-private partnerships (P3s) as a procurement delivery method continues to increase as more and more states encourage the private sector to finance, deliver, or maintain facilities, infrastructure, or services for public use. Many states allowing use of P3s are now also accepting unsolicited proposals for P3 projects.

An unsolicited P3 proposal (UPP) is a written proposal submitted by a private entity (the offeror) to a public entity for a P3 project that is not in response to any request for proposal issued by the agency. Because the proposal is not submitted in response to any specific request, a private entity can submit a UPP to propose new P3 projects as well as to suggest new ideas to improve current public-private development and technologies. UPPs encourage private entities to be innovative by proposing new, creative ways to deliver public projects or to identify a current unmet need. Unsolicited proposals can also offer more efficient models for public agencies to manage existing projects, services, or programs.

The UPP Framework

While more and more states are allowing private entities to submit unsolicited proposals for P3 projects, this does not mean it is open season for UPPs. For the most part, jurisdictions accepting UPPs have specific guidelines regarding which state or local agencies can accept UPPs, the period of time each calendar year during which submission of UPPs is allowed, the procedure and criteria for the evaluation of UPPs, the procedure for requesting competing proposals (if applicable), the information that must be included in the proposal, and the required fees. Additionally, the submission of a UPP must be accompanied by sufficient information to allow the relevant agency to properly evaluate the proposal. The factors to be considered are varied and can differ from state to state—and even from one agency to another within a state. Typically, a UPP must include a project description, a feasibility statement, schedule, budget and financing plan, and a statement describing the benefits the private entity can provide in delivering the project. In other words, the private entity must sell itself and the project idea to the public agency.

Upon receipt of a UPP, the public agency must decide whether to pursue the project. Here, again, the evaluation criteria vary from state to state. Some states require the agency to evaluate the proposal based on the needs of the end user—i.e., the public—and determine if the UPP provides a public benefit by promoting a public purpose or meeting a public need. This approach is used in Florida and Georgia. Other states, like Maryland, make their evaluation from the viewpoint of the owner—i.e., the government agency. If the proposal does not meet a need of the agency or is in fact disadvantageous to the agency, the agency will not pursue it.

Protecting Your Intellectual Property When Submitting Your UPP

The use of UPPs has not escaped criticism. The idea of a public agency dealing directly with only one private entity conflicts with the traditional expectation that public entities engage in open, competitive bidding processes for public procurements. Critics point to the lack of competition and the lack of transparency in the UPP evaluation and negotiation processes. It is for this reason that many states require agencies to give public notice of UPPs and accept competing proposals from other private entities.
Another area of concern is the need to protect the intellectual property rights of the private entities submitting UPPs. UPPs encourage innovation in public procurement. However, when submitting a UPP, private entities must disclose certain confidential and proprietary information. This includes financial and technical data as well as proprietary methodologies and processes. Such information is often necessary to present a persuasive proposal. For the government agency, a direct conflict arises between the agency’s need to remain transparent and accountable to the public when procuring goods and services and the agency’s need to protect confidential and proprietary information of the private entity in order to encourage participation.

The level of IP protection varies from state to state. Some states offer no protection at all while others provide statutory protection. Georgia is an example of a state that provides no protection. The Georgia “Partnership for Public Facilities and Infrastructure Act,” was passed this May, 2015. The Act grants broad authority to state and local governments to enter into public-private partnerships and to either adopt the model guidelines developed by the Guidelines Committee or to develop their own set of guidelines. In addressing the issue of the offeror’s proprietary information, the Georgia Act expressly states that “[a] private entity assumes all risk in submission of a proposal or unsolicited proposal . . . and a local government shall not incur any obligation to reimburse a private entity for any costs, damages, or loss of intellectual property incurred by a private entity in the creation, development, or submission of a proposal or unsolicited proposal for a qualifying project.” Ga. Code Ann. § 36-91-113(d). Additionally, the Act requires the local government and private entity to comply with Georgia’s Open Records Act. Ga. Code Ann. § 36-91-119(c). In Georgia, therefore, offerors submit UPPs at their own risk.

States that do protect the offeror’s proprietary information often place the responsibility on the offeror to invoke the protection and to clearly identify the data it seeks to protect.  In Arizona, for example, the private entity must identify the confidential or proprietary information and then:
(1)   invoke exclusion on submission of the information;
(2)   identify the data or other materials “with conspicuous labeling”;
(3)   state the reasons protection is necessary; and
(4)   fully comply with any applicable state law with respect to information it contends should be exempt from disclosure. Ariz. Rev. Stat. Ann. § 28-7707.

Arizona and like-minded states may be following the federal government’s lead. The Federal Acquisitions Regulations (FAR) expressly provide that: “Government personnel shall not disclose restrictively marked information included in an unsolicited proposal.” 48 C.F.R. § 15.608. But the regulations place the responsibility on the offeror to clearly identify proprietary information. In fact, in order to protect its proprietary information, the offeror must “mark” the title page as well as “each sheet of data” it wishes to restrict with the required “Use and Disclosure of Data” legend.

Federal courts have strictly applied these marking requirements.  In Xerxe Group, Inc. v. United States, 278 F.3d 1357 (Fed. Cir. 2002), the Federal Circuit Court of Appeals found that a contractor failed to comply with the FAR requirements because it marked the title page of its UPP but failed to include the restrictive legend on each sheet of data that it wanted to remain restricted. Sheets missing the restrictive legend were not protected; only the title page was protected. The Court of Federal Claims has followed Xerxe in subsequent rulings. For example, in Grayton v. United States, 92 Fed. Cl. 327 (2010), the court held that a federal agency has no obligation to keep unsolicited proposals confidential when restrictive legends are inadequate or missing.

Conclusion

P3s are still a relatively new procurement delivery method. There is much to be learned about how courts will reconcile a public entity’s general presumption of transparency and obligations under state open records laws with the agency’s obligation, if any, to protect the proprietary information of UPP offerors. As the P3 landscape continues to evolve, a prospective offeror should familiarize itself with the laws of the jurisdiction where it seeks to submit a UPP. An offeror must also be mindful of its responsibilities to ensure that confidential and proprietary information remains confidential.

 


Smith, Currie & Hancock LLP is a national boutique law firm that has provided sophisticated legal advice and strategic counsel to our construction industry and government contractor clients for fifty years. We pride ourselves on staying current with the most recent trends in the law, whether it be recent court opinions, board decisions, agency regulations, current legislation, or other topics of interest. Smith Currie publishes a newsletter for the industry “Common Sense Contract Law” that is available on our website: www.SmithCurrie.com

 


The views expressed in this newsletter are not necessarily those of AGC. Readers should not take or refrain from taking any action based on any information contained in this newsletter without first seeking legal advice.

 

A Case to Watch

A Case to Watch: Highway Contractor Appeals $663M False Claims Act Judgment

Kristin H. Jones and Thomas J. Madigan, Pepper Hamilton LLP, Partners

On August 31, 2015, highway contractors Trinity Industries, Inc. and Trinity Highway Products, LLC (collectively, Trinity) appealed to the U.S. Court of Appeals for the Fifth Circuit a $663,360,750 final judgment entered against them under the federal False Claims Act (FCA). At the conclusion of a six-day trial that commenced on October 13, 2014, the jury rendered a unanimous verdict, finding Trinity “knowingly made, used, or caused to be made or used, a false record of statement material to a false or fraudulent claim” in violation of the FCA. The jury unanimously found that the U.S. government suffered damages in the amount of $175,000,000 as the result of Trinity’s FCA violations.

After denying Trinity’s post-trial motions, the district court entered a final judgment on June 9, 2015 in which it (1) trebled the $175,000,000 damages award to $525,000,000 pursuant to 31 U.S.C. § 3729 and (2) assessed a civil penalty of $8,250 for each of the 16,771 false certifications that the jury found Trinity made in connection with false claims for payment, for a total penalty of $138,360,750. Of the final judgment amount of $663,360,750, 30 percent ($199,008,225) was awarded to the relator, who had proceeded with the prosecution of the FCA action without the participation of the U.S. government, which had declined to intervene in the case. In addition, the relator, as the prevailing party, was awarded attorney’s fees of $16,535,035.75, expenses of $2,300,000 and taxable costs of $177,830.

Trinity’s appeal of this extraordinarily large damages award could set important precedent as to what constitutes the “knowing presentation” of a false or fraudulent claim, statement or record and how damages are calculated in FCA cases.

The FCA provides that any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,” or who “knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim” is liable to the U.S. government for damages and civil penalties. 31 U.S.C. § 3729(a)(1)(A) and (B). The FCA can be enforced either by the U.S. Department of Justice or by private individuals acting on behalf of the government, formally known as “relators,” but often referred to as “whistleblowers.” Generally, damages in an FCA case are measured under a “benefit of the bargain theory,” i.e., the difference between what the government actually paid and what the government would have paid absent the fraud. Under the statute, damages may be trebled. In addition, the FCA permits the United States to recover penalties, costs and attorneys’ fees in successful cases. Penalties can be between $5,500 and $11,000 for each false claim.

In the FCA case against Trinity, the relator alleged that Trinity violated the FCA by knowingly and falsely certifying that Trinity’s guardrail end terminals, known as “ET-Plus,” had been crash-tested and approved for federal reimbursement by the Federal Highway Administration (FHWA). According to the relator, in or around 2005, Trinity modified the properties and dimensions of ET-Plus that had been previously approved by the FHWA in 1999. The relator alleged that Trinity did not disclose its modifications of ET-Plus to the FHWA, the FHWA did not approve the modifications, and, therefore, Trinity falsely “certified” that the modified ET-Plus had been approved by the FHWA. According to the relator, these false certifications caused the government to pay money when it reimbursed individual states for the costs associated with installing ET-Plus on federally funded or subsidized highways.

At trial, Trinity presented evidence that, contrary to the relator’s contentions, the FHWA repeatedly affirmed that ET-Plus was compliant with all applicable federal rules and regulations. Trinity also presented evidence that the allegedly false certifications were not made to the government contracting agency and played no part in either the award of the contract or any payment decision thereunder. The allegedly false statements at issue were representations made by Trinity to its customers that ET-Plus was compliant with the applicable government rules and regulations. Trinity disputed the requisite FCA element of causation, pointing to the fact that there was no evidence that the federal government ever saw the customer certifications, let alone relied on them in making its payment decision. Trinity also argued that such statements were not material to the government’s payment decision because, once made aware of the statements, the government investigated and rejected the relator’s allegations and concluded that Trinity was entitled to payment.

Ultimately, the jury found for the relator and awarded damages using a “benefit of the bargain” calculation propounded by the relator’s expert. The relator’s expert estimated that, after the 2005 modification of ET-Plus, the government paid $218,003,273 to reimburse states for purchases of modified ET-Plus and, because modified ET-Plus had not been approved by the FWHA, it had no ascertainable value other than as scrap metal. Accordingly, the expert argued that the appropriate measure of damages was $218,003,273, reduced by the scrap value of the modified ET-Plus, which was $175,037,890. The jury awarded $175,000,000 in damages. The court then determined that there were 16,771 false claims and applied a $8,250 penalty for each claim.

Trinity is appealing the damages award as both excessive and based on speculation and conjecture. Trinity argues that the relator failed to prove how much the FHWA actually paid in reimbursements for ET-Plus, but instead merely presented an estimate prepared by its expert of the percentage of ET-Plus sales that were federally reimbursed. This estimate was derived by multiplying Trinity’s total ET-Plus sales revenue by the percentage of states’ total highway-related expenditures that were spent on federal highways, and then applying an 80 percent federal reimbursement rate. Trinity contends that these estimates fail to satisfy the requirements that damages awarded under the FCA be “just and reasonable and “based on relevant data.” Trinity is also challenging the relator’s expert’s assumption that ET-Plus has no value other than as scrap, pointing to, among other things, statements by the FHWA that Trinity  contends acknowledge that the government received value for the ET-Plus units supplied.

Trinity is appealing the district court’s determination of penalties as violating the Seventh Amendment because the court failed to submit its challenges to several of the claims to the jury for its consideration. Trinity is also challenging the award of damages and the assessment of penalties as violative of the Eighth Amendment’s Excessive Fines Clause.

The Fifth Circuit’s ruling on Trinity’s appeal has the potential to provide significant guidance on the contours of what constitutes a knowing false claim or assertion and the level of proof required to sustain an award of damages under the FCA, as well as the appropriate role of the district court in determining damages and when an FCA judgment crosses the line into being unconstitutionally excessive. In the meantime, the case against Trinity serves as a reminder of the extraordinary risk of taking an FCA case to trial, even when the government has declined to intervene.

 

 

Pepper Hamilton's Construction Practice Group has an unparalleled record of resolving complex construction disputes and winning complex construction trials. Our litigation experience — and success — informs everything we do, including translating into better results in our contract drafting and project management. Our lawyers counsel clients on some of the biggest, most sophisticated construction projects in the world. With more than 25 lawyers — including 15 partners who all have multiple first-chair trial experience — and a national network of 13 offices, we have the depth and breadth to try cases of any complexity, anywhere. For more information about Pepper’s Construction Practice, visit www.constructlaw.com

.


The views expressed in this newsletter are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information contained in this newsletter without first seeking legal advice.

 

 


Litigation Schedule

Is Your Attorney Using a Litigation Schedule to Manage Your Case?

Jeffrey J. Nix,  Troutman Sanders LLP, Partner

Smart contractors plan their work and then work their plan.  That’s why most contractors use some form of CPM schedules to manage their projects.  After all, schedules are the easiest way to communicate when, where, how, why and by whom work is to be performed.  Yet, few attorneys use litigation schedules to manage their clients’ cases.  Even fewer clients request litigation schedules from their attorneys.  Why is it contractors use schedules to manage their projects, but do not require their attorneys to use schedules to manage their cases?

One reason is that attorneys often claim it is impossible to schedule litigation.  They say there are too many “unknowns” to manage litigation using a schedule.  Courts are clogged.  Judges and arbitrators are unpredictable.  Opposing counsel is unreasonable.  Parties are irrational.  Electronic discovery is unwieldy.  Witnesses are uncooperative.  There’s a never ending parade of “terribles” upon which attorneys rely.  But, even if such “unknowns” exist, why can't litigation be managed using a schedule?

The root cause of the problem is the way attorneys view risk.  Contractors view risk as an opportunity.  Attorneys view risk as a misfortune.  Attorneys see scheduling “unknowns” as a "terribly" risky adventure.  Contractors see scheduling “unknowns” as a calculated gamble.  As an old project manager once told me, contractors are from Mars and attorneys are from Venus.'

Few attorneys appreciate that Gantt Charts – a predecessor to CPM scheduling – were used to manage the Manhattan Project.  A project filled with unthinkable “unknowns.”  The most terrible “unknown” being whether the atom bomb produced from e = mc² would generate a fission explosion ending all life as we know it.  Yet, such “terribles” did not prevent General Groves from insisting upon a project schedule.  Nor did such “terribles” prevent the project managers supporting Robert Oppenheimer and friends from providing one.  Contractors schedule “unknowns” every day by making predictions and assumptions.  Why can't attorneys do the same?
There is no reason litigation cannot be managed just like any other project.  Experienced attorneys can foresee and identify normal litigation activities.  Resources, relationships, durations and start dates can be assigned to each foreseeable activity.  Naturally, predictions and assumptions must be made about “unknowns” just like contractors do on a daily basis.  Along the way, litigation activities will need to be adjusted to accommodate the “unknowns” just like with any other schedule.  And all this can be achieved using Microsoft Project - a standard over the counter software used by many contractors to manage their projects.  So what's the excuse?

Everyone is concerned about the rising costs of litigation and, if properly prepared, litigation schedules will help clients control these costs.  A good schedule contains the same activities identified in the litigation budget.  Work within each activity is assigned to attorneys, experts, the client or others.  Experience shows contractors who understand the work to be done will inevitably elect to self perform certain activities to save costs.  In the end, all stakeholders are put to their highest and best use.
Better yet, clients will know exactly where their money is being spent and why.  Under a good system, all time is recorded and invoiced to the activities identified in the schedule and budget.  Both are updated monthly.  Information is available for stakeholders to see when, where, how, why and by whom work is being performed and costs are incurred.  Surprises about cost and schedule are minimized, if not eliminated.

Best of all, litigation schedules help put decision making about costs back into the hands of the client.  Clients can see firsthand whether their plan is working and whether their attorneys are working their plan.  Many litigation activities can be accelerated, delayed, added, suspended, rescheduled, reassigned or eliminated as necessary to satisfy the clients plan.  Of course, there will always be some activities that are set in stone and cannot be altered by the client or their attorneys.  But with a schedule and budget in hand, clients can make informed business decisions about how their time and money is best spent during litigation.

So try managing your next case using a litigation schedule.  You might like it.  And if your attorney’s says it can't be done, tell them about the Manhattan Project.


The views expressed in this newsletter are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information contained in this newsletter without first seeking legal advice.

Understanding the Fine Print

Understanding the Fine Print: Contract Clauses Contractors Must Know

Webinar: Understanding the Fine Print - Part II - Contract Clauses Contractors Must Know (and Revise)

Speakers: Philip E. Beck, Partner at Smith Currie & Hancock LLP; Ronald D. Ciotti, Partner at Hinckley, Allen & Snyder LLP; Carrie L. Ciliberto, Senior Director & Counsel, Contracts & Construction Law at Associated General Contractors of America

October 1, 2015 - 3:00pm to 4:30pm



Understanding the Fine Print - Part II - Contract Clauses Contractors Must Know (and Revise)

Understanding the Fine Print - Part I- Contract Clauses Contractors Must Know (and Revise)

Jordan F. Howard, ConsensusDocs LLC
, Sales and Program Coordinator

Most contract disputes are about the timing aspect, and not about the scope of the work. Contractors should pay close attention to the timing of work in a contract because when a project gets delayed it costs contractors more money, and the owner doesn’t receive any benefit. Subcontracts need to watch out for general contractors unilaterally changing the schedule without compensation. 

Substantial Completion

Don’t tie LEED certification to completion date. Green Building is now very popular. What does that mean? It is something many owners want, contractors want to say they can deliver. A lot of things if you do or don’t in order to get a LEED certificate. LEED certificates have very state-specific requirements. A contractor must define what the expectations are and who is responsible. ConsensusDocs 310 contract, an industry first, is good for use on projects with green building elements, particularly those seeking a third-party green building rating certification such as LEED.

It is wise to never tie substantial completion to LEED certification because you don’t know what kind of certification you will get. It can sometimes take years after the project to go through some of the determinations to determine. This delay can impact when a contractor or subcontractor gets paid.
Liquidated damages provisions

Some contractors won’t sign a contract with liquidated damages in it. This is a misunderstanding. The absence of a liquidated damages provisions really means you do not know your exposure to damage claims. Contractors should know the cost if their project is delayed by a week or month. Knowing this can determine the costs of project acceleration versus paying liquidated damages. Most contractors want a cap at some amount (reimbursement, fees, etc.). Liquidated damages, instead of actual damages, must be a reasonable estimate of cost. Liquidated damages need to be a reasonable approximation of what the owner’s damages in the event of delay.

CM Fees General Conditions

What is included and excluded in general conditions? These don’t have universal definitions. Parties to a contract have to define what is included. Many disputes whether a certain element of cost the contractor should absorb, is covered by general conditions costs, or if they absorb it like any other cost of work (computer support, accounting support, etc.) It is recommended that you spell out what type of fee is included in the general conditions. You must make sure everyone is on the same page. It is important to owners that a general contractor be transparent and upfront without hidden costs.


Right to Financial Information

Right to Financial is critical to general contractors. Before commencement of work, the contractor will receive evidence of sufficient contract financing. A contractor has the right to discuss with the owner how their financing is coming. Do not leave it general.  Unlike AIA, ConsensusDocs 200 allows the contractor at any point in time to inquire. Information may be more critical once project receives than before. ConsensusDocs provides that a contractor only needs a written request by contractor for evidence of contract financing they can receive it.  

 


 

The views expressed in this newsletter are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information contained in this newsletter without first seeking legal advice.

 

The views expressed in this newsletter are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information contained in this newsletter without first seeking legal advice.