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The Board of Directors of the Empire State Subcontractors Association (ESSA) will meet in December to review and adopt priorities for the 2001 legislative session. Fresh off its 31st legislative success since 1975 (see October 2000 Newsletter), NESCA’s statewide affiliate, a federation of subcontractor groups in Buffalo, Rochester, Syracuse, Albany and New York City, will likely approve a legislative program intended to benefit subcontractors (and suppliers) in such areas as retainage provisions, hold harmless clauses, payment protection and delay damages. Proposals which are expected to be introduced in both the Senate and Assembly in early 2001 are:

Retainage Reduction - This legislation would require a 50% reduction in retainage on all public works projects upon completion of 50% of the project. Retainage held on state and local public projects can amount to a significant amount of money for many subcontractors. ESSA’s legislation would get a large portion of the money held as retainage by the public owner into the pockets of subcontractors sooner than it now is. ESSA’s Board may also consider legislation which would require retainage to be deposited into an interest-bearing escrow account for the benefit of contractors and subcontractors.

Hold Harmless - This legislation would close a long-standing loophole in the law by prohibiting hold harmless clauses which require subcontractors to indemnify the general contractor for damages caused by the negligence of 3rd parties.

Delay Damages - This legislation would impact on all public works projects in New York by allowing contractors and subcontractors to recover delay damages where such delay is for an unreasonable period of time and is the fault or responsibility of the public owner. Since the 1983 Court of Appeals decision Kalisch-Jarcho, Inc. v. City of New York, in order for a contractor to recover delay damages from a public owner, it has had to prove that the owner acted in bad faith and with deliberate intent, a standard which is almost impossible to meet.

Payment Bonds - This legislation would require a payment bond be posted on certain “hybrid” projects in New York State such as those where a private owner leases property from a public entity and then constructs a building on this property for the benefit of the private owner. Currently, subcontractors and suppliers have no lien rights on these hybrid projects. This bill would provide payment bond protection to subs and suppliers.

Bid Listing/Standard Subcontract/Direct Pay - This will probably be “back burner” legislation, intended to be pushed only if it appears the Wicks Law is in jeopardy. It would require on public projects that subcontractors with subcontracts in excess of $25,000 be listed with the prime contractor’s bid, the use of a standard form subcontract, and direct payment to listed subcontractors by the public owner.

PRESIDENT’S MESSAGE Go Top

On October 12th, NESCA held its 20th Annual Trade Show at the Century House in Latham, and if you missed it -- you missed out! If you did not attend this year’s Trade Show, you missed a perfect opportunity not only to update yourself on the latest commercial construction products and services, but to spend more than three solid hours networking with the literally hundreds of subcontractors, general contractors and public and private owners who DID attend. If you are a supplier and did not have an exhibit at the Trade Show, well, you missed an even bigger opportunity! Here’s what you missed: Over 500 people attended the Trade Show, and most stayed for the full 3 1/2 hours. Among those in attendance were 88 people representing 28 local general contractors including BBL, Sano Rubin, Bast-Hatfield, Sweet Associates, Zandri Construction, Bunkoff Construction, Pike Company, Matzen Construction, Machnick Builders, D.A. Collins, Duncan & Cahill, Rosch Bros., and many more. We also had 168 people in attendance who represented more than 70 subcontracting firms. In addition, we had public owners, private developers, design professionals, and others who attended the Trade Show. Frankly, I can think of no other event in the Capital District which brings together all the various elements of the commercial construction industry for one evening -- and with these kinds of numbers! If you are a supplier to the commercial construction industry, I can’t imagine why you wouldn’t exhibit at the Trade Show! There is little question this year’s exhibitors walked away from the Trade Show very pleased with the turnout and the number of customers and potential customers they were able to visit with in just a few hours. The food and atmosphere were great, the door prizes were outstanding, and I’m extremely pleased to report that through the silent auction NESCA was able to raise over $2,100 for the Marine Corps Toys for Tots program. Thank you to our exhibitors for donating some great items for the auction.

NESCA’s next regular membership meeting will be held on November 9th at the Century House. We will continue with the new condensed format we introduced at the September membership meeting, and this month will feature a mini-seminar on “Scope of Work” to be presented by Kevin Laurilliard with McNamee, Lochner, Titus & Williams, P.C. Mr. Laurilliard’s presentation will cover such areas as the importance of spelling out scope of work with submission of bid; how the general and supplementary conditions, addenda and the owner-contractor agreement can impact on a subcontractor’s scope of work; and specific scope of work problem areas such as temporary facilities, work done by others, and work specified elsewhere. All attendees at the November 9th membership meeting and mini-seminar will also receive some great handouts to compliment Kevin’s remarks. Members who attended our September 14th membership meeting and mini-seminar on Lien Law Article 3-A Trust Funds raved about that program, and we expect the November 9th program to be every bit as good! Remember, your attendance at this meeting will qualify you for a drawing to win a free membership in NESCA next year!

Steve Dewey

President

COURT FINDS EXCEPTION TO ECONOMIC LOSS RULE Go Top

The New York State Supreme Court, Appellate Division, First Department, recently held that it is possible for a plaintiff to prevail on causes of action for public nuisance and for negligence where the plaintiff has suffered only economic loss, and no personal injury or property damage. This holding carves out an exception to the “Economic Loss Rule” generally followed in New York State that pure economic losses without property damage or personal injury are not recoverable in a negligence action. A plaintiff in a negligence action who claims purely financial losses is generally restricted to an action in contract for the benefit of its bargain. The Appellate Court in 532 Madison Avenue Gourmet Foods, Inc. v. Finlandia Center, Inc. (711 N.Y.S.2d 391 (1st Dept. 2000)) recognized an exception to this “overly formalistic approach” by allowing a property owner to sue a neighboring property owner for negligence when the neighboring owner’s action caused pure economic loss to the plaintiff.

Plaintiff 532 Madison Avenue Gourmet Foods, Inc. operated a store one-half block south of 540 Madison Avenue, where a high rise office building owned by defendant Finlandia Center, Inc. collapsed and fell onto Madison Avenue in the course of renovations. As a result, city officials directed that certain portions of Madison Avenue and access to side streets thereof be closed to vehicular and pedestrian traffic. Access to 532 Madison Avenue Gourmet Foods was blocked and the store was forced to close for a five week period.

Plaintiff brought a lawsuit alleging two causes of action, one based on negligence and one upon a theory of public nuisance. Plaintiff alleged that defendants’ failure to properly inspect their building at the time of purchase and during a later renovation project constituted negligence because a reasonable investigation would have revealed that the building could not sustain the extensive construction renovation undertaken, specifically that the wall of the skyscraper could not support an additional ninety-four (94) windows being constructed within it. Plaintiff sought $450,000 for loss of business income, $100,000 on the public nuisance claim for its inconvenience, and $500,000 on each claim for punitive damages.

In the lower court, defendant moved to dismiss the complaint, since no personal injury or property damage had been suffered by the plaintiff. Although the plaintiff submitted extensive evidence of the building’s history of major structural problems and the building’s owner acknowledged such problems, the lower court dismissed plaintiff’s complaint for failure to state the cause of action. The lower court dismissed the public nuisance claim on the ground that plaintiff had suffered the same injury as all merchants in the community, and the negligence claim was dismissed because the facts did not present the type of special circumstances warranting an exception to the “Economic Loss Rule” as explained above.

The Appellate Court, however, held that “A deviation from the ‘Economic Loss Rule’ is appropriate on the facts of this case because of the defendant’s alleged knowledge and reckless disregard of the risk of creating approximately 90 new windows throughout the south wall of a skyscraper, and conducting other renovations to the base of this building which already had major preexisting structural defects.” The Court noted that the defendant should have anticipated the preexisting problem and had knowledge that such problems could foreseeably result in injury to others. The Court further stated that the defendant should not escape liability because of the fortuitous result that the collapse of the wall was not catastrophic to the thousands of people who generally frequent the area due to the fact that the collapse took place on a Sunday afternoon.

In rejecting the application of the “Economic Loss Rule” to the case at hand, the Court held, “[A] bright line rule denying recovery to every plaintiff who might have suffered severe financial losses as a result of defendant’s conduct but fortuitously did not suffer personal injury or property damage frustrates the equally important policy objectives of dissuading future gross negligence. This is especially true, where, as alleged here, defendants should have been aware that construction in crowded urban areas poses a significantly higher risk of harm to the surrounding community.”

The Court reinstated both of plaintiff’s negligence and public nuisance causes of action and held that it was for a jury to decide whether plaintiff’s damages from a five week closing of its store were foreseeable consequences of defendant’s negligence, and therefore compensable.

Therefore, contractors must be aware that any negligent act causing not only physical injury or property damage but also causing economic loss to others may result in liability for their actions.

Terence J. Burke

NESCA Legal Counsel

WELCOME NEW MEMBER Go Top

Allied Building Products

24 Railroad Avenue

Albany, NY 12205

(518) 489-0147; Fax (518) 489-3327

Contact: Ron Valenti

ATHENS CO-GENERATION PROJECT ONE PERMIT AWAY FROM GROUNDBREAKING Go Top

At the October 11, 2000 joint NESCA/ECA/GBC luncheon, Dan Devinney, U.S. Generating Company’s project manager for the pending $500 million Athens Co-Generation Plant, provided members with an update on the status of this project. Mr. Devinney explained that currently, all permitting for this project has been completed with the exception of a permit from the Army Corps of Engineers. He stated that U.S. Generating Company hopes to have this permit in place by the end of November, but it could take longer. Mr. Devinney admitted that under a worse-case scenario, the start of this project could be dragged out for another year. Once the final permit has been secured, construction will begin immediately. Mr. Devinney also provided attendees with the following general information:

· Although no final agreement has yet been signed, Bechtel will be the construction manager for this project.

· All construction contracts will be with Bechtel and not U.S. Generating Company.

· The size of the power plant will be 1,080 megawatts.

· The construction schedule will be 27-30 months.

· Construction manpower needs will average 400-500 and will peak at 1,000 with an emphasis on welders, plumbers and electricians.

· In addition to the “power block” to house the gas & steam turbines, there will also be a plant services building constructed.

NESCA members who are interested in being placed on the bidders’ list for the Athens Co-Generation Project should contact Dan Devinney at 475-5197.

NEED ASSISTANCE? CALL THE NESCA OFFICE! Go Top

For many years, NESCA’s members have benefited from the information, education and advocacy provided by the association on behalf of subcontractors and suppliers throughout northeastern New York. NESCA’s advocacy in the Legislature, the courts, and in public agencies has resulted in a better construction/business climate for our members. The association’s educational seminars and courses have made NESCA members among the most well-educated subcontractors and suppliers in the country, and the information provided in our newsletters and at monthly membership meetings keeps NESCA members completely up-to-date on issues important to your business.

But did you know that NESCA staff is on hand each and every business day to assist members with individual problems and concerns? Here’s a few ways we can help:

Having a payment problem and considering filing a mechanic’s lien? Call the NESCA office and we’ll file it for you -- free of charge! Looking for information about a particular general contractor? Call the NESCA office and we’ll refer you to another member who has done work for that company! Need a written safety program? Call the NESCA office and we’ll help you write one! Faced with an unfamiliar subcontract document or new contract language? Call the NESCA office and we will review it with you! NESCA’s staff is always available to assist members with your individual needs! Call us -- we’ll help!

Vol 19, No. 5