One of the top priorities for the 2025 Oregon Legislature was transportation funding, and the group failed to pass a bill. It’s nothing new – for two decades Oregon has failed to provide adequate funding to preserve roads and bridges. Engineers have warned that insufficient funding increases the cost in the future because the projects get bigger as conditions worsen. They were ignored and now the future is here.

What happens if we don’t pay?

The effects of not paying are not immediate. Sections of almost every Oregon highway need maintenance, but waiting probably won’t cause a catastrophic failure. The pavement will get rougher and the projects will take longer when the Oregon Department of Transportation (ODOT) finally gets to them, but life will go on as usual. When the work eventually happens, drivers may get annoyed by work zone traffic, but no one will know that the project would have cost half as much and taken half as long if the work was done when it should have been done.

Oregon has been lucky because underfunding roads and bridges has had catastrophic consequences elsewhere. Minnesota, Maryland, Pennsylvania, and plenty of other states have experienced tragic fatalities from deteriorating bridges. Pavement usually doesn’t make headlines, but accidents when someone swerves to avoid a pothole, hydroplanes, or fails to see striping are caused by deteriorating pavement. The effects are real and serious.

Underfunding roads and bridges also exponentially increases the overall cost. The need to fix roads and bridges obviously does not go away as they deteriorate. It’s what the engineers have been saying for decades – the problems become bigger and what could have been addressed with routine maintenance will require reconstruction if not maintained.

“We can maintain them now for $15 (million) to $20 million per year or pay $70 (million) to $100 million per year to rehabilitate them after they have severely deteriorated,” ODOT’s pavement management engineer said of lower-volume highways in the agency’s .

The same principle applies to all roads and bridges – it’s much cheaper to maintain them now than wait.

Can Oregonians afford to pay more?

Ask your friends and family how much they pay for roads and bridges and most of them will say $1,000 or more per year, which is a gross exaggeration. We pay for roads and bridges primarily through fuel taxes, so how much you pay depends on your vehicle and how much you drive. Drivers with fuel-efficient cars pay about $350 per year and those with trucks pay about $550 per year. Electric-vehicle drivers pay much less.

Oregon has a relatively high gas tax rate but comparing it to the rates in other states is a false comparison because most other states have some other major sources of transportation revenue. Utah, for instance, uses sales taxes and general fund transfers that together provide more than three times the Utah gas tax. In fact, Utah has fewer lane miles than Oregon and its transportation funding is about 30 percent more. In Virginia, different types of sales and use taxes together provide nearly double the state gas tax. Oregonians pay less for roads and bridges than the citizens of most other states when all revenue sources are considered.

If you have a dog, you probably pay more for dog food than for roads. I have nothing against dogs, but they don’t help you travel to a hospital in a medical emergency. Roads also allow us to drive to the grocery store, transport our kids to school, and support all aspects of our way of life. Roads and bridges are essential yet relatively inexpensive.

What about climate change?

Some people think Oregon should shift to some other transportation system to fight climate change. There is, however, no other option. In fact, the best thing Oregon could do to reduce emissions is make the roads smoother. Anyone who has ridden a bike on both bumpy and smooth surfaces knows that it’s easier to ride on the latter. That is magnified significantly for cars and trucks.

Even if everyone switched to electric vehicles, we would still need roads and bridges. In fact, minimizing demand on the electrical grid as people switch to electric vehicles will become a crucial issue – one that requires smooth roads (smoother roads require significantly less energy to use, which means less electricity is needed to charge vehicles). Electric vehicles are also heavier and over time do more damage than conventional vehicles. Ironically, electric-vehicle drivers think they are fighting climate change, but by not paying gas taxes and driving heavier vehicles on roads, they’re contributing to greater carbon emissions overall.

Smooth roads also save gas-powered vehicle drivers money – smoother roads require less energy to use, which means drivers buy less gas. Earlier this year, researchers at Oregon State University published a study in which they found that if ODOT could slightly improve highway smoothness, Oregonians would save an average of $73 million per year, and there would be 192 million fewer metric tons of greenhouse gas emissions, according to .

How important are local construction workers?

Most of the money for any highway project goes to pay for materials and workers – all of whom are paid family wages. Those workers pay state and federal taxes and use the remainder of their paychecks to support themselves and their families – in other words, part of their pay goes back to the state and the remainder helps sustain communities in Oregon where they live. The same cannot be said for industries where manufacturing and services are largely based in other states and countries.

The Legislature needs to act

I don’t envy the Legislature’s position because no voter likes tax increases. However, it’s the Legislature’s job to provide adequate funding for roads and bridges. Oregon’s decades-old model of demanding more from roads and bridges without increasing funding is unsustainable – the Legislature needs to act NOW.

Increasing funding to allow ODOT to deliver a smoother system requires significant investment, but the investment will pay for itself over time because it creates a system that is safer and cheaper to use; it also will be more durable and reduce emissions. Good roads cost money and bad roads cost more. Oregon cannot afford to do nothing.

John Hickey is the executive director of the Asphalt Pavement Association of Oregon. Contact him at 503-363-3858 or jhickey@apao.org.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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Retainage is a common way to manage risk. It is the withholding of a percentage of a payment to a contractor or subcontractor until completion of the work. Subcontractors have complained for years about the unfairness of high retainage percentages. A subcontractor who finishes its work near the beginning of a project may have to wait for 10 percent or more of the amount it earned until the entire project is substantially complete, which could occur a year or more later. And if there are problems on the project (e.g., the prime contractor or the owner runs out of money), the subcontractor’s retainage may never be paid. Owners and contractors, on the other hand, need protection from subcontractors who stop showing up or otherwise default. Although owners and contractors can get some protection by requiring performance bonds from subcontractors, sureties will not bond many subcontractors.

Competing interests and the recent economic downturn have led to changes in the retainage rules in every West Coast state (legislatures found that many subcontractors could not survive if traditional retainage percentages were allowed), which has led to confusion among contractors and subcontractors. Below are descriptions of the retainage percentages that may be withheld from subcontractors by contractors in Oregon, Washington, and California, and on federal projects.

Oregon

The 2013 Oregon Legislature capped the retainage a contractor may withhold from a subcontractor at 5 percent for all contracts entered into on or after January 1, 2014. The cap applies whether a performance or payment bond is provided and whether work is being performed on a public or private contract.

For contracts (public and private) entered into before January 1, 2014, there is a five percent cap on retainage when the subcontractor provides a performance bond in a sum that is equal to the contract price and that covers the period during which liens or other encumbrances may be filed. There is no cap if the subcontractor does not provide a performance bond.

On public projects, contracting agencies may accept bonds or other forms of security (e.g., U.S. bonds, obligations of a government corporation, Oregon general obligation bonds, and irrevocable letters of credit) in lieu of retainage. If a contractor submits a bond or other form of security in lieu of retainage, it must permit its subcontractors and suppliers to do the same.

Washington

Washington caps the retainage that a contractor may withhold from a subcontractor at five percent on public projects. If a public body allows a contractor to submit a bond in lieu of retainage, the contractor must accept bonds from its subcontractors and suppliers, and if a subcontractor or supplier submits a bond, the contractor must not withhold retainage and release any retainage that it previously withheld from the subcontractor. Washington law does not specify a maximum retainage percentage for private projects.

California

For contracts entered into between January 1, 2012, and January 1, 2016, the percentage of retainage withheld from a payment to a subcontractor on a public works project may not exceed the retainage withheld by the owner unless prior to or at the time its bid was requested, the subcontractor was given notice that a bond was required and the subcontractor did not provide the bond. The notice to the subcontractor must say that the bond has to be in the full contract amount and that retainage will be withheld in a certain amount if the bond is not provided. There is no cap if the subcontractor is given the notice and does not provide the bond.

California law does not specify a maximum retainage percentage for private projects. On private projects, owners must pay any withheld retainage within 45 days of completion, and contractors must pay retainage to subcontractors within 10 days of receipt of any retainage payment from the owner.

Federal projects

There is no government-wide federal law or regulation capping the retainage that a contractor may withhold from a subcontractor. In fact, the federal prompt-payment regulations state that they are not to be construed to impair the right of a contractor or a subcontractor to withhold retainage without incurring any obligation to pay a late payment interest penalty, “in accordance with terms and conditions agreed to by the parties to the subcontract, giving such recognition as the parties deem appropriate to the ability of a subcontractor to furnish a performance bond and a payment bond.”

The penalties for withholding too much retainage from a subcontractor can be severe (e.g., high interest rates and recovery of attorney fees). To avoid costly surprises, contractors should confirm that their subcontracts comply with the retainage rules in the states in which they work, and subcontractors should make sure that contractors are not withholding too much.

John Hickey is an attorney in Jordan Ramis PC’s Dirt Law practice group. He focuses his practice on construction law, design professional liability and litigation. Contact him at 503-598-5578 or at john.hickey@jordanramis.com.

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Joint checks are common in construction. They are checks made out to two payees – most often a subcontractor and the subcontractor’s supplier. An agreement to issue joint checks may come from the top or bottom of the contracting chain. Owners and general contractors want to issue joint checks to ensure that subcontractors pay their suppliers, which helps avoid lien and bond claims by the suppliers. Suppliers want joint checks to increase the chances of being paid.

But there are risks. Not knowing the risks could lead to owners and general contractors paying twice for materials and suppliers losing any right to be paid. Owners, contractors and suppliers should be familiar with what is sometimes called “the joint check rule” as well as important issues related to the wording of joint check agreements.

The joint check rule

Under the joint check rule, a supplier who signs a joint check is deemed to have received the money it is owed for the period covered by the check. For example, assume that a subcontractor is due $10,000 for work performed prior to June 30, and it owes a supplier $5,000 for materials supplied during that period. If the general contractor issues a joint check for $10,000 to the subcontractor and supplier, the supplier will be deemed to have been paid the $5,000 it was owed if it signs the check – even if it does not actually receive the money.

Some general contractors mistakenly argue that the supplier should be deemed to have been paid the full amount of all joint checks. For example, if a subcontractor delays a project and the general contractor is entitled to deduct delay damages from the payment to the subcontractor, the joint check may be for less than the amount owed the supplier for that pay period. The general contractor may argue that because all of the joint checks issued throughout the project total more than the amount owed the supplier, the supplier should be deemed to have been fully paid – after all, the general contractor paid the subcontractor in full. The general contractor will lose that argument because under the joint check rule, the supplier is deemed to have received only the amount it is owed for the period covered by the joint check.

But a supplier will be deemed to have received the entire amount of a joint check regardless of how much it is owed for a pay period when the supplier fails to account for payments on a project-by-project basis. If a supplier simply keeps an account for the subcontractor that applies to a number of different projects, the supplier will be deemed to have received the full amount of the joint check. In other words, suppliers have the burden of proving how much of each joint check was intended to pay for materials supplied to a specific project.

General contractors cannot assume that a supplier will be deemed to have received the full amount of all joint checks added together. Unless a supplier fails to account for payments on a project-by-project basis, the joint check rule will apply only to specific pay periods – suppliers will be deemed to have received the amount they are owed during the pay period covered by the joint check up to the amount of the check.

Joint check agreements

General contractors often include a provision in their subcontracts that gives them the right to issue joint checks (e.g., “Contractor may, but is not obligated to, issue joint checks to subcontractor and any of its suppliers.”). Such provisions are an important risk-management tool, but must be drafted carefully. If a general contractor agrees to issue joint checks to the subcontractor and its supplier (a mandatory obligation rather than just a right), the supplier may enforce the agreement against the general contractor.

For example, assume a supplier requires a subcontractor to get the general contractor to agree to issue joint checks, and the subcontractor proposes the following modification to the subcontract: “Contractor shall issue joint checks to subcontractor and its material supplier.” If the general contractor accepts the change but neglects to issue joint checks, the supplier will be able to sue the general contractor for breach of contract if the supplier is not paid. The supplier is entitled to rely on the subcontractor’s subcontract with the general contractor if the language requiring the general contractor to issue joint checks is mandatory.

Supplier joint check agreements

Joint check agreements may also arise when a supplier refuses to supply materials to a subcontractor unless the subcontractor and the general contractor agree that the general contractor will pay by joint check. Usually in those situations, the supplier proposes a form of joint check agreement. General contractors must read such forms with caution because suppliers often include other obligations in such forms (e.g., the form may say that the general contractor will issue joint checks and guarantee payment to the supplier). Most additional obligations will be enforced by the courts. If a general contractor is willing to issue joint checks, it should be sure that the joint check agreement proposed does not have additional obligations that it is unwilling to accept.

Joint checks are a valuable risk-mitigation tool. But to avoid costly surprises, parties on a construction project must be familiar with the joint check rule and carefully negotiate and draft joint check agreements.

John Hickey is an attorney in Jordan Ramis PC’s Dirt Law practice group. He focuses on construction law, design professional liability and litigation. Contact him at 503-598-5578 or at john.hickey@jordanramis.com.

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Lien mistakes can be disastrous. Contractors invest labor and materials into construction projects based on an owner’s or higher-tiered contractor’s promise to pay. Even when payments are not made, many contractors continue to perform – hoping that a check will magically appear. By the time contractors realize that they must enforce their lien rights to have any chance of getting paid, they sometimes have invested millions of dollars into a project.

But liens are tricky. In creating Oregon’s lien law, the Legislature balanced the interests of contractors, design professionals, residential and commercial owners, developers, lenders and others. The diverse and often competing interests led to a hodgepodge of logical and illogical requirements. The consequences of missing a requirement vary from invalidating the lien to losing the right to recover attorney fees.

Three common – and easy-to-avoid – mistakes have to do with the lien filing deadline, giving notice, and using the right name.

75-day deadline

Liens must be recorded before a 75-day deadline. Many contractors assume the days are measured from the last day the contractor performed work on the project site. But the days are actually measured from that day or completion of construction, whichever is earlier. Completion of construction is when an owner or a lender posts a completion notice, the project is abandoned (i.e., no work for 75 days), or substantial completion.

Substantial completion is when the owner can use the project for its intended purpose. Since owners often can use a project long before every work item is complete (e.g., painting, parking, and landscaping), a contractor that calculates its lien filing deadline from the last day it performed may miss its lien deadline if substantial completion occurred earlier.

If construction is not complete and the lien deadline is calculated from the last day a contractor worked, contractors must use timecards or other records kept while the work was being performed to determine the last day worked. Dates on invoices, payroll forms, punch lists, or other summaries often are inadequate to prove the last day worked. Avoid the mistake of not keeping good daily records.

Labor and materials

In Oregon, a contractor that follows all of the lien rules and is forced to go to court will get paid before a lender even if the lender recorded a security interest (e.g., a trust deed) in the property before construction.

A contractor’s ability to get paid before a lender is sometimes called “super priority.” Super priority is powerful. Lenders often will pay a contractor with super priority when an owner has stopped paying even though there is no contract between the lender and the contractor.

The super priority rules are different for labor and materials. A contractor that filed its lien on time will have super priority for the labor it provided. But the contractor will only have super priority for materials and supplies if it gave a notice of right to a lien to lenders that previously recorded security interests in the property with the recording office of the county. The notice must be delivered to the lenders within eight days of when the contractor delivered materials or supplies.

A common mistake is to assume that no pre-lien notices are necessary on commercial construction projects. Almost every contractor delivers materials or supplies to its projects, and to have super priority for the amount owed for those materials or supplies, the contractor must deliver a notice of right to lien to lenders.

If a contractor fails to give the notice, it must list the amount it is owed for labor separately from the amount it is owed for materials or supplies on its lien to have super priority for the labor. Estimating the amounts after the fact is risky. As projects are built, the amount owed for labor should be tracked (in writing) separately from materials and supplies even if the contractor is to be paid one lump sum for everything.

Who are you?

Many contractors do not know their legal name. All contractors register a name for their companies with the Secretary of State, but at some point start using abbreviations (CCC instead of Construction Contractor Company Inc.) or generalizations (Contractor Group). As a result, the name registered with the Secretary of State will be different from the name written on contracts and, occasionally, the name written on liens will differ from both the registered name and the contract name. As one Oregon contractor recently learned when its $5 million lien was rejected, a name mistake can be costly.

Contractors should confirm that the name they registered with the Secretary of State matches the name registered with the Construction Contractors Board, the name on their project documents (e.g., quotes, contract, letters and invoices), and the name on their liens.

Many contractors also frequently do not know whom they contracted with, which is a mistake that can be equally costly. Contractors must know who is supposed to pay them and make sure their correct name is written on the contract.

To avoid lien mistakes, contractors must keep accurate records and follow up on late payments quickly. Although liens are subject to many requirements, contractors lessen the risk of losing their lien rights by making sure they do not make the mistakes described above.

John Hickey is an attorney in Jordan Ramis PC’s Dirt Law practice group. He focuses his practice on construction law, design professional liability and litigation. Contact him at 503-598-5578 or at john.hickey@jordanramis.com.

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People form corporations and limited liability companies for personal liability protection. Where partners in a partnership are personally liable for the partnership’s obligations and liabilities, shareholders of corporations and members of limited liability companies usually are not personally liable for their companies’ obligations and liabilities.

A recent Oregon case, however, shows that members of member-managed LLCs do not have the protection that many assumed they did.

The general assumption is that corporations and LLCs protect their owners from liability equally. Unless the owners signed a personal guarantee, a creditor may look only to the corporation or the LLC for payment of a company debt. If the corporation or LLC doesn’t have the money, the creditor is out of luck.

But that protection does not extend to every debt of the corporation or LLC. For example, if an officer of a corporation or a manager of an LLC is negligent (fails to implement reasonable safety procedures) or makes fraudulent statements (“you don’t need a guarantee from me because the company is good for it”), the officer or manager may be personally liable for his or her own conduct. In many such cases, the officer or manager and the company share liability.

Under the workers’ compensation insurance laws, Oregon broadened the limited liability protections to cover individuals associated with the company who negligently cause injury to employees of the company. If a company has the required workers’ compensation insurance, injured employees may only file a claim with the employer’s workers’ compensation insurer (e.g., injured employees may not sue their employer or co-workers for negligence).

The limitation on liability is called the exclusive remedy protection of the Oregon workers’ compensation law. That protection extends to agents, employees, officers and directors of a corporation – meaning that the people actually carrying out the business of a corporation are also shielded from personal liability. Although almost everyone assumed that the individuals carrying out the business of LLCs were equally protected, a recent case shows that the assumption was wrong.

In Cortez v. Nacco Materials Handling Group, an employee of a member-managed LLC was hit by a forklift when it was backing up. The injured employee filed a claim for workers’ compensation benefits and also sued the member-manager of the LLC (the owner who also managed the LLC).

The member-manager argued that the exclusive remedy protection of the workers’ compensation law extends to member-managers of LLCs just as it extends to officers and directors of corporations and that the injured employee’s claim should therefore be dismissed.

The court disagreed and concluded that the exclusive remedy protection of the workers’ compensation law does not extend to members of LLCs. The court looked to the specific language used in the law and refused to equate members of LLCs with officers or directors of corporations where the Legislature did not specifically do so.

Business lawyers often debate whether forming a corporation is worth the expense and additional formalities since LLCs have more flexibility and can be cheaper to operate. An important difference highlighted by Cortez is the separation of ownership and operation. Corporations have three layers: the shareholders who own, the directors who manage, and the officers who carry out the directions of the directors. In LLCs the management and operation layers are often combined and performed by member-managers.

Even in a corporation where there is only one shareholder who is also the sole director and serves as all officers, that individual is acting as the corporation’s director when he or she manages and as an officer when he or she carries out the business of the corporation and – if the corporation follows necessary formalities – is shielded from personal liability for claims by injured workers.

In a member-managed LLC, the lines between owner, manager and operator are blurred, and Cortez shows that the blurring opens member-managers to unexpected liabilities.

Business associations will undoubtedly push for a change in the law to lessen the risk to member-managers of LLCs. Even if they are successful, the real issue is whether there are other unexpected risks looming for owners of LLCs.

That does not mean that every member-managed LLC should become a corporation. In some cases, the benefits of an LLC may be worth the risk.

However, member-managed LLCs should evaluate how they distinguish between ownership, management and operation, and consider whether changes to the operating agreement or additional formalities would be beneficial.

John Hickey is an attorney in Jordan Ramis PC’s Dirt Law practice group. He focuses his practice on construction law, design professional liability and litigation. Contact him at 503-598-5578 or at john.hickey@jordanramis.com.

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The past few session of the Oregon Legislature have drastically changed the laws affecting construction contractors.  The 2007 session produced wholesale changes to construction contractor licensing, and the 2009 session included a state stimulus package and long-term funding for infrastructure construction. The 2011 session did not see changes of similar magnitude, but there still were plenty that are important to the construction industry.

Oregon tax law

Historically, Oregon tax law relied on federal tax law applicable to that year to calculate taxable income.  In 2009, when the Oregon Legislature realized the federal government would pass the American Recovery and Reinvestment Act (ARRA), which legislators knew would extend certain tax benefits to many businesses and consequently lower the businesses’ taxable state income (and state revenue), the Legislature passed a bill making the new federal tax benefits not applicable to Oregon taxes.

The 2011 Legislature reconnected Oregon to the federal tax benefits, which primarily are increased Section 179 expensing and accelerated depreciation. Section 179 expensing allows a business to deduct the entire purchase price of equipment up to a capped amount from the business’s income for the year in which the equipment is purchased. While the 2009 Legislature set the state cap so that it would not be increased by ARRA, the 2011 Legislature removed that limitation.

Accelerated depreciation allows businesses to deduct a higher amount of the cost of equipment from income over a period that is shorter than the useful life of the equipment specified in the Tax Code. The changes make it cheaper in the short term for Oregon construction companies to purchase equipment.

Technical education

Most public schools have cut or severely limited career and technical education programs, which has made it difficult for construction companies, among many other types of companies, to find skilled workers. In response, the 2011 Legislature passed a bill to create and promote career and technical education programs.

The legislation will make it easier to form technically focused charter schools, require certain state agencies to meet at regular intervals to collaborate on promoting career and technical education programs, and provide grants to enhance such programs. The grant program was funded with $2 million from the general fund for the biennium beginning July 1, 2011.

Truck idling

A person now commits a Class C traffic violation (a $180 ticket) by idling a commercial vehicle on premises open to the public if the person stops the vehicle and allows the engine to idle for more than five minutes in any continuous 60-minute period, unless an exception applies. The exceptions relevant to construction vehicles, as defined in the new law, are idling due to traffic and the powering of “work-related mechanical, safety, electrical or construction equipment installed on the vehicle that is not used for propulsion.”  The bottom line for construction workers is don’t leave your truck idling when you stop for coffee.

Contract waivers

The Legislature also limited the ability of one party to a construction contract to force certain waivers on the other party. A provision in a construction agreement is void to the extent that it requires a party, or the party’s surety or insurer, to waive a right of subrogation, indemnity or contribution for amounts paid because of certain damages that were caused by the negligence of someone else. Subrogation, indemnity and contribution are legal concepts that come up in situations in which someone pays a claim but believes that someone else is responsible for at least a portion of what was paid and seeks to recover from that other person.

The new law does not apply to project insurance policies such as owner-controlled insurance programs because subrogation waivers make sense under those policies (because the insurer insures most project participants under such policies, the responsible party is usually covered by the insurance policy). In most contexts, contractors who force subcontractors and the subcontractors’ insurers to waive their right to go after the responsible party will no longer be able to do so.

Close calls

Among the changes avoided were a raid on the state Highway Trust Fund and the implementation of a low-carbon fuel standard. Gov. John Kitzhaber proposed to take $93 million over the next biennium from the Highway Trust Fund to fund the Oregon State Police Patrol Division. Kitzhaber believed that funding the Patrol Division with such money would free up money for schools. The proposal was met with strong opposition and failed.

The 2009 Legislature authorized the Oregon Environmental Quality Commission to implement a low-carbon fuel standard that would require a reduction in the emissions generated from transportation fuels (for example, cars and trucks would be required to produce less carbon per unit of fuel). The Oregon Department of Environmental Quality planned on creating the standards in 2011 and implementing them in 2012.

However, petroleum industry experts and economists testified in hearings before the 2011 Legislature that the standards would greatly increase fuel costs over the next few years. After hearing the testimony, DEQ said that implementation of any standard would not occur before 2014. Expect the issue to surface again in the 2013 legislative session.

In summary, construction contractors who have put off purchasing new equipment should consult their accountants to determine whether the new tax benefits make now the right time to buy. Although contractors need to be wary of the new idling law and contractual waiver limitations, costly threats were avoided and steps were taken to improve career and technical education.

John J. Hickey is an attorney in Jordan Ramis PC’s Dirt Law practice group. His practice focuses on construction law, design professional liability, and litigation. You can contact John at 503.598.5578 or by e-mail at john.hickey@jordanramis.com.

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As the increase in public construction wanes, many contractors have expanded their territory across state lines. The resulting increase in competition for public projects in Oregon and Washington has made it more important than ever for contractors to understand the public bidding practices of each state. When it comes to bid protests, knowing how those practices contrast can be the difference between working and sitting idle.

Eligibility and timing

The law governing the eligibility of bidders to protest an award to another bidder is the same in Oregon and Washington. A protesting bidder must claim that all lower bidders are ineligible. In other words, the third-lowest bidder cannot protest an award unless it can say that the two lower bidders are ineligible.

In both states, written protests should be submitted quickly to the contracting authority. Under the rules that govern most authorities in Oregon, written protests must be submitted to the authority within seven calendar days of the authority’s issuance of a notice of intent to award a contract (the deadline is three business days for protests to the Oregon Department of Transportation). In Washington, written protests typically must be submitted to the authority within two business days.

In Washington, a contracting authority that rejects a protest cannot execute a contract for at least two business days after it gives the protesting bidder written notice of the rejection. Those two days are critical because they provide time for a lawsuit to be filed before the contracting authority enters into a contract with another bidder.

In Oregon, there is no specific period after a contracting authority rejects a protest during which the authority is prohibited from entering into a contract. The law only prevents the contracting authority from entering into a contract with another bidder before it responds in writing to all timely submitted protests. Therefore, an Oregon protester must be ready to file a lawsuit immediately upon filing a written protest to the contracting authority (and should consider filing the lawsuit even before receipt of the authority’s written response).

Recovery

In both states, it is essential to file a lawsuit to prevent a contracting authority from entering into a contract with another bidder. After a contracting authority awards a contract, a court will not force the contracting authority to award the contract to the protesting bidder even if the protester is right.

Moreover, Washington protesters are not entitled to recover their bid preparation costs or lost profits and may even be required to pay the contracting authority’s attorney fees if they file a lawsuit after a contracting authority has entered into a contract with another bidder.

Although Oregon protesters may recover bid preparation costs and attorney fees in such a situation, bid preparation costs are difficult to prove and any award will probably be significantly less than what would be realized in winning the contract.

So, disappointed bidders must act quickly to submit a written protest and initiate a lawsuit to preserve any chance of being awarded the contract.

Agency discretion

Because no court will overturn an authority’s decision on an issue within the authority’s discretion, filing a lawsuit to challenge such an issue is pointless. Similarly, accusatory and inflammatory protests of discretionary decisions will not help.

On issues within a contracting authority’s discretion, protesters should describe the basis for the protest in a simple and polite manner. Because the authority’s decision will be final on such issues, protesters have the best chance of success when they convince the authority of the legitimacy of their protests without offending.

In Oregon, contracting authorities have discretion to waive minor informalities and clerical errors. A “minor informality” is a bid mistake that can be waived or corrected without giving the bidder an unfair advantage over the others. A mistake involving price, quality, quantity or delivery is not a minor informality and may not be waived. But returning fewer signed bids to the contracting authority than required could be a minor informality. Clerical errors (e.g., transposition errors or typographical mistakes) may be waived if they are obvious and the bidder confirms the correction in writing.

Washington contracting authorities may waive informalities and errors if they are not “material.” An informality or error is material only if it gives a bidder a substantial advantage over other bidders.

Although it is debatable whether there is a practical difference between an unfair advantage (the Oregon test) and a substantial advantage (the Washington test), the language indicates that contracting authorities in Washington have more discretion than their Oregon counterparts, which reduces the likelihood of overturning a Washington contracting authority’s decision on a bidding issue.

Even on issues outside of a contracting authority’s discretion, where there is a good possibility that a court will uphold the protest, protests should be simple and polite. After all, if a protester wins, it will be working with the authority to complete the project, and a damaged relationship can result in a costly project.

John Hickey is an attorney in Jordan Ramis PC’s Dirt Law practice group. His practice focuses on construction law, design professional liability and litigation. Contact him at 503-598-5578 or at john.hickey@jordanramis.com.

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Although competitive low bidding is the most common method for public contracting authorities to procure construction services, many contracting authorities rightly believe that selecting the lowest bid for a project will not always result in the least cost. Often the contractor with the lowest bid is the one that made the biggest past mistake or is the most desperate for work and most likely to cut corners and look for claims.

Contracting authorities have therefore looked to alternative procurement methods in which contractors are selected based on factors other than price (e.g., experience and reputation). Critics of these methods say they are unfair because many contracting authorities do not objectively evaluate the non-price factors and simply select the contractor they want.

Although Oregon law prohibits contracting authorities from using an alternative method unless they determine that the method will not encourage favoritism and will result in a substantial cost savings (or in some cases qualifies as a pilot program), there is a growing perception that those requirements are regularly being treated as empty formalities.

That perception has led to a bill pending before the state Legislature that would restrict the ability of contracting authorities to use alternative procurement methods for construction services. Because of the perceived unfairness and growing focus on abuses of the alternative methods, many contracting authorities have opted to use competitive low bidding and attempt to mitigate that method’s problems through contractor prequalification.

Prequalification allows contracting authorities to accept bids only from contractors who satisfy certain minimum criteria.

Although prequalification appears to provide the benefits of both competitive bidding and alternative procurement methods, the evaluation of prequalification criteria is subject to similar abuses. For example, a contracting authority could evaluate the prequalification criteria in a way that results in a favored contractor being the only one that qualifies. Thus, contractors should be sure to understand the prequalification rules and the appeal process.

Under Oregon law, contracting authorities may consider only whether the contractor has appropriate resources (e.g., working capital and equipment), sufficient expertise, experience, integrity, and necessary licenses and insurance. In addition, the contractor must have satisfied any necessary legal requirements to perform the work and supplied all information requested by the contracting authority so that it may evaluate the other prequalification criteria.

The evaluation of experience is limited only to whether the contractor stayed within the budget and time allotted (within its control) for a previous project and otherwise performed the contract in a satisfactory manner.

The evaluation of integrity is typically limited to whether the contractor has previous criminal convictions in connection with a prior contract. If a contracting authority disqualifies a contractor on the basis of experience or integrity, the contracting authority must document the basis for its decision.

If a contracting authority disqualifies a contractor, it must notify the contractor in writing of the reasons for its decision and inform the contractor of the right to appeal under applicable law (ORS 279C.445 and 279C.450). If the contractor chooses to appeal the disqualification, it must notify the contracting authority within three business days after receipt of the written notice.

If a contractor fails to appeal within three business days, the disqualification becomes final and is not subject to challenge. If an appeal is issued in a timely manner, the contracting authority must conduct a hearing within 30 days unless the contractor agrees to a different period. At the hearing, the contractor will be given an opportunity to be heard and should be ready to explain why it believes the initial disqualification was made in error.

If, at the conclusion of the hearing, the contracting authority upholds the initial disqualification decision, the contractor has 15 days to file a petition for review in the circuit court for the county. The circuit court will reverse the disqualification only if the contractor can clearly prove that the disqualification was a result of corruption or fraud, that there was favoritism, or that the authority made a miscalculation or mistake.

The point here is this: Disqualified contractors must act quickly to confirm whether the contracting authority has followed the rules or made a mistake, and appeal to preserve any chance of competing for the contract.

John Hickey, a professional civil engineer and an attorney, is a member of Jordan Schrader Ramis’ Dirt Law practice group. He focuses on construction law, design professional liability and litigation. Contact him at 503-598-5578 or john.hickey@jordanschrader.com.

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Mistakes happen in competitive construction bidding. Instructions often are confusing, and bids are evaluated by contracting authorities whose expertise varies greatly. Contractors also frequently receive pricing from subcontractors and suppliers only minutes before the bid deadline, leaving no time to verify work items or check assumptions and calculations. That is why it is critical to develop a strategy for catching and responding to mistakes.

Responsiveness

Only “responsive” bids can be considered for award. To be responsive, a bid must comply with all essential requirements of the invitation to bid; those typically affect price, quality, quantity or delivery.

Bid invitations often come with other requirements (for example, “bidders shall attend a pre-bid conference”). Although compliance may have nothing to do with price, quality, quantity or delivery, noncompliance could lead to rejection by the contracting authority or a protest by another bidder on grounds of responsiveness.

Contracting authorities may waive bid requirements or mistakes if a bidder wouldn’t gain an unfair advantage (for example, a bidder’s failure to return the required number of signed bids). Clerical errors may be corrected if the error is obvious and the bidder confirms the correction in writing.

Other bidders may protest waivers and argue that the use of mandatory language instead of permissive language in the invitation to bid (using “shall” instead of “may”) made the requirement one that cannot be waived. Unless a disappointed bidder can show substantial prejudice, courts will usually defer to the contracting authority’s decision on such issues.

Bidding traps

Every mandatory requirement in a bid invitation that is seemingly unimportant is a trap. “Bids shall be completed and signed with black ink” and “bidders shall sign in at the pre-bid conference” are perfect examples.

Other traps are more difficult to spot. For instance, a bid invitation may say that only someone identified in a prequalification form can sign bids for a bidder.

Another may require the bid bond to be in a form substantially similar to a sample bond form included in the bidding instructions. Despite the sample form, sureties sometimes supply their own bid bond form or attach a rider to the sample. At first glance, the forms and riders appear harmless, but a close reading frequently reveals provisions substantially different from those in the sample form. Savvy contracting authorities will find those differences and declare the bid nonresponsive.

Most traps can be avoided. Maintain a checklist of all mandatory requirements and confirm that all documents provided by others satisfy the invitation’s requirements. Do not assume that documents provided by others – even sureties – are suitable.

Mistakes justifying withdrawal

When a mistake makes a bid substantially less than it should be and the rules preclude correction, a bidder may try to withdraw its bid without forfeiture of its bid bond. Before the deadline, bids may be freely withdrawn – which is of little help because bids are rarely submitted early and pricing mistakes often become apparent only when compared to other bids.

After the bid deadline, contracting authorities typically will not allow withdrawal for errors in judgment, such as underestimating necessary labor or equipment, selecting a deficient work method or failing to apply reasonable productivity estimates.

Withdrawal is allowed for mathematical and clerical errors, omission of pricing for a required item, misplaced decimals and errors in transferring numbers between forms. A bidder must immediately inform the contracting authority upon discovery of the mistake because withdrawal may be prohibited after the contracting authority relies on the bid.

A bidder also must clearly and convincingly show that the mistake was inadvertent. If the bidder’s bid worksheets do not show a mistake, the contracting authority has no way of knowing whether the “mistake” was really an intentional gamble – perhaps to take advantage of suspected quantity errors in the contracting authority’s bid forms. Contracting authorities and courts will not permit withdrawal and release a bid bond if a bidder cannot prove that a mistake was unintentional.

To avoid costly disputes over bid mistakes, bidders must understand rules and act quickly. Bid mistakes are always subject to the applicable rules of each situation. Bidders can reduce risk and impact of a bid mistake by paying attention to detail.

John Hickey, a professional civil engineer and an attorney, is one of several dual-professionals in Jordan Schrader Ramis’ Dirt Law practice group. He provides legal services to contractors, design professionals, developers and other members of the construction community. Contact him at 503-598-5578 or john.hickey@jordanschrader.com.

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Recent developments in construction labor policy will change the labor practices of construction contractors who work on federal projects. Although Congress is unlikely to enact new labor legislation anytime soon, federal agencies are changing labor policy by adopting new regulations and reinterpreting existing regulations.

Employee Free Choice Act

If enacted, the Employee Free Choice Act would make it easier for unions to organize employees (through “card check”), remove an employer’s right in most situations to negotiate a labor contract with a union, and increase the penalties for unfair labor practices committed by an employer. The card-check provision is the most prominent part of the EFCA because it would often eliminate the traditional secret-ballot election to determine whether employees support a union. Under the provision, if a union got a majority of bargaining unit employees to sign authorization cards and the National Labor Relations Board validated the cards (its card check), the union would be certified as the employees’ representative.

Although it was expected that some form of the EFCA would become law in 2009, setbacks kept that from happening. Throughout most of 2009, congressional focus was on health insurance reform. Also, a handful of Democratic senators announced their opposition to the EFCA, and a key supporter, Ted Kennedy, D-Mass., died.

Last fall, a group of senators reportedly agreed to eliminate the card-check provision with the hope that without card check the EFCA would gain momentum. But their efforts fell short, and subsequent election losses by union-backed Senate candidates have made passage of any version of the EFCA unlikely.

But union leaders have not given up and have recently disclosed a new strategy of looking for an unrelated bill to which all or part of the EFCA could be attached. That, along with the recent appointment of a former union lawyer to the NLRB, means that the battle is not over.

New disclosures

The Department of Labor recently issued a rule requiring contractors and subcontractors on federal projects to display posters informing employees of their right to join a union and engage in other activities protected by federal labor laws. The posters, which are published by the DOL, must be placed in conspicuous places in and around contractors’ work sites and offices. If a contractor posts notices to employees electronically (e.g., on a Web page), the contractor must also post the labor notice electronically. The rule applies to federal construction contracts entered into after June 21. Penalties for noncompliance include contract termination and debarment.

The DOL also has proposed amending its interpretation of rules requiring the disclosure of information related to the hiring of consultants to assist employers in union campaigns and other labor disputes. Currently, employers and consultants must disclose the amount of any payments to consultants and similar information to the DOL if the consultants are hired to persuade employees not to vote for a union. But disclosure is not required if the consultant has no direct contact with employees and provides only advice to the employer. The proposed DOL interpretation would require disclosure even if a consultant had no direct contact with employees and only provided advice.

Another rule on the DOL’s agenda would require employers to provide workers with written disclosures about how their pay is calculated and their right to overtime pay. For exempt employees, the employer would have to perform a written exemption analysis, disclose the analysis to the employee, and keep a copy available for DOL enforcement agents. The DOL says that the rule will enhance transparency and help prevent the misclassification of employees as independent contractors to evade minimum wage and overtime requirements.

Project labor agreements

The Federal Acquisition Regulation Council recently issued a final rule that encourages the use of project labor agreements on federal construction projects of $25 million or more. PLAs are agreements between prime contractors and labor unions that are sometimes required by owners (in this case, federal agencies). PLAs usually require the prime contractor and all subcontractors to abide by the terms of a common labor agreement for the duration of the project. Nonunion contractors subject to PLAs are essentially converted to union contractors for projects on which PLAs are used.

The new rule allows federal agencies to mandate that prime contractors submit fully executed PLAs when bids are due, prior to award, or after award. The mandate will give unions significant leverage in negotiating the terms of the PLA because failure to provide a fully executed PLA when mandated will be a breach of contract by the prime contractor. Although the rule does not require the use of PLAs on every project, it is expected to significantly increase their use.

Contractors who do business with the federal government should be implementing practices to deal with the new labor policy changes. Waiting until after award of a contract to consider these issues could result in contract termination or worse. Contractors should consult with legal counsel for advice on their specific situations.

John Hickey, a professional civil engineer and an attorney, is one of several dual-professionals of Jordan Schrader Ramis’ Dirt Law practice group. He provides legal services to contractors, design professionals, developers and other members of the construction community. Contact him at 503-598-5578 or john.hickey@jordanschrader.com.

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