The United States Court of Appeals For the Second Circuit has affirmed a lower court’s decision that the NYS Department of Labor did not violate the federal Employee Retirement Income Security Act (ERISA) by mandating the annualization of prevailing supplements paid by contractors and subcontractors under Section 220 of the Labor Law.

In a September 28, 2001 decision, the Appeals Court agreed with the dismissal of a lawsuit brought by HMI Mechanical Systems, Inc., Compensation Programs, Inc., and the CPI Open Shop Plan, which challenged the State’s interpretation and enforcement of the prevailing wage law concerning the payment of supplements. The lawsuit had contended that DOL’s use of an annualization formula in determining credit for prevailing supplement contributions is preempted by ERISA. The Court of Appeals affirmed dismissal of the action by finding that DOL’s implementation of the prevailing wage statute, while perhaps having an impact on employers by requiring them to increase contributions, has no impermissible impact on workers’ benefit plans and therefore is not preempted by ERISA.

In the March 2000 decision by the U.S. District Court, the Court held that the state could use an annualization formula to determine compliance with Section 220 because the only information needed for the state’s investigation was the total money deposited by an employer into a benefit plan and the total number of hours worked by all employees on all projects (public and private). As such, according to the Court no ERISA preemption occurred because the state sought information “readily obtainable from an employer”, placed no burden on an ERISA plan to comply with its investigation, did not require particular methods of record-keeping, and did not regulate what happens to monies once they are deposited into a plan.

The Department of Labor began enforcing the annualization of prevailing supplement contributions pursuant to an April 1999 “Notice” issued by DOL. The Notice stated both that benefits may not be “pooled” and that they must be “annualized”. This policy shift forced contractors to either annualize all supplement payments or to make payments for supplements in cash.

In the meantime, DOL has been working on new regulations intended to bring some clarity and guidance to this issue. NESCA has been involved in commenting on the initial drafts and will continue to provide input. The most recent draft does provide some flexibility to contractors in managing their supplement plans by recognizing that pension contributions need not be annualized so long as the plan provides for immediate participation by an employee and 100% vesting after an employee works no more than five hundred hours. This provision is consistent with Davis-Bacon rules for federal projects.

Until these new regulations are adopted, members are advised to continue to annualize ALL supplement contributions on public work projects or pay supplements in cash. Contributions made to supplement plans without using the annualization formula will subject your company to risk of underpayment.

PRESIDENT’S MESSAGE Go Top

NESCA’s Board of Directors recently held a strategic planning meeting to examine the general health and status of the association, and to engage in some long range planning. At this meeting, the Board scrutinized all of NESCA’s services, benefits, activities and events, and looked at the “big picture” in general.

In order to optimize attendance at our monthly membership meetings, the Board suggested that we bring back the idea of holding specific trade group nights (i.e. mechanical contractors night) to recognize the various specialty trade subcontractors that comprise NESCA. The Board also recommended we recognize our various trade contractors in conjunction with that trade group’s association. As such, NESCA’s November 8^th membership meeting has been designated as “Electrical Contractors Night” and will be held as a joint meeting with the Albany Electrical Contractors Association. While the meeting will retain our normal format, we will be taking a few minutes to recognize our electrical contractor members, and to hear a short update on pursuing countywide electrical licensure, an issue of specific importance to electrical contractors. All members are encouraged to attend the November membership meeting, and especially all NESCA electrical contractors. Our mini-seminar program on November 8^th will be on “How to Find and Retain Qualified Employees”, a problem common to all of us. This program will be presented by Anne Tindall with Employee Management Strategies, Inc. It is the intention of the Board to hold additional trade group nights in conjunction with other specialty trade organizations throughout the year.

The Board of Directors also decided to bring back NESCA’s Business Practices Interchange (BPI) on a periodic basis. It was felt that we don’t need to hold a BPI at every membership meeting, but will do so every 2-3 months. As such, we will be holding a BPI session at the November 8^th meeting, so if you are looking for information (payment practices, contract form, backcharge procedures, change orders, etc.) about general contractors you may be considering doing business with, come to the meeting prepared to submit those names, and we’ll solicit first hand comments from the other meeting participants.

NESCA’s Board further recommended that our “service” members (bankers, insurance & bonding, attorneys & accountants) be provided the opportunity to present “two minute updates” at future NESCA meetings on topics of importance to subcontractors. Service members who would like to provide a two-minute update during dinner at upcoming meetings should contact the NESCA office with your topic.

Finally, I would like to congratulate Dick McNitt and the Suppliers Committee for once again organizing another fantastic trade show! This year’s trade show was held on October 11^th, and I know all who attended had a great time. The show also provided our exhibitors with a nice opportunity to visit with many customers and prospective customers.

I hope to see you at NESCA’s November membership meeting.

Robert H. Kind

President

LIQUIDATING AGREEMENT ALLOWS SUBCONTRACTOR TO RECOVER DELAY DAMAGES Go Top

In a recent case decided by the Supreme Court, Appellate Division, First Department (Bovis Lend Lease LMB Inc. v. GCT Venture, Inc., et al.), the Court addressed a claim for delay damages and extras incurred in connection with the restoration and renovation of New York’s Grand Central Terminal. Defendant was the developer of the project under contract with the Metropolitan Transportation Authority and had retained the plaintiff as its general contractor. At issue on appeal was the general contractor’s right to assert claims on behalf of its subcontractors after admitting liability under a Liquidation Agreement. In the general contractor’s contracts with its subcontractors, a subcontractor’s only recourse with respect to delays was to seek an extension of time for performance; any right to claim money damages for delays was waived. The general contractor, however, had entered into a liquidating agreement subsequent to the original general contract and the subcontracts.

The court in reviewing existing law pointed out that a general contractor on a construction project which has sustained no injury may not bring suit on behalf of subcontractors for additional costs caused by the owner’s delays. Subcontractors, lacking privity of contract, are precluded from bringing suit against the owners directly. A liquidating agreement is designed to overcome these legal impediments and allow contractors to bring an action against the owner on behalf of their subcontractors.

The court then reviewed the three basic elements of liquidating agreements, namely: (1) the imposition of liability upon the general contractor for the subcontractor’s increased costs, thereby providing the general contractor with a basis for legal action against the owner; (2) a liquidation of liability in the amount of the general contractor’s recovery against the owner; and (3) a provision that provides for the “pass-through” of that recovery to a subcontractor. The court further stated that there is no requirement, however, that the liquidating agreement must be part of the original subcontract and the prime contractor may assume such liability by way of a separate liquidating agreement.

The court concluded that while the owner may have had a right of preapproval as to any specific subcontractor who would perform retail work, there was no generic right to preapproved contracts between the general contractor and its subcontractors, much less a specific right to preapprove any liquidation agreement. Furthermore, the court found no evidence that required the general contractor to obtain permission from the owner as a condition precedent to entering into the liquidating agreement. The court then found that since the elements for a liquidating agreement appeared to have been met, the lower court’s ruling granting the defendant’s motion to dismiss the general contractor’s claim for delay damages on behalf of its subcontractor was overturned.

This case illustrates the importance of a liquidating agreement which allows the subcontractor who does not have privity of contract with the owner and is not entitled to sue the owner directly for delay damages to recover delay damages against the owner through the contractor who assumes the liability in the liquidating agreement. The liquidating agreement allows the subcontractor to recover delay damages against the owner notwithstanding the fact that the subcontract itself may have a no damages for delay clause preventing the subcontractor from claiming delay damages caused by delays of the general contractor.

Terence J. Burke

NESCA Legal Counsel

PAYCHEX DISCOUNT PROGRAM APPROVED BY BOARD Go Top

NESCA’s Board of Directors has announced the selection of Paychex as NESCA’s recommended payroll services provider. As part of their National Account Program, Paychex has agreed to extend special pricing to NESCA members. Effectively immediately, all members who currently use Paychex and all members who are new enrollments with Paychex will receive 15% off their payroll processing charges. NESCA members who are current Paychex clients should contact your Paychex representative to receive your 15% discount.

Paychex is a nationwide company providing payroll preparation and automatic payment of payroll taxes, plus electronic filing of quarterly and annual returns. Paychex assumes full responsibility for the accuracy and timeliness of your payroll tax deposits and returns.

NESCA members who utilize a payroll service or are considering the use of a payroll service are encouraged to contact Paychex at 1-800-PAYCHEX (729-2439).

WELCOME NEW MEMBERS Go Top

Paychex, Inc.

911 Panorama Trail South

Rochester, NY 14625

(800) 828-4400

Contact: Stephanie Stefanou

V. Zappalla & Co., Inc.

Broadway and Fifth Avenue

Rensselaer, NY 12144

(518) 465-1685; Fax (518) 465-1703

Contact: Ralph Viola, Jr.

GOVERNOR PATAKI SEEKS $54 BILLION IN FEDERAL ASSISTANCE FOR NEW YORK Go Top

Governor Pataki has unveiled a comprehensive $54 billion plan that calls on the Federal government to continue to assist New York businesses and families to recover from the September 11 attacks on the World Trade Center. The plan outlines requests in three areas: rescue, recovery and rebuilding; economic recovery and revitalization; and New York’s homeland security.

The Governor has requested $34 billion for costs related to emergency response, debris removal and public infrastructure repair and rebuilding efforts resulting from the WRC attacks. Activities in this category and estimated costs include:

$5 billion for NYC emergency construction costs such as demolition, debris removal, stabilization and remediation of WTC site.
$5 billion for NYC emergency protective measures.
$3 billion for New York State requests for Federal aid.
$900 million for utility costs such as repairs to substations, utility lines and buildings.
$8.2 billion for World Trade Center and hotel replacement.
$2.4 billion for WTC and hotel replacement equipment and renovation costs.
$1.8 billion for MTA capital costs for safety, security and system compatibility.
$1.7 billion for MTA direct infrastructure damage.
$1.3 billion for Port Authority cost of security enhancements.
$1 billion for private buildings cleaning, removal and remediation.
$850 million for Port Authority subway station reconstruction.
$250 million for NYC road, water mains, sewers reconstruction.
$245 million for MTA toll and fare revenue loss.
$163 million for MTA reduction of tax subsidies due to economic disruption.
$159 million for Port Authority revenue losses.
$150 million for Port Authority replacement of computer systems, office equipment and vehicles.
$123 million for MTA disaster-related operating costs.
$100 million for Port Authority ferry service restoration and commuter substation.
$90 million for Port Authority replacement of power facility.
$50 million for City University New York lost facilities.
$30 million for Port Authority replacement of EZPass and telecommunications equipment.

In addition to these direct funding requests related to the rebuilding of lower Manhattan, the Governor has requested an additional $20 billion in Federal financial support for certain measures key to addressing the broader state and city economic impacts of the tragedy including: Support for families and dislocated workers; Support of the Unemployment Insurance Trust Fund; Support to prevent increases in workers’ compensation insurance premiums; and Support for 100 percent reimbursement for COBRA premiums.