FAR Amendments Designed to Speed Up Payment to Subcontractors

On November 25, 2013,  the DOD, GSA, and NASA issued a final rule amending the Federal Acquisition Regulations (FAR) to incorporate a new clause to provide accelerated payments to small business subcontractors.

The new clause [FAR 52.232-40] requires prime contractors, upon receipt of accelerated payment from the Government, to make accelerated payment to small business subcontractors, to the maximum extent practicable, after receipt of a proper invoice and all proper documentation from small business subcontractors. [ Note: If the Government does not accelerate payment to a prime contractor, that prime contractor is under no obligation to accelerate payments to its small business subcontractors.  78 FR 70478 ]

This clause will be inserted into all new solicitations issued after the effective date of this rule [December 26, 2013] and resultant contracts, including solicitations and contracts for the acquisition of commercial items. 

This rule does not provide any new rights under the Prompt Payment Act and does not affect the application of the Prompt Payment Act late payment interest provisions.

52.232-40  Providing Accelerated Payments to Small Business Subcontractors (Dec 2013)

(a) Upon receipt of accelerated payments from the Government, the Contractor shall make accelerated payments to its small business subcontractors under this contract, to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract, after receipt of a proper invoice and all other required documentation from the small business subcontractor.

(b) The acceleration of payments under this clause does not provide any new rights under the Prompt Payment Act.

(c) Include the substance of this clause, including this paragraph (c), in all subcontracts with small business concerns, including subcontracts with small business concerns for the acquisition of commercial items.  78 FR 70479

For more about the Federal Acquisition Regulations (FAR), click here. For a complete copy of all the FAR regulations, or to download a complete set, click here. 

For more about Michigan Construction Law Update, click here.

Sixth Circuit Upholds Michigan Law Limiting Project Labor Agreements

On September 6, 2013, the Sixth Circuit Court of Appeals voted 2-1 to uphold the "Michigan Fair and Open Competition in Government Construction Act" (PA 98 of 2011).  

The act prohibits a city, village, township or other governmental unit from awarding a public construction project, grant, tax abatement or tax credit based on whether or not a bidder, contractor or developer employs union or non-union labor. 

The Court noted in a 13-page published opinion that "The act furthers Michigan’s proprietary goal of improving efficiency in public construction projects, and the act is no broader than is necessary to meet those goals." 

The Sixth Circuit's decision overturns a 2012 decision we reported here by U.S. District Judge Victoria Roberts, who had ruled that PA 98 violated the National Labor Relations Act.

Cite: Michigan Bldg & Const Trades Council v Snyder, 729 F.3d 572 (6th Cir. 2013).

For more about Michigan Construction Law Update, click here.

Additional reading:

• "Sixth Circuit upholds Michigan's open competition law," Legal Newsline Legal Journal, Sept 9, 2013 (click here) 
• "New Michigan Law Prohibits (Most) Project Labor Agreements," Michigan Construction Law Update, July 22, 2011 (click here) 
• "U.S. Circuit Court Upholds Michigan Ban on Project Labor Agreements", National Legal and Policy Center, Sept 16, 2013 (click here) 

New Law Expands Protection of Michigan's Anti-Indemnification Law

The final days of 2012 saw a flurry of activity by the Michigan Legislature. Among the new legislation passed during an historic lame duck session was a significant legislative victory for contractors and design professionals.  Public Act 468 of 2012, which was sponsored by Rep. Kurt Heise of Plymough (HB 5466), clarifies and expands the protections of Michigan's “anti-indemnification statute” for Michigan’s construction industry. MCL 691.991.  The new law takes effect March 1, 2013.

Under generally applicable Michigan law, every person is responsible for their own negligence, and if found liable are required to pay damages only in an amount equal to their degree of fault. This principle is known as “comparative” fault.  In the construction industry, parties with greater bargaining power have historically sought, by contract, to shift risk to other parties with lesser bargaining power.  In response, the Legislature has provided certain limited protections from unfair indemnification clauses in construction contracts.

Under existing Michigan law, MCL 691.991 prohibits agreements in connection with construction projects from requiring one party (the “indemnitor”) to indemnify another party (the “indemnitee”) for damages arising out of bodily injury to persons or damage to property, where those damages are caused by or resulting from the sole negligence of the indemnitee.  These types of clauses are declared void as against public policy.

Another important protection for industry participants is existing MCL 18.1237c, which applies only to contracts with the State of Michigan, Department of Technology, Management & Budget (“DTMB”). Sec 18.237c requires that indemnification provisions in DTMB contracts be “comparative” in nature.

Despite these protections, the existing law still allows many unfair and overreaching indemnification provisions to be included in design and construction contracts.

The new law clarifies that Sec. 691.991 applies to design contracts, and that the protection includes contracts in connection with all manner of private and public construction.  Importantly, the new law will require that design and construction contracts with “Public Entities,” (including cities, villages, townships, counties, school districts, intermediate school districts, authorities, and community and junior colleges), must not violate comparative fault principles.  In addition, such contracts can no longer require that contractors, and Michigan-licensed architects, engineers, landscape architects, surveyors defend the public entity from negligence claims.  However, state universities are exempted from the requirements of the new law.

For more information about PA 468, contact Gary Quesada. 

For more about Michigan Construction Law Update, click here.