A joint venture of AECOM, its Tishman Construction unit and STV was awarded a $19 million contract to provide construction management and other services for the Moynihan Station project which will expand Penn Station New York. Phase one of the project is estimated at $267 million and will create passenger access points in the historic post office across the street from the current Penn Station. Seven contractors have been pre-qualified for the construction contract. Tutor Perini continues its assault on the New York stalwarts.
Virginia is for lovers – and heavy civil contractors.
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Virginia Gov. Bob McDonnell wants to increase the percentage of any year-end surplus and sales tax that is spent on transportation projects. According to this article, the specific proposals include:
* Increasing transportation’s share of year-end surpluses to 75 percent.
* Authorizing the Commonwealth Transportation Board to implement a version of tax-increment financing so that when the state funds new transportation infrastructure a portion of the growth in state tax revenues that result from economic development surrounding the project will go to transportation.
* Increasing the amount of existing sales tax sent to transportation from .5 percent to .75 percent over the next 8 years.
* Proposing that the first 1 percent in revenue growth over five percent each year be dedicated to transportation
* Allow the state to match local money dollar-for-dollar on capital improvements as well as maintenance within a locality.
Sequestration – Should YOU Be Worried?
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If you answered “yes” but only because the title conjured up images of late nights in a small room with 11 other jurors of your peers…there is another type of “sequestration” that might be of concern to you.
The more noteworthy sequestration is the automatic budget cuts that were triggered on November 23, 2011, when the Government’s “Super Committee” failed to agree on a means of reducing the Nation’s defict. The Budget Control Act of 2011 mandates that federal spending be decreased by $109.3 billion per year over ten years, resulting in a total federal spending decrease of $1.2 trillion by 2023. Although this sequestration has already been triggered, it remains to be seen exactly how much this will effect spending on federal construction projects.
It is probably not worth panicking just yet since the cuts will not go into effect until 2013 – and the automatic cuts are a relatively small percentage of overall federal spending. Nevertheless, this is a sequestration you should keep on your radar, just like the AGC is.
Virginia wades deeper into the promise of P3
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Virginia announced a $940 million dollar P3 agreement with Flour-Transurban. The agreement calls for the construction of a 29 mile hot lane to ease the Virginia’s traffic congestion, especially during rush hour.
The agreement calls for Fluor-Transurban to pay $843 million and Virginia to $97 million. Most of the current lanes will be toll free, as will be HOV-3 vehicles. Other vehicles will pay a toll that will vary in amount depending on the volume of traffic.
The Agreement’s Key aspects include:
- Fluor-Transurban will design and build the facility; manage and fund all operations and maintenance for a period of 73 years following construction. It will also share revenue with the Commonwealth.
- Maintain free access for High Occupancy Vehicles (HOV) meeting state eligibility requirements and buses.
- Develop and operate a dynamic tolling system. Tolls will vary based on demand to provide fast, reliable travel times.
- All tolls will be paid with an E-ZPass and there will be no toll booths.
- Electronic signs will alert travelers to current toll rates so they can make an informed choice whether or not to use the HOT Lanes.
- Return the asset to the Commonwealth in good working order at the end of the agreement
The agreement is the latest in Virginia’s foray into the P3 delivery method to meet a public need by partnering with the private sector.
Money in search of a Project
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A funny thing happened at a recent ENRNewYork infrastructure conference titled Where’s the Money? — they found some. During a panel discussion concerning infrastructure financing, both Robert Dove, Managing Director, The Carlyle Group and Christophe Petit, President, Star America Infrastructure Partners, told the large audience that they had “money to spend” on infrastructure projects. Indeed, both men suggested that they were eager to find an infrastructure project in which to invest.
Interestingly, both men were looking for very different project profiles. Mr. Dove stated a desire to invest in brown field projects only, whereas Mr. Petit wants green field projects. Given the amount of money these two men represent, there is a very attractive opportunity for the promoter of the right project.
In light of this and the money Presidents Obama and Clinton have pledged to raise for infrastructure projects (see Michael McNamara’s 11/5/11 entry), perhaps some should be saying Show me the Project!!.
Show me the money! US to Invest $4 Billion in Sustainable Construction
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With all the talk — and all the press — about our cash-strapped federal government, you’d think that announcements of new government spending would be few and far between. But not if you’re into green building. President Obama is teaming with former President Clinton to invest $4 Billion — yes, that Billion, with a “B” — in sustainable construction. Check it out here.
How much will that $4 Billion investment cost taxpayers? If you answered $4 Billion, you’d be wrong. The answer is zero! I guess they’re just going to pluck that money from the tree.
But don’t worry where the money’s coming from. Worry where it’s going. To you? Or your competitor. Get your LEED Certificate out and polished — or maybe just get it.
The Guatemala Canal?
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If you build it, they will come. But what if someone else built it first? We just might find out the answer to that question if Guatemala goes forward with its new president’s plan to build a canal connecting the Atlantic and the Pacific Oceans. You can read about it here.
Presumably Guatemala is aware of the fact that Panama is currently building a third set of locks that will significantly expand its capacity. You can read about that here.
So Guatemala won’t just compete with the Panama Canal we all know and love; it will compete with a new and improved Panama Canal.
Perhaps it’s no surprise that Guatemala’s president proposes to build its new canal as a Public Private Partnership. That likely means that it won’t get done unless the marketplace determines that the canal would generate enough income to pay for its construction.
The Walls Come A’ Tumblin Down: Implosion of CityCenter’s Harmon?
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OK, the walls haven’t come a’ tumblin down yet. But stay tuned.
It wasn’t enough to chop a 47 story building down to 26 floors — in the middle of construction. Engineers for CityCenter, in Las Vegas, have said they need to implode the unfinished building before it collapses in an earthquake. Now, we all know that imploding any building is no trivial task. Imploding a building in the middle of an urban area like downtown Las Vegas is downright daunting. But when the lawyers get involved, it gets so complicated it’ll make your head spin.
The contractors and the subcontractors say that the building can be repaired and made safe. And of course, if the building is imploded, regardless of what the rules of evidence and any jury instructions say, it will be difficult to convince people that it had been repairable.
Steve Green writes about the proceedings here.
Battling Unfair Unsats (Todd Construction, L.P. v. U.S.)
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Historically, when a government contractor received an “unsatisfactory” performance rating (“Unsat”) that was issued without proper procedures being followed or was substantively erroneous, the contractor’s only immediate recourse was to ask the agency to reconsider. Otherwise, the contractor had to wait to seek judicial review through a bid protest on a subsequent procurement – forcing the contractor to wait for the Unsat to potentially deprive it of more work.
This presents a major problem for contractors. This article examines recent judicial developments in which the U.S. Court of Federal Claims opened the door for contractors to seek immediate review of erroneous Unsats.
Under the Contract Disputes Act, if a contractor wishes to pursue a claim against the federal government arising out of a contract, the contractor can turn to one of two places: an agency’s Board of Contract Appeals (BCA) or the U.S. Court of Federal Claims. However, it does not follow that both of these bodies are willing to take up a contractor’s appeal of an erroneous Unsat.
Boards of Contract Appeals
BCAs repeatedly have refused to hear contractor challenges to performance evaluations. In 1991, the Armed Services BCA determined that a contractor could not appeal a performance evaluation directly to the board because it was not a “claim” within the meaning of the Contract Disputes Act. Konoike Construction Co., ASBCA No. 40910, 91-3 BCA ¶24170 (1991). There, the contractor failed to follow procedure by first seeking a final decision of the contracting officer. Many BCAs have declined to hear others challenges to performance evaluations based on reading Konoike to broadly hold that requesting a change to a contractor performance evaluation is not a “claim.” The BCAs simply will not provide contractors a forum to review erroneous Unsats.
Court of Federal Claims
The Court of Federal Claims, on the other hand, has taken a different view. It has emphasized the importance of providing contractors with a judicial forum to challenge the fairness and accuracy of performance evaluations, especially “given the increasing importance of performance reviews and prejudice to contractors from erroneous ratings.”
Despite its limited jurisdiction under the Tucker Act (28 USC §1491) and in part because the BCAs refused to take up the issue, the Court of Federal Claims decided to provide contractors with a much-needed forum to challenge erroneous Unsats. Todd Construction, L.P. v. United States, No. 07-324 (Fed. Cl. filed May 25, 2007); BLR Group of America, Inc. v. United States, No. 07-579 (Fed. Cl. filed August 1, 2007).
Todd Construction’s lawsuit alleged that the U.S. Army Corps of Engineers, without observing proper procedures, issued a substantively erroneous Unsat. Todd asked the court to determine that the Corps’ Unsat was unlawful and to order the Corps to remove it. The government claimed the Court of Federal Claims did not have jurisdiction to hear the case.
Jurisdiction existed only if Todd could show that it had properly asserted a Contract Disputes Act “claim,” which the court held had four elements: 1) a decision of the contracting officer; 2) on a written demand; 3) made as a matter of right; 4) requesting relief arising under or relating to the contract.
The Court of Federal Claims held that generally a contractor appealing an Unsat would meet the third and fourth elements. The court also held that Todd submitted a written demand and obtained a decision of the contracting officer. Accordingly, the Court of Federal Claims determined it had jurisdiction to hear the case. Todd Construction, L.P. v. United States, 85 Fed.Cl. 34 (2008).
Almost eight months later, after receiving supplemental briefing from the parties, the Court of Federal Claims issued a second opinion dealing with the kinds of relief it was authorized to grant an aggrieved contractor. Todd Construction, L.P. v. United States, 88 Fed.Cl. 235 (2009).
The Court of Federal Claims held that it could enter a declaratory judgment and that it could remand the case to the agency. In reality, a declaration of rights (without more) would do little to resolve the dispute and would not put the contractor in any better position. The Court of Federal Claims recognized this and took its relief power a step further.
Under the Tucker Act, the Court of Federal Claims has authority to remand cases to agencies with “proper and just” directions. The Court of Federal Claims refused to adopt the government’s request for a narrow reading of “proper and just directions” that would amount to nothing more than telling the agency to follow the regulations. Instead, the Court of Federal Claims held that “[i]n the event that the Court finds procedural deficiencies or an erroneous evaluation, the Court should use its power to issue a declaratory judgment to assist the agency, on remand, to address the identified concerns.”
Since the Todd Construction case is ongoing, it is unclear how far the Court of Federal Claims will be willing to take a declaratory judgment when it finds an agency issued an erroneous or inaccurate Unsat. However, one thing is clear: The Court of Federal Claims has greatly expanded the ability of contractors to challenge Unsats that are inaccurate, erroneous or were issued without following the proper procedure.
Lessons Learned
So far, Todd Construction teaches two important lessons. First, while the Court of Federal Claims is willing to provide a forum for reviewing erroneous Unsats, a contractor cannot take the Unsat straight to the Court of Federal Claims. A contractor first must submit a written demand and receive a decision of the contracting officer, amounting to a “claim.”
Second, in reviewing whether an Unsat is substantively erroneous, the Court of Federal Claims will give great deference to the decision of the agency but will look very hard at whether the agency followed the proper procedures in arriving at the Unsat. Contractors should be familiar with both the FAR and the agency’s procedures related to issuance of performance evaluations. Equally as important, the contractor should keep diligent written records of instances in which the contracting officer or the agency did not follow the proper procedures.
This article first appeared in the May/June 2010 edition of The Bulletin, published by the Washington Building Congress.
U.S. Supreme Court Narrows Definition of Corporate Citizenship – Opening Door to Federal Courts
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Article Co-Authored with Christian Henel
The United States Supreme Court has settled a long-standing split among lower courts on the definition of a corporation’s “principal place of business” for purposes of diversity jurisdiction in federal court.
The Court held a corporation has a single principal place of business for purposes of diversity jurisdiction and that place is defined as the state where the corporation’s headquarters is located. Hertz Corp. v. Friend, No. 08-1107 (Feb. 23, 2010).
The ruling expanded upon and clarified the traditional notion of a business’s “nerve center” as applied in tests used by the 7th Circuit and sporadically in other circuits. It reverses tests in the 3rd, 4th, 5th, 6th, 7th, 8th, 10th and 11th Circuits that permitted courts to consider the extent of a corporation’s business activity in a given state as determinative of citizenship in that state. Perhaps most important, it reversed the standard in the 9th Circuit under which a corporation had a principal place of business in any state where the corporation conducted “significantly larger” operations or where its operations “substantially predominate.” Under that standard, a corporation could be considered a citizen of all 50 states – as long as it conducted significant operations in all 50 states.
By clarifying that a corporation can have only one principal place of business, the Hertz decision reduced the number of states in which a corporation is a citizen and therefore increased the likelihood that the corporation can obtain federal court jurisdiction for legal disputes.
Businesses often prefer federal courts over state courts. Among the reasons for this are predictable rules and the perceived higher quality of federal judges, on average, compared to state court judges. Anecdotally, some corporations claim to have experienced somewhat “fairer” treatment in federal court, especially in cases in which the corporation finds itself in the “home state” of its adversary.
But, federal courts have limited subject matter jurisdiction. Under 28 USC §§1331 and 1332, federal subject matter jurisdiction exists only when: (1) the lawsuit asks the court to decide a federal question or (2) the lawsuit asks the court to resolve a dispute between citizens of different states and the amount in controversy exceeds $75,000. This second type of jurisdiction is known as diversity jurisdiction. Most business contract disputes do not involve federal questions, so the only basis for federal court jurisdiction is diversity.
Thus, for a federal court to exercise diversity jurisdiction, the underlying dispute must be between citizens of different states, i.e., no plaintiff in the lawsuit may be a citizen of the same state as any defendant in the lawsuit. For individuals, it is easy to determine citizenship; but courts have struggled in deciding in which state a corporation is a citizen, particularly when the corporation does business in multiple states.
Diversity jurisdiction is rooted in Article III, Section 2 of the Constitution, and ever since the Judiciary Act of 1789, Congress has authorized federal courts to use it. Beginning in 1844 and continuing for more than 100 years, a corporation was deemed to be a citizen solely of the state in which it was incorporated. In 1958, Congress modified the statute. It codified the courts’ traditional “place of incorporation” test but also provided that a corporation is a citizen of “the State where it has its principal place of business.” This change meant that corporations could be citizens of at least two states: The state of incorporation and, if different, the state where the corporation maintains its principal place of business.
But in the 60 years since the statute was changed, the circuits created a patchwork of different tests to determine where a corporation’s principal place of business was. Many of the tests were vague and were prone to outcome-determinative analyses in which a trial court could choose facts to fit the outcome it desired. The patchwork of vague tests had two negative impacts on corporations. First, it made it very difficult to predict where the corporation might be able to secure diversity jurisdiction. Consider some of the different tests:
The 3rd Circuit adopted a “center of corporate activities” test under which the corporation’s principal place of business was the state where its day-to-day headquarters was located, with day-to-day headquarters defined based on a totality of the circumstances.
The 6th, 8th and 10th Circuits adopted a version of the “total activity” test, a highly fact-specific test that does not limit principal place of business to the state containing the corporation’s headquarters.
The 2nd, 5th and 11th Circuits applied either the “nerve center” or “place of activity” test, depending on whether the court found the business to be “centralized” or “decentralized.”
The 4th Circuit applied either the “nerve center” or the “place of operations” test, depending on whether the court found the corporation to be managed actively or passively from headquarters.
The 1st Circuit applied as many as three tests, primarily employing a “nerve center test,” sometimes in combination with a “center of corporate activity” test and a “locus of operations” test.
The 9th Circuit held that a corporation’s principal place of business was located in the state where it conducted a “significantly larger” amount of its business activity or where its business activity “substantially predominates,” resorting to a “nerve center” analysis only when it cannot be said that activity predominates in a particular state.
The second negative impact for corporations was that under many of the tests, a corporation could have its principal place of business in more than one state. This meant that the corporation was a “citizen” of multiple states for diversity jurisdiction purposes: The more states in which the corporation was a citizen, the fewer states in which it could seek federal diversity jurisdiction.
The Supreme Court resolved this uncertainty by holding that a corporation’s principal place of business is located in a single state: the state where its day-to-day headquarters exists.
In Hertz, California citizens sued Hertz in a California state court. Hertz removed the case to federal court, asserting that it was not a citizen of California and that federal jurisdiction was proper. In support of this contention, Hertz submitted that its principal place of business was in New Jersey, where Hertz’s headquarters was located and where Hertz carried out all of its core executive and administrative functions.
The U.S. District Court disagreed. It applied the 9th Circuit’s test for principal place of business and concluded that Hertz’s business activity was “significantly larger” and “substantially predominated” in California. Based on this conclusion, the District Court held that Hertz was a California citizen. Because the plaintiffs also were California citizens, the District Court concluded that there was no diversity and remanded the case to state court. The 9th Circuit affirmed.
The Supreme Court reversed the 9th Circuit. After briefly describing the numerous and varied tests developed by circuit courts to identify a corporation’s principal place of business, the Supreme Court observed: “Not surprisingly, different circuits (and sometimes different courts within a single circuit) have applied these highly general multifactorial tests in different ways.”
To clarify the principal place of business issue once and for all, the Court concluded that a corporation’s principal place of business is best interpreted as “the place where a corporation’s officers direct, control, and coordinate the corporation’s activities.” The Court went on to hold that in practice, the principal place of business should be the corporate headquarters, “provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center.” On the facts in the Hertz case, the Court concluded that because Hertz’s nerve center and corporate headquarters were in New Jersey, Hertz was a New Jersey citizen, and removal to federal court was proper.
In denominating the “nerve center” as a corporation’s discrete principal place of business and in providing a relatively administrable test for determining what constitutes the nerve center, i.e., corporate headquarters, the Hertz decision makes it much less likely that a corporation will be deemed a citizen of more than two places for diversity jurisdiction purposes. In turn, corporations that previously could not litigate in federal court because of diversity restrictions may find those restrictions lifted. Potential examples from the construction industry could include:
A California general contractor builds a project in California for a national developer that is incorporated in Delaware and that is headquartered in Illinois but which conducts a large part of its business in California. Assume a dispute arises and the California contractor would prefer a lawsuit in federal court. Under the previous 9th Circuit rule assigning citizenship based upon the significance of a corporation’s business activities in a state, the developer might be deemed a citizen of California on account of its substantial activity there, and the federal court would not have jurisdiction to hear the contractor’s claim. Under the new Hertz rule, the developer may only be considered a citizen of Delaware (its state of incorporation) or Illinois (its headquarters “nerve center”) but not California. Accordingly, California’s federal courts would have jurisdiction over the case.
An owner headquartered in Arizona seeks to avoid litigating a breach of warranty claim in federal court in New Mexico. It does so by arguing it is a citizen of New Mexico because it does business in New Mexico, has an office there and holds annual board meetings there. Under the 10 Circuit’s earlier “total activity” test, such activities may have been enough to confer citizenship on the owner. Under the new Hertz rule, the owner’s presence in New Mexico would not confer citizenship unless the owner was directing, controlling and coordinating its day-to-day work from the New Mexico office. Assuming these activities were instead performed in the owner’s Arizona headquarters, the owner will be deemed a citizen of Arizona, diverse in New Mexico and subject to federal court jurisdiction there.
A subcontractor in Michigan seeks to hale a Florida-based general contractor into state court in Michigan for breach of contract, and the Florida-based general contractor seeks removal to federal court. Under the 6th Circuit’s earlier “total activity” test, the subcontractor might attempt to characterize the general contractor as a Michigan citizen to defeat diversity and prevent removal. Under the new Hertz rule, the general contractor need only show that it is headquartered in Florida and its business is directed, controlled and coordinated out of Florida to establish Florida citizenship and permit removal.
The Hertz decision received little notice in the media. But for many businesses, it will prove to have been the most important decision of the year from the Supreme Court.