GOVERNOR PATAKI VETOES ESSA PAYMENT BOND BILL (Go Top)

On May 4, 2004, Governor Pataki vetoed an Empire State Subcontractors Association (ESSA) bill that would have required a payment bond to be posted on certain “hybrid” construction projects in New York State. This bill (S1099/A5805) holds the dubious distinction of being the very first bill vetoed by the Governor during the 2004 legislative session.

The payment bond bill has been a high priority for ESSA for several years because under the NYS Lien Law, as currently construed by the courts, contractors, subcontractors, and material suppliers do not have lien rights for labor performed or materials furnished on public improvements where no public fund has been established to finance the improvement. A prime example of this problem is where a private entity leases property from the state or a public corporation, and thereafter constructs a building on this property for the benefit of the private entity. The real property is owned by the public entity, eliminating the possibility of a private mechanic’s lien. But there also exists no public fund for the construction of the building, thereby eliminating the possibility of a public improvement lien. A subcontractor or supplier, therefore, is left without any lien rights whatsoever on such a project.

In his veto message, Governor Pataki stated that the “purpose of this bill is laudable”, but there were “technical defects” which warranted his disapproval. More specifically, he explained that the bill failed to establish a minimum dollar amount that would trigger the bond requirement, thereby having the “unintended consequence” of adding costs to small public projects. The Governor also expressed concern that the bill did not permit owners to post other forms of security (such as a letter of credit) as an alternative payment protection for subcontractors and suppliers.

Despite his veto, Governor Pataki pledged to work with ESSA and other interested parties to develop legislation to protect subcontractors on privately-funded public improvement projects. ESSA has already begun work to amend the bill to satisfy the Governor’s concerns.

NESCA OFFICERS TO BE ELECTED ON JUNE 10^TH ^{( Go Top)}

In accordance with NESCA’s Bylaws, the June 10, 2004 membership meeting will serve as the association’s “Annual Meeting”, at which time an election of officers to serve during the 2004-2005 fiscal year will be held. The term of all officers elected at the meeting will begin on July 1, 2004 and will end on June 30, 2005. All members of NESCA are encouraged to attend this meeting and cast your vote. NESCA’s Nominating Committee has recommended, and the Board of Directors has confirmed, the following slate of officers for member approval:

PRESIDENT

Kevin Garrity – Rose & Kiernan, Inc.

VICE PRESIDENT

Hal Hatfield –Maximum Security Products Corp.

TREASURER

Toni Cristo – Cristo Demolition, Inc.

SECRETARY

Peter Clechenko – Albany Interiors, Inc.

NESCA Membership Meeting

June 10, 2004

Century House – 6:00 p.m.

6:00 Open Bar/Registration

6:30 Dinner: Sirloin Steak

7:10 Business Announcements

7:30 Program: Panel Discussion:

“Controlling Health Insurance Costs”

Open Bar, Dinner, Tax & Gratuities - $35

PRESIDENT’S MESSAGE (Go Top)

Over the past year, I’ve experienced the distinct pleasure of serving as NESCA’s president. During this time, my understanding and appreciation of the goals and objectives of our association have grown enormously. Like many of you, when I first joined NESCA I did not fully understand the essential, underlying mission of the organization.

At the time I was actively recruited to become a member back in 1992, I wanted to know more about what I was going to get from NESCA in services and benefits than what I could do to help the association fulfill its mission. Certainly, NESCA offers its members many useful and cost-saving services such as the lien filing service, the Workers’ Compensation Safety Group, and direct staff assistance on any number of matters important to you and your business. However, as helpful as these services may be, they don’t represent the true PURPOSE of the association. To discover NESCA’s purpose, you only need to refer to the second line of our association’s Bylaws, which defines the primary purpose to be “….to foster, promote, encourage and develop the best interests of subcontractors, specialty contractors, and suppliers in the commercial construction industry.”

The most visible and direct way NESCA seeks to accomplish this purpose is through the reform of onerous laws, rules and regulations that unfairly impact on subcontractors and suppliers. Of course, that begs the question: How has NESCA done with regard to fulfilling its purpose? By any standard, one would have to conclude that NESCA has performed very well for its members and for the construction industry as a whole.

Most of you know that since 1975 NESCA, in cooperation with our state affiliate the Empire State Subcontractors Association, has been successful in drafting and lobbying into law 33 separate legislative initiatives of significant benefit to subcontractors and suppliers doing business in New York State. Without these efforts, the business climate within which we all operate today would be very different, and much more onerous.

Despite the many past successes NESCA has had in the Legislature, each and every year the association continues to advance a legislative agenda in the best interests of New York State subcontractors and suppliers. For example, while it is unfortunate that Governor Pataki recently vetoed our payment bond bill, NESCA is already making the necessary amendments to the bill that will satisfy the Governor’s objections. We will be back again next year to get this bill enacted into law.

As I wind down my term as president, I appeal to you as a fellow member to continue your support of NESCA and its mission, not because you may use the lien service or take advantage of any of NESCA’s other services, but simply because NESCA has in the past, and will continue in the future to make changes in New York State law and regulation which improve the construction business climate within which you operate. Even if you never attend a meeting or use a single NESCA service, the association deserves your continued support, and for that I thank you.

Jeffrey B. Senft, President

COURT REVIEWS ENFORCEABILITY OF “NO DAMAGES FOR DELAY” CLAUSES (Go Top)

On April 13, 2004, the Supreme Court of New York, Appellate Division, First Department, decided the Bovis Lend Lease LMB Inc., etc. v. GCT Venture Inc., et al. case. The case involved a contract dispute over costs added in connection with the restoration and renovation of New York’s Grand Central terminal. Both the general contract and the electrical subcontract contained a “no damages for delay” clause. The defendants had moved for a partial summary judgment dismissing the plaintiff’s claim for delay damages on the basis of the no damage for delay clause contained in the contract and subcontract.

The Court in addressing the issue held that “while clauses in construction contracts exculpating parties from damages for delay in performance are generally valid and enforceable, such clauses may not be invoked to bar damages for (1) delays caused by the protected party’s bad faith or its willful, malicious or grossly negligent conduct, (2) uncontemplated delays, (3) delays so unreasonable that they constitute an intentional abandonment of the contract, and (4) delays resulting from breach of a fundamental obligation of the contract. The Court found that there were material issues of fact concerning the applicability of three of the four exceptions, which would render the no damage for delay provisions in the contracts unenforceable.

Evidence submitted indicated that delays were so unreasonable (2 ½ years) and the changes in the contract work so dramatic (value of the work performed was more than twice the original contract price), that triable issues of fact were raised as to whether the delays went beyond the contemplation of the contracting parties, or whether the delays were so unreasonable that they constituted an intentional abandonment of the contract. Additionally, the Court found that tenant requested design changes, which were allowed to continue unabated, increased the scope of the subcontractor’s work and prevented completion in a timely fashion, raising an issue as to whether the delays were caused by bad faith and/or willful and grossly negligent conduct on the defendant’s part.

This case illustrates that no damages for delay clauses are not iron-clad defenses and the existence of any of the above mentioned exemptions may be cause for invalidation of a no damages for delay clause.

Terence J. Burke, Esq., NESCA Legal Counsel

ASSEMBLYMAN MORELLE TO FORCE COMMITTEE VOTE ON SCAFFOLD LAW REFORM (Go Top)

Assemblyman Joseph Morelle, a key supporter of tort reform and the sponsor of construction industry backed legislation to reform Sections 240 & 241 of the Labor Law, recently employed an uncommon legislative tactic to force a Labor Committee vote on the bill (A7213) before the end of the 2004 legislative session.

A Rochester-area Democrat, Morelle has filed a “motion to discharge”, which under Assembly rules compels the committee to consider his bill before the current legislative session ends. Labor Committee Chairwoman Susan John has asked Assemblyman Morelle to withdraw his motion, but he has declined to do so. That sets up an interesting showdown in the Labor Committee. Of the 27 committee members, 20 are Democrats and 7 are Republicans. However, in addition to Assemblyman Morelle, 4 other Democrats are co-sponsors of the bill, and 8 of the Democrats are part of the Black and Hispanic Caucus, which has shown some indications of support for reform of the “scaffold law”. The vote will be close, but for the first time ever there appears to be a chance of moving this bill out of the Assembly Labor Committee.

It is unclear when Assemblywoman John will schedule a vote, but in the interim the construction industry will continue its vigorous lobbying of Labor Committee members.

NEW DASNY CHANGE ORDER PROCEDURES IN PLACE (Go Top)

The New York State Dormitory Authority (DASNY) has reported that its new change order approval procedures are now in place. NESCA members can find detailed information on the new procedures, including instructions for prime contractors and subcontractors along with DASNY’s change order proposal forms, on the DASNY website at www.dasny.org.

The new process features a standard Notice to Proceed form, standardized administrative procedures for project managers, a computerized change order log and tracking system, providing project managers with the authority to approve all changes under $5,000, and streamlined dispute resolution procedures.

WELCOME NEW MEMBERS (Go Top)

Benson Steel Fabricators

PO Box 480, 437 Route 212

Saugerties, NY 12477

(845) 246-3066; FAX (845) 246-5719

Contact: Kenneth Benson

Rommel Fence, LLC

P.O. Box 367

Poland, NY 13431

(315) 826-3758; FAX (315) 826-7224

Contacts: Scott & Mary Rommel

Steven A. Scala, CPA, PC

2002 Route 17M, Suite 4

Goshen, NY 10924

(845) 294-4200; FAX (845) 294-4205

Contact: Steven Scala

CALENDAR OF EVENTS (Go Top)

June 1, 2004

ESSA Board of Directors Meeting

Building Industry Center, 10:30 am

June 3, 2004

Board of Directors Meeting

Century House, Latham, 6 pm

June 10, 2004

NESCA Membership Meeting

Century House, Latham, 6 pm

June 14, 2004

NESCA/GBC Joint Golf Outing

Wiltwyck Golf Club, Kingston, 11 am

July 29, 2004

NESCA Day-At-The-Races

Saratoga Race Course, 11:30 am

MEMBER PROFILE – CAMPITO PLUMBING & HEATING, INC. (Go Top)

Campito Plumbing & Heating, Inc. specializes in the installation of plumbing and HVAC systems for commercial, institutional, manufacturing and process facilities. Founded in 1940 by Frank Campito, and incorporated in 1957, Campito Plumbing & Heating has grown to be one of the largest mechanical contractors in the Capital District, ranked #2 for 2003 by The Business Review with $32,100,000 in sales.

Headquartered at 3 Hemlock Street in Latham, this second-generation company maintains a workforce of approximately 90 employees led by president Peter Campito, P.E., who assumed this post in 1997. A source of pride for Campito Plumbing & Heating is the fact that many of its employees have been with the firm for more than 20 years, including the top members of its management team: Joseph Campito, Senior Vice President; Roger Jones, Vice President/ Treasurer; and William Otis, Vice President of Estimating & Construction.

Operating within a 100-mile radius of Albany, Campito Plumbing & Heating performs both new construction and renovation work, and its Latham office includes a fabrication shop to support field operations. Its in-house staff provides project management, estimating, engineering, design and drafting services. The company has also earned a reputation for providing comprehensive design-build services and for standing behind its work.

Notable projects completed by Campito Plumbing & Heating include: NYS Department of Environmental Conservation Building ($8.9 million); Met Life Operations Center ($7.2 million); Albany Medical Center ($7.4 million); Lake Placid Winter Olympics Venues ($6.2 million); Center for Medical Science ($8.1 million); and CESTM ($6 million).

A charter member of NESCA in 1971, Campito Plumbing & Heating has been among NESCA’s foremost supporters for more than 30 years. Two NESCA presidents have come from Campito Plumbing & Heating; Frank Campito in 1972-73 and Roger Jones in 1981-82. Peter Campito has served on NESCA’s Board as either a Director or Alternate Director since 1994.

NESCA members who would like to be profiled in a future Newsletter should contact the NESCA Office.

MEMBER ANNIVERSARIES (Go Top)

In June, the following members have reached milestone anniversaries as members of NESCA. Thank you very much for your continued support!

Five Years Fifteen Years

Armstrong World Industries Quinlin Electric, Inc.

United Rentals Ariel Equipment, Inc. Roland J. Down, LLC

SUPREME COURT DISMISSES ESSA DESIGN DELEGATION LAWSUIT (Go Top)

On May 14, 2004, State Supreme Court Judge Nicholas Clemente dismissed an Article 78 action brought by Empire State Subcontractors Association (ESSA) president Arthur Rubinstein of Skyline Steel Corp, which challenged the New York State Education Department’s interpretation of a Board of Regents Rule dealing with delegation of design responsibility.

Skyline Steel filed the lawsuit against the Education Department on January 21, 2004 to compel that agency to properly enforce the State Board of Regents Rule on design delegation. Regents Rule 29.3(b) provides that a principal design professional (architect or engineer) on a construction project may delegate certain design services to a 3^rd party engineer hired by an unlicensed contractor or subcontractor. However, in order to delegate design services in this fashion, the Rule further states that the principal designer must review and approve the design submitted by the 3^rd party engineer, and determine that the submitted design conforms to the overall project design. The lawsuit alleged that the Education Department has failed to enforce Rule 29.3(b) by permitting principal architects and engineers to restrict the scope of their review of a design prepared by a contractor’s or subcontractor’s engineer by disclaiming or issuing a qualified or limited approval of such design (e.g., “reviewed only for loads imposed upon structure”), thereby shifting the principal architect’s or engineer’s ultimate design responsibility to the subcontractor and/or the subcontractor’s engineer. It was further asserted that the Education Department’s tacit acceptance of such qualified review by the principal designer allows such designer to avoid its overall design responsibility, creating a threat to public safety.

Unfortunately, Judge Clemente agreed with the Education Department that Skyline Steel lacked standing in bringing the Article 78 action because it had not suffered an “injury in fact” based on the Education Department’s interpretation of the Rule. The Judge further noted that Skyline Steel’s concern “relates more to the allocation of risk of civil liability between the primary and secondary design professional, but……the purpose of the Rule is related to the specific conditions under which design work might be delegated so as not to constitute impermissible conduct and not liability issues.” Judge Clemente also found that there is no directive contained in the subject Rule which requires the actual words “review and approve” be stamped on submittals, and therefore, the use of words such as “no exceptions taken” or similar terminology is acceptable.

ESSA, who had filed an amicus brief in support of Skyline Steel along with the General Building Contractors of NYS and the NYS Steel Fabricators Association, strongly disagrees with the Judge’s decision in this case, and may explore other options in the continuing effort to clean up the design approval process.

1 IN 6 SCHOOL BUDGETS REJECTED

Voters rejected roughly one in six proposed school budgets statewide on May 18^th. More than 100 budgets were defeated statewide, the highest number in nearly a decade.

NYCIRB PROPOSES 29% WORKERS’ COMPENSATION RATE INCREASE (Go Top)

The New York Compensation Insurance Rating Board (NYCIRB) has recommended a 29 percent increase in workers’ compensation premiums to take effect on October 1, 2004. The May 19th announcement by NYCIRB stunned the business community, which has been lobbying vigorously for cost-saving reforms in the workers’ compensation system during the 2004 legislative session. “Employers need rate relief, not double-digit rate increases,” said Business Council President Dan Walsh

NYCIRB is a non-profit association of insurance carriers, including the State Insurance Fund, charged by the Superintendent of Insurance with collecting data and developing workers’ compensation rates and assessments. NYCIRB also administers the workers’ compensation classification system, which assigns employers to the proper rate category. The Insurance Department will consider NYCIRB’s proposal and will then issue a final decision on rate changes for 2004-05. Last year, the Insurance Department rejected two increases proposed by NYCIRB of 11.2 percent and 2.7 percent, before increasing rates by 1.7 percent. The Department did approve a 10 percent increase in the assessment last year, raising it from 13 to 14.3 percent.

REPORT DOCUMENTS PROLONGED LAG IN UPSTATE ECONOMY (Go Top)

Upstate New York State’s economy has been lagging for years behind the nation’s growth rate and behind such “Rust Belt” competitors as Michigan and Ohio, according to a new analysis by the Public Policy Institute, the research affiliate of The Business Council of New York State. The report, Could New York Let Upstate Be Upstate?, analyzes demographic data from the 2000 Census, and recent Upstate jobs data.

From 1990 through 2003, total job growth in Upstate’s Big Six metropolitan areas was only 2.3 percent, the report said. The nation as a whole grew jobs eight times as fast during that period. The Census showed that Upstate’s population grew more slowly than all but two states – North Dakota and West Virginia. Nearly 30 percent of Upstate’s “new” population during the decade consisted of prisoners. Upstate New York lost 370,000 in the count of its population aged 20 to 34.

Upstate suffers by comparison with its competitors because of high taxes and other costs, the report says – and these costs, in turn, are often driven by decisions made in an Albany process that is largely dominated by what the report calls “the Downstate political culture.” Part of the solution, the report suggests, may be to “let Upstate be Upstate,” giving its communities more flexibility to deal with state mandates on matters such as Medicaid, prevailing wage rules, and other cost drivers.

The report concludes, “to compete and to succeed, Upstate needs to cut the cost of doing business in a host of ways – from the size of government and Medicaid and property taxes, to the unlimited liability the trial lawyers’ lobby imposes on construction work. But every attempt to do any of these is blocked in Albany.”

STATUS OF CONSTRUCTION INDUSTRY-RELATED BILLS OF INTEREST

(Go Top)

During the 2003-2004 legislative cycle, thousands of bills have been introduced in the State Senate and Assembly, many which would have a direct impact on the construction industry. NESCA and its state affiliate, the Empire State Subcontractors Association, monitor the progress of all legislation, and will often take a position in support or opposition depending on the bill. As always, a significant number of Wicks Law and prevailing wage bills have been introduced which are being pushed by the School Boards Association and organized labor, respectively. The following represents a small sample of specific bills that have been introduced related to these issues:

Wicks Law

Responding to pressure from local government groups and the NYS School Boards Association, Governor Pataki has continued to call for repeal of the Wicks Law in the name of “mandate relief”. The Governor’s Commission on Education Reform (Zarb Commission) has recommended the Wicks Law be suspended for school districts for ten years, with a study to be done by the Education Department at the end of eight years to “determine the savings generated by this change in law”. Also, there have been a growing number of bills that have been introduced to exempt particular school construction projects from the Wicks Law. As follows are several Wicks Law bills that have been introduced and the status of each.

Bill: S.64/A.1733 - sponsored by Senator Dale Volker and Assemblyman Robin Schimminger

Summary: This bill would raise the threshold under the Wicks Law from the current $50,000 to $500,000 ($1 million in NYC). On January 1, 2006, the threshold would increase again to $750,000 ($1.5 million in NYC). The bill would also assign the responsibility for supervision and coordination of all prime contracts to a single responsible and reliable person or firm.

Status: Referred to Senate and Assembly Local Government Committees.

Bill: S1607/A3176 - sponsored by Senator Nick Spano and Assemblyman Steven Sanders

Summary: This bill would effectively result in the repeal of the Wicks Law by allowing public owners the option of bidding work as a single prime contract or as multiple prime contracts. Under the single contract alternative, this legislation would require the general contractor to submit the names and prices of the proposed plumbing, HVAC and electrical contractors to the public owner within 48 hours after the opening of bids.

Status: Referred to Senate and Assembly Local Government Committees.

Prevailing Wage

As always, at the top of organized labor’s priority list are numerous prevailing wage-related bills, most which are designed to either expand the scope of New York State’s prevailing wage law or increase the penalties in the law for failure by a contractor/subcontractor to pay the prevailing wage. As follows are a few prevailing wage bills that have shown varying degrees of movement in the Legislature:

Bill: S3766A/A8180A – Sponsored by Senator Nicholas Spano and Assemblywoman Susan John

Summary: This bill provides that the failure of a contractor or subcontractor to post a statement of wage rates and supplements on the job site would constitute a misdemeanor, subject to a fine of between $500-$1,000 for each offense. The bill further requires the contractor and subcontractors to maintain “sign in” and “sign out” sheets or other records reflecting the actual dates and times of work for all laborers, workers and mechanics employed on the project. The bill also allows the fiscal officer to require a contractor/subcontractor to file the “sign in” and “sign out” sheets within ten days of a request. Failure to produce such records would result in a withholding of payment due of up to 25% up to a maximum of $100,000. Finally, the bill states that the willful failure to post wage rates or maintain records shall constitute a willful violation of the prevailing wage law.

Status: During 2003, this bill passed in the Assembly and made it to third reading in the Senate but was never voted on. In 2004, the bill has again passed in the Assembly (on May 5^th) and is in the Senate Labor Committee.

Bill: S4610/A8486 – Sponsored by Senator Nicholas Spano and Assemblywoman John

Summary: This bill requires all public entities to make available for public inspection and copying the certified payroll records of contractors and subcontractors working on public projects with regard to the employment of certified apprentices. The bill would require the disclosure of wage rates and supplements, work classifications and the number of hours worked by apprentices.

Status: This bill passed in the Assembly on April 21, 2004 and passed in the Senate on May 10, 2004.

Bill: S5573/A8706 – Sponsored by Senator Guy Velella and Assemblywoman Susan John

Summary: This bill would allow losing bidders to sue the winning bidder for failure to comply with the prevailing wage law. The bill provides for damages plus costs and reasonable attorney’s fees, and provides for triple damages in the case of intentional violations.

Status: This bill moved to third reading in the Senate on April 26, 2004, and was reported from the Assembly Labor Committee to the Codes Committee on March 10, 2004.

Bill: S6476 – Sponsored by Senator Guy Velella

Summary: This bill would require all agreements, leases, grants, bonds, convenant debt agreements or permits entered into by and between the Dormitory Authority, the State University of New York or the State University Construction Fund and any third party for the construction of buildings owned or leased by the State University to require the payment of prevailing wages and supplements.

Status: This bill passed in the Senate on April 20, 2004 and is in the Assembly Labor Committee.