Sunday, June 26, 2011

Politics Is Strangling Infrastructure Bank Legislation

Early last September, the Obama White House proposed a Federal Infrastructure Bank, which the construction industry hoped would bring a much needed infusion of private capital into more “shovel ready” projects, and help in starting a resurgence of the severely depressed construction sector of the American economy. Well, the shovels are still ready, but the infrastructure bank concept, like so many legislative initiatives for creating jobs, is mired in the politics of spending cuts and debt reduction.

The Obama Administration’s original proposal was creation of a permanent federal infrastructure bank, which would use grants, loans and loan guarantees to attract state and local funding, and private investment, to revenue generating transportation infrastructure construction projects. According to the September 9, 2010 White House press release, the proposed infrastructure bank would be:

“…an important departure from the federal government’s traditional way of spending on infrastructure through earmarks and formula based grants that are allocated more by geography and politics than demonstrated value. Instead, the Bank will base its investment decisions on clear analytical measures of performance, competing projects against each other to determine which will produce the greatest return for American taxpayers.”

Of course, that overt threat to end Congressional earmarks against the Highway Trust Fund probably assured the death of the infrastructure bank proposal from the Obama Administration. As a result, Obama’s February 14, 2011 budget message phrased the concept a little more elegantly:

“A cornerstone of the I-Bank’s approach will be a rigorous project comparison method that transparently measures which projects offer the biggest value to taxpayers and our economy. This marks a substantial departure from the practice of funding projects based on more narrow considerations.”

So, unlike the Obama Better Buildings Initiative, which has never even been introduced in the form of legislation, the infrastructure bank concept has at least left the starting blocks, in the form of SB 652, the BUILD Act, and SB 936, the AIIF Act. Neither piece of proposed legislation has even made it over the first hurdle, though.

Unfortunately, Senator Kerry's 57 page Building and Upgrading Infrastructure for Long-Term Development Act, Senate Bill 652, is bottled up since March 17 in the Senate Finance Committee, while Senator Rockefeller's 67 page American Infrastructure Investment Fund Act, Senate Bill 936, is bottled up since May 10 in the Senate Commerce, Science and Transportation Committee. Neither proposal is going anywhere, in my estimation, until two conditions are met: 1) our political leaders finish their cat fight over increasing the debt limit and reducing federal spending; and 2) someone proposes to support the federal highway trust fund with a source of infrastructure funding revenue as an addition to, or an alternative to, the current motor fuel tax.

The breakdown last week of the debt limit negotiations, and the Republican refusal to consider any new taxes, likely sound the death knell to both SB 652 and SB 936. In the absence of a massive letter writing campaign from construction businesses in favor of one or both of these proposals, there isn't going to be an Infrastructure Bank set up any time soon. If you would like to see an Infrastructure Bank get moving, write to your own Senators, and to members of the Senate Commerce Committee and members of the Senate Finance Committee in support of it.

Thursday, June 16, 2011

Congress Stymies Better Buildings Initiative

Politicians in both Republican and Democratic parties say they believe issue number one in the upcoming Congressional and Presidential elections is job creation. You would think this would make it easy to move legislative initiatives that would create jobs, conserve energy, and lower taxes. Yet one such initiative proposed by the Obama administration is so stalled in Congress that no one is moving any bill to implement the program.

On February 3, 2011, the White House proposed its Better Buildings Initiative, to improve energy efficiency of existing buildings, reduce the energy bills of businesses and consumers, and conserve energy. According to a report released Monday, June 13, 2011 by The U S Green Building Council, The Real Estate Roundtable and The Natural Resources Defense Council, the administration’s proposed program would create 114,000 new jobs, 77,000 of them in the severely depressed construction industry. The Better Buildings Initiative was also the subject of a portion of testimony by U. S. Department of Energy Assistant Secretary David Sandalow before the Subcommittee on Energy and Power of the House Committee on Energy and Commerce on June 3. As described, the Better Buildings Initiative will provide new tax incentives for building energy efficiency, new financing for retrofits of existing buildings, and streamlined building code provisions and performance requirements.

According to Roger Platt, a senior vice president of The Green Buildings Council, the Better Buildings Initiative will “lower energy consumption, reduce our nation’s dependence on foreign oil and allow America to retain its competitive edge in the international economy.” What’s not to like?

Congressional Committees with jurisdiction include: House Ways and Means, Chairman Dave Camp (R-MI) and its Select Revenue Measures Subcommittee, Chairman Pat Tiberi (R-OH); House Energy and Commerce, Chairman Fred Upton (R-MI) and its Subcommittee on Energy and Power, Chairman Ed Whitfield (R-KY); and House Science, Space and Technology, Chairman Ralph M. Hall (R-TX) and its Subcommittee on Energy and Environment, Chairman Andy Harris (R-MD). The websites of these committees and subcommittees are filled with diatribe attacking the Obama administration for inaction on the jobs and tax reduction fronts, yet there is no mention whatsoever of the Obama administration’s Better Buildings Initiative.

Republican politicians at all levels say they want lower taxes, less dependence on foreign oil, and more jobs. Private sector evaluation of the proposals in the Better Buildings Initiative says it will achieve all three goals. A polite letter to the committee chairmen listed above, pointing out that there should be strong bipartisan support for this proposal, and inquiring why it is going nowhere in the House, might kick some Republican butt, and get this job creator moving.

Wednesday, June 15, 2011

OSHA “Phasing In” New Residential Construction Fall Protection Standard

Tomorrow’s deadline for compliance with the new OSHA guidance on residential construction fall protection, which can be found at, will be phased in for roofers and other residential contractors who may be in violation of the new directives, but still in compliance with the old alternative standards, according to OSHA Administrator Dr. David Michaels. Between June 16 and September 15 of this year, any residential construction contractor found to be in violation of the new directives, but who does comply with the old alternative standards, will receive only a “hazard alert letter,” while contractors not in compliance with either the old or new standards will be issued OSHA citations.

This three month “phase in” effectively amounts to a one year extension of the deadline in those states north of the Mason Dixon line, where the roofing season ends around September 15. Contractors in the South and Southwest regions will have to obtain equipment complying with the new directive by September 15 to avoid issuance of fall protection citations.

Now would be a good time for roofers and other residential contractors to take a good look at the new OSHA guidance, and plan their fall protection procedures under the new guidelines, while cash flow is available to support acquisition of the required bracket scaffolds or retractable lifelines for the use of their tradespeople.

Tuesday, June 14, 2011

Are You REALLY An Additional Insured On All Subs’ Coverage?

General contractor G hires steel fabricator SF to fabricate and erect structural steel on the owner’s project. Fabricator SF hires steel erector SE to erect the beams and columns SF will fabricate in its shop. G’s subcontract with SF requires SF to name G as an additional insured on SF’s commercial general liability insurance. SF’s sub-subcontract with SE requires SE to name G and SF as additional insureds on SE’s commercial general liability policy. SE complies, and sends G a certificate of insurance showing G and SF as additional insureds on SE’s policy. Sound familiar?

Later, a couple weeks into erection of the steel on site, one of SE’s ironworkers falls and is injured. The ironworker files a workers’ compensation claim against SE, and a negligence lawsuit against SF and G. G, shown as an additional insured on the certificate provided by SE, tenders G’s defense in the negligence lawsuit to SE’s insurance company. If you would expect SE’s insurance company to defend and indemnify G, you would be mistaken, at least in Illinois, under the recent decision of the Illinois Appellate Court. Surprised?

In Westfield Insurance v. FCL Builders, 2011 WL 855197 (1st Dist. 2011), the court ruled that Westfield’s insurance policy language regarding the definition of who was insured required Westfield to provide coverage only when “you and such a person or organization have agreed in writing in a contract or agreement that such a person or organization be added as an additional insured on your policy.” The court found that SE’s promise to SF to name G as an additional insured was not enough to meet this requirement. Finding no direct written agreement between SE and G requiring SE to name G as an additional insured, the court ruled there could be no coverage for G under SE’s policy, in spite of the issuance of a certificate of insurance identifying G as an additional insured.

Perplexed? How can you fix this?

Easily enough! Besides requiring subs to require sub-subcontractors to name G as an additional insured, and submission of certificates of insurance reflecting that they have done so, G should require subcontractors and suppliers at all levels to submit, along with the typical certificate of insurance, a letter like this:

“Pursuant to a direct agreement among Owner, G and SE, and in consideration of Owner and G’s acceptance of SE as a trade contractor [or material supplier] on the project, SE hereby agrees directly with Owner and G to name Owner and G as additional insureds on SE’s commercial general liability insurance policy for the duration of the project, and is supplying the enclosed certificate of insurance from SE’s insurer identifying Owner and G as an additional insureds under SE’s commercial general liability insurance policy, together with a copy of SE’s policy and of the endorsement naming Owner and G as additional insureds.”

Of course, the ruling in the Westfield Insurance case was based on the particularly narrow wording of Westfield’s policy, but you can be sure this court decision will prompt many other carriers to modify their policy language accordingly. The simple expedient of requiring the above form of letter covering each and every insurance certificate, policy and endorsement on the project will protect general contractors against the fate that befell FCL Builders in this coverage case.

Friday, June 10, 2011

Ways And Means Considering Modest Tax Relief For Smaller Contractors

Republican Congressman Walter Herger (R-CA), with cosponsors Shelley Berkley (D-NV) and David McKinley (R-WV), has introduced H.R. 1993, entitled American Job Builders Tax Reform Act, to provide some modest tax deferral for smaller construction contractors in the years beginning with calendar 2011. Yes, if the bill passes, it will apply for this calendar year’s taxes.

The legislation would permit construction businesses with annual gross revenues of up to $40 million to use the completed contract method of tax accounting for profits. Presently, only those contractors with annual gross revenues of $10 million or less are permitted to use completed contract tax accounting, while those with gross revenues over $10 million must use the percentage of completion method of tax accounting. H.R. 1993 would also increase the $40 million threshold each year to keep pace with inflation, according to the federal COLA.

The completed contract method of tax accounting permits deferral of income taxation on contractor profits until all work on a project is completed, and the business can accurately determine the amount of profit on the project, if any. Under the percentage of completion method, a construction business must pay taxes on the percentage of fee earned on all contracts in its tax year, even though the duration of some projects may make it impossible to determine whether or not a particular project will ultimately produce any profit at all.

H.R. 1993 has been referred to Congressman Dave Camp’s House Ways and Means Committee, where it will be considered by the Revenue Measures Subcommittee chaired by Representative Pat Tiberi (R-OH). Other members of the Revenue Measures Subcommittee include Representatives Rich Berg (R-ND), Shelley Berkley (D-NV), Charles Boustony (R-LA) John B. Larson (D-CT), Kenny Marchant (R-TX), Richard E. Neal (D-MA), Erik Paulsen (R-MD), Peter Roskam (R-IL), and Mike Thompson (D-CA).

If this bill will be helpful to your business, now would be the time to write to members of the subcommittee and let them know you support the legislation.

Thursday, June 2, 2011

Would A Chicago Casino Bring Construction Jobs?

Short answer: Maybe.

To begin with, the Chicago Casino Development Authority created by the bill now on Governor Quinn’s desk awaiting signature would have to decide whether it wants a land based casino or a riverboat. Chicago has no shipyard, so if the Authority opts for a floating mecca of gaming, the only construction jobs for Chicagoans would be those involved in the land side ancillary facilities like restaurants, taverns and a parking garage. This would cut the local casino construction workforce by about half.

If the Authority chooses a land based facility, the question is how construction of such a casino would be financed, given the cash strapped situation of city government and local taxpayers at the present moment. It would be possible for the Authority to attract private capital to the project by requesting proposals for private construction of the physical facilities, which would then be leased to the Authority for operation of the gaming establishment. Private investors would recover their capital investment with agreed upon earnings through lease payments from the Authority, while the Authority would not have to borrow in order to finance the construction. The land based casino would become operational faster, since private developers would be more free to employ an accelerated design/build program than the Authority, constrained by “lowest responsible bidder” requirements of public construction laws, could ever do.

Given that most of the sites proposed for development of the Chicago casino are on property already owned by others, it would be easy enough for the Authority to specify the details of casino construction through a leasehold work letter like the ones office building or store tenants use to set out the requirements for building out the space they will occupy in a leased building or space. The Authority would retain control of the appearance and layout of the finished product, while the private owner would finance and contract for construction of the facility. The work letter could even require the Authority’s landlord to adhere to City mandated requirements for minority and women participation, and use of local tradespeople on the project.

If Governor Quinn signs the bill, Mayor Emmanuel will appoint the members of the Authority board, and I look for the Board to do everything possible to attract private capital to construction of the new casino – on land if there is any political interest in keeping the construction dollars in the city rather than in a shipyard in another state. The same sort of legal arrangements used when our generous local philanthropists donated a quarter billion dollars to enhancement of Millennium Park can both attract private investment to a Chicago casino project, and avoid the delays inherent in public bidding and contracting for actual construction of the facility. Rahm is a very smart Mayor, and the precedents are all in place. I’m looking for a land based casino built with private funds, and leased by the Authority. Hammers could be swinging within a year if our political leaders act quickly.