American Jobs Act – What Is In It For Your Construction Business?

Please, ladies and gentlemen, don’t shoot the messenger. I don’t write the legislation, I just report what is in it so your business can take advantage of the appropriations if you so choose. Having said that, here is a breakdown of what is in the 155 page American Jobs Act of 2011, as introduced by the Obama administration, which affects the construction industry, segment by segment.

      If your construction industry group or business would like a more detailed presentation of the provisions of this proposed federal law, I am available to speak to your organization about it. Just send me an e-mail at the address below proposing a time and location.

All Segments of Construction

·        Buy American iron, steel and manufactured goods

·        Employee payroll tax cut from 4.2% to 3.1%

·        Employer payroll tax cut from 6.2% to 3.1%

·        Zero payroll tax on pay increases up to $50 million in increased wages

·        100% first year write off for new equipment in 2011

·        50% first year write off for new equipment in 2012

·        Tax credit for hiring veterans unemployed 6 months or more increased from $4,800 to $9,600

·        Tax credit for new hiring of veterans unemployed 6 months or more of $5,600 and $2,400 for new hiring of veterans unemployed 4 weeks to 6 months

·        Tax credit of $4,000 for new hiring of any person unemployed for 6 months or more

·        $1.5 billion for job training, including registered apprenticeship programs

·        Prohibits hiring discrimination against the unemployed

·        Requires payment of Davis Bacon prevailing wages on any project receiving funding

Residential Construction

·        Project Rebuild appropriates $15 billion for rehabilitation of vacant and foreclosed homes and neighborhood stabilization

·        Includes homeownership assistance and homebuyer rehabilitation funding

·        Prohibits use of funds for demolition of existing public housing

·        Prohibits flipping of rehabilitated properties

·        Includes requirements to hire a certain portion of labor force from the project vicinity

Commercial Construction

·        School Building Modernization: $25 billion for elementary and secondary school buildings, plus another $5 billion for community colleges

·        Up to 30% of $15 billion in Project Rebuild funds may be used for commercial building rehabilitation that will help stabilize neighborhoods

Industrial Construction

·        $6.5 billion for construction of a new nationwide public safety broadband network

Government Construction

·        Increases SBA surety bond guarantees from $2 million up to $5 million

·        $27 billion for highway and railway construction under current formulas

·        $4 billion for intercity and high speed passenger rail corridor construction with 100% federal share

·        $3 billion for public transit construction with 100% federal share

·        $2 billion for Amtrak construction upgrades

·        $6 billion for fixed bus guideway construction

·        $5 billion for competitive surface transportation construction grants

·        $10 billion initial funding for American Infrastructure Financing Authority to provide direct loans or loan guarantees financing infrastructure construction projects which can repay by means of tolls, user fees or other dedicated revenue sources in 35 years or less

Obama’s Jobs Speech

Thursday evening September 8 at 7 p.m. Washington D. C. time President Obama will speak to a joint session of Congress about initiatives he is proposing to put 25.4 million unemployed and underemployed Americans back to work in a growing economy. Outside Obama’s senior staff no one is exactly certain what his proposals will include, but we expect to hear him talk about the following, not necessarily in the order presented here:

Construction Industry

About half of the Obama Administration proposals will be aimed directly at the ultra-high unemployment among skilled construction tradespeople:

FAA Reauthorization

The current temporary reauthorization of funding for the FAA expires September 16. When Congressman John Mica forced a shutdown of FAA runway and tower construction projects, that Congressional action stopped work on $2.5 billion of infrastructure construction until Transportation Secretary LaHood pushed through emergency legislation to put tradespeople back to work on these projects. The money to pay these workers will stop flowing again on September 17 unless a clean FAA reauthorization bill is enacted and signed into law by then, or another temporary extension is passed.

Surface Transportation Reauthorization

There has not been the customary six year Highway Trust Fund reauthorization since Obama took office. Instead, highway, water and rail transportation infrastructure construction across the country has been financed by a series of three and six month temporary extensions. Some of the slack has been taken up by stimulus appropriations, but the stimulus was intended to add to, not substitute for, regular surface transportation initiatives, and as a result, the economy has not been stimulated.

House Republicans on the Transportation and Infrastructure Committee are proposing to slash the level of appropriations from past legislation by more than half. Look for Obama to seek $550 billion in appropriations over the next six years, rather than the $230 billion Republican six year proposal.

Infrastructure Bank

The idea of a federal infrastructure bank to draw private investment into toll highway, rail and port facility construction – projects in which private investors could earn a reasonable return on their investment – has succeeded in facilitating infrastructure construction in Europe and elsewhere. This is a pet project of the Obama administration, plus there are two versions of proposals already put forward by Senator John Kerry (D. Mass.) – who proposes a $10 billion federal start up appropriation – and Representative Rosa DeLauro (D. Conn.) - who proposes $25 billion in federal seed money. Both versions would include investments in highway, rail, waterway, drinking water and sewage treatment, and energy projects. DeLauro’s version would also include broadband communications construction.

Commercial Building Retrofits

Another proposal which has been the subject of Obama administration trial balloons lately is the idea of a tax incentive to promote private investment in retrofitting existing commercial buildings for greater energy efficiency. This would put thousands of skilled tradespeople back to work without any direct federal expenditure, and would bring millions of private dollars now on the sidelines back into our economy. Also, it has the additional factor of appealing to Republicans, who are more likely to support an initiative that looks like a tax cut for business. Apparently Obama’s Jobs and Competitiveness Council is behind this proposal.

School Building Renovations

This proposal will be buried in the middle of the speech somewhere. Obama is always an advocate for improving the education systems of America, but because this particular initiative would involve new direct federal expenditures, it will likely draw strong opposition from across the aisle.

Broadband Tower Construction

While the stimulus early in Obama’s term appropriated a great deal of cash for studying the broadband needs of unserved and underserved areas of the nation, there has not been a lot of actual communication tower construction with those funds. Only about 68% of U. S. land area is currently covered by broadband communication networks – Obama will seek expansion of that coverage to 98%. This is another program which could bring private investment into play with minimal direct federal expenditures, as revenue from broadband users could ultimately repay investors for most of the cost of connecting outlying populations to cable TV and the internet.

Power Grid Modernization

This has been another favorite of Obama’s, as part of his alternative energy initiatives and climate change reduction legislation. Of course, power grid modernization should also attract considerable private investment from utility companies if the right incentives are enacted. And, significant segments of the skilled construction trades would be put back to work should power grid construction expand significantly. The massive outages on the east coast from recent storm damage will highlight the need for this sort of infrastructure investment.

Local Construction Initiatives

You may not hear anything about this one in Obama’s speech, but Representative Judy Biggert (R. Ill. 13^th District) announced a couple weeks ago that Veterans Administration Secretary Eric Shinseki has approved construction to transform the old Silver Cross Hospital building in Joliet, Illinois into a 60,000 s.f. VA outpatient clinic to serve the growing south suburban population of returning veterans. Silver Cross is moving into a new hospital facility in New Lenox.

Other Obama Proposals

Of course the construction industry won’t be the president’s only target for economic improvement. His speech will likely also include initiatives like tax incentives, direct federal expenditures, and cutting red tape to improve the economic competitiveness of American private enterprise. In the tax incentive category, look for proposals to extend the temporary 2% reduction in payroll tax rates; a tax credit for putting new employees on company payrolls; and an additional tax credit for hiring returning armed forces veterans. Proposed direct federal expenditures could include further extension of unemployment benefits for out of work Americans; assistance to local school districts for hiring more teachers; and specialized job training programs aimed at the long term unemployed. Finally, in the competitiveness category, we expect Obama to push ratification of three pending free trade treaties; and improvements in patent law to speed up commercialization of new American inventions.

Get Ready For The Construction Industry Unemployment Devastation Act

House Transportation and Infrastructure Chairman John Mica will call it the six year highway trust fund reauthorization legislation, but that will be a completely inappropriate title for the bill. Today Mica is expected to introduce a six year reauthorization package that will slash funding for roads, bridges and other infrastructure from past levels down to $230 billion over six years. If Mica’s version of the bill passes the House, it will collide with Senator Barbara Boxer’s expected version, which is predicted to call for funding at the level of $550 billion over six years.

Why am I calling this the “Construction Industry Unemployment Devastation Act?” Here is the arithmetic: Last fall, a panel of 80 experts on American infrastructure, headed by former Secretaries of Transportation Norman Mineta and Sam Skinner, concluded that maintaining U. S. infrastructure and meeting the needs of population growth should require investment of $262 billion each year, or a total of $1.57 trillion over six years. Senator Boxer’s bill is expected to propose about $550 billion over six years, or about 35% of the need. Mica’s bill which should come out today, will call for a mere $230 billion over six years, or just over 14.6% of the need. OUCH!!

Even the modest Boxer proposal would need an infusion of $12 billion, or $2 billion each year, from general federal revenues to make up for declining motor fuel consumption and a resulting shortfall in motor fuel tax revenue.

What this means for employment in the construction industry is that tradesmen who once worked for industry behemoths like Walsh, Bechtel or AMEC Morse Diesel will have to move overseas, or find work on crews remodeling houses, and the tradesmen now working in the home remodeling segment will end up at the unemployment office. It’s not a pretty picture, and the artists are those Republicans in the House who will do everything in their power to destroy any chance the Obama administration has of reviving the American economy before the 2012 elections.

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.

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.

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 http://www.osha.gov/doc/guidance.html, 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.

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.