Contractors Center Point

Alert: Employers Required to Use Revised USCIS Form I-9

The U.S. Citizenship and Immigration Services has revised the Employment Eligibility Verification Form I-9, which all employers are required to complete for each employee hired in the United States. “The revisions to Form I-9 contain formatting changes and the inclusion of additional data fields,” according to the Department of Homeland Security Notice published on March 8, 2013, in the Federal Register. “Employers are required to use the Form I-9 to verify the identity and employment authorization eligibility of their employees.” Employers must use the new version of the form for all new hires and re-verifications, effective immediately. Employers may continue to use previously accepted versions (rev. 02/02/09)N and (rev. 08/07/09)Y until May 7, 2013. After May 7, 2013, employers must only use the new version.

Employment Verification (E-Verify) Webinar - February 22

American Subcontractors Association of Central PA (ASACP) in conjunction with the U.S. Immigration and Customs, Department of Homeland Security, and local Attorney and ASACP Member, Tom Williams of Reager & Adler, P.C. will be holding a webinar on Friday February 22nd in the Community Room on the second floor of the Giant Food Store at 3301 Trindle Road, Camp Hill, PA 17011. Sign-in will begin at 11:30 with the webinar running from 12:00 pm to 1:30 pm. Lunch will be provided. The cost of the webinar is $15 for members of ASACP and $25 for non-members.

In June 2012, Pennsylvania Governor Tom Corbett signed Senate Bill  637 requiring all contractors and subcontractors doing public work to begin using the Employment Verification Program operated by the Department of Homeland Security to verify employment eligiblty. Effective January 1, 2013.

 Learn what the Employment Verification Program (E-Verify or EVP) is.

 Learn how it could affect you and your business

 Learn where to find and how to use the E-Verify System

 Learn what the penalties are for Violations 

 

Registration is required for this webinar and is available until 2/21. To register contact ASACP at 232-2222 or contactus@asacentralpa.com or contact the construction professionals of McKonly and Asbury, LLP.

 

Construction Fraud Series - Part 1 - MBE and WBE Fraud

You have likely been to a seminar or other event that discussed fraud. Many of those discussions include falsifying invoices/checks and petty cash theft. However there are many types of fraud unique to construction contractors that you should consider and be aware of.  We are providing you this multi part series on construction fraud to help you think about unique fraud that could directly impact your business.

If you are reading this article it is likely that you deal with or have dealt with federal and state construction contracts in some capacity. Federal and state contracts keep a lot of contractors growing and prosperous. With the aging of America's infrastructure these contracts are not going away any time soon!  If you are familiar with these contracts you also know they are heavily regulated and monitored by the awarding agencies. There have been several recent cases prosecuted by the federal government in which contractors (general and subs) have not adhered to the policies set forth in the contracts.  One particular requirement in federal and state contracts is a requirement to subcontract with Minority Business Enterprises (MBE) and Women owned Business Enterprises (WBE). The specific cases that have been prosecuted include instances where the MBE's or WBE's did not perform the work as required in the contract with the government. But rather the general contractor had performed the work themselves and represented to the government that the work had been performed by the MBE or WBE.

Contractors new to working with the federal or state government may not realize the severity of not adhering to these requirements. A quick search on Google will show many cases recently that have been prosecuted by the government for failing to adhere to these requirements. The government is monitoring these contracts and IS prosecuting. If you have contracts with the government you should have someone on your team responsible for monitoring such parts of these contracts. You're subcontracting process should include controls to ensure that you are contracting with appropriate MBE's and WBE's if required by your contracts. The process should also include verifying these businesses are performing the work that you have stated they would do as part of the contract.

To some organizations these contract requirements may seem relatively small or not important, however, your company could be at risk for large fines and penalties for potentially defrauding the government. Many contractors rely heavily on federal and state contracts for a large portion of their annual revenue. Such prosecution may even result in suspension and debarment from contracting with the federal government. The outcome would be much more severe than a one time penalty. These requirements should be taken seriously by your organization. You should have processes in place to monitor and control these requirements if stated in your contracts with a government agency.

For more information on this post, please contact the construction professionals of McKonly and Asbury, LLP.

Are You Ready For E-Verify?

On July 5, 2012, Governor Corbett signed into law the "Public Works Employment Verification Act" (also known as Act 127), which becomes effective January 1, 2013. The Act applies to "public work," as that term is defined in the Pennsylvania prevailing wage law, and includes the construction, reconstruction, demolition and/or repair work (other than maintenance work) paid for in whole or in part with state, municipal or county funds where the cost of the project exceeds $25,000.

In a nutshell, the Act requires public works contractors and subcontractors of all tiers to use the federal E-verify system for all new employees. The E-verify system can be found on the Department of Homeland Security's website. The Act does not require E-verify be used for existing employees, and it specifically exempts entities that only supply material suppliers.

A contractor must provide a written verification to the public body that he has complied with the Act prior to being awarded any public work. The verification form which contractors can use will be posted on the Pennsylvania Department of General Services' (DGS) website. A subcontractor must provide the public body with a verification form prior to commencing work on the public project. In addition to the verification forms, any contract between a contractor and a subcontractor must contain information about the requirements of the Act. Although the Act does not expressly require this, it may be good practice to include similar information in contracts between subcontractors because of the verification requirements.

The Act empowers DGS to conduct audits of both contractors and subcontractors that perform public work. While DGS is given the power to conduct the audits, the Act specifically states that it can seek
cooperation from other state agencies (e.g., the Pennsylvania Department of Labor and Industry). The Act contains protections for employees who report violations and/or who participate in investigations.

If a contractor or subcontractor fails to comply with the Act, the penalties include a warning letter for a first violation, a thirty-day debarment for a second violation, a 180-day to one-year debarment for a third violation, and a three-year debarment from public work for a willful violation of the Act. DGS can also impose civil penalties of up to $1,000 for each violation. In grading a violation as a first, second or third offense, the Act gives DGS the power to look back ten years for prior violations.

Finally, the Act contains a "good faith immunity" defense. If a contractor or subcontractor can demonstrate that they relied in good faith upon the E-verify system and can produce written evidence that they used it, they will not be liable under the Act for any penalties imposed by the Act. Therefore, when you use the E-verify system, you should keep the written confirmation in your files. If you engage an employment service to perform background checks for your employees, then you should request and retain copies of the E-verify records.

This post was written by Tom Beckley of Beckley and Madden law offices. Mr. Beckley is also the legal counsel for the American Subcontractors Association of Central Pennsylvania. Mr. Beckley can be
reached at becks@pa.net or contact the construction professionals at McKonly and Asbury, LLP.

Contract Litigation Insurance - A Confidence Booster

Litigation you might say holds no certainty but uncertainty.  From the strategies of your opponent, to the ultimate outcome, the process of litigation is laden with events and decisions over which the participants may have little or no control, and as such it cannot be accurately predicted.  Even the costs and amount of attorney fees to be expended cannot be estimated with certainty.  This is the nature of litigation.  In some cases, a litigant may even be on the hook for its opponent’s attorney fees if he loses.  When a party is faced with the possibility of paying the attorney fees of the other side, the decision to commence litigation or to defend a lawsuit rather than settling is daunting, possibly to the point of total surrender.  Because attorney fees could exceed the amount of the original claim itself, this possibility can be paralyzing. 

Of course you don’t have to worry about any of this if your attorney has assessed your case as a “slam dunk” or a “guaranteed winner”.  Unfortunately, like unicorns and the tooth fairy, such things do not exist in the real world.  Business owners, along with the assistance of wise counsel, must make a realistic assessment of their litigation exposure and risk of loss: a sober, unvarnished review of the strengths, and yes, the weaknesses too.  Studies support this prudent approach, as statistics developed by the Bureau of Justice Statistics have shown that 33% of plaintiffs and 66% of defendants end up on the losing end of their contract disputes at trial.  Although Pennsylvania law generally requires that each party in ligation pay their own attorney fees, it is becoming increasingly common for parties to shift the risk of attorney fee costs to the other side by including an attorney fee provision in their contracts.  

Now it is possible to insure against the possibility of paying one’s opponent’s attorney fees in breach of contract lawsuits by purchasing Contract Litigation insurance.  This relatively new insurance product may provide just the leverage and confidence necessary to initiate litigation to pursue claims or to defend against dubious claims rather than capitulating under the risk of paying your opponent’s attorney fees in the event the court sides with your adversary. 

To learn more about Contract Litigation Insurance and its benefits, please contact Tom Williams of Reager & Adler, PC. Tom can be contacted at twilliams@reageradlerpc.com. To learn more about other trends impacting the construction community contact your construction professionals at McKonly & Asbury, LLP.

IRS Issues Standard Mileage Rates For 2012

The Internal Revenue Service (IRS) Dec. 9 announced the 2012 optional standard mileage rate to use for computing the deductible costs of operating an automobile for business will be 55.5 cents per mile. 

The new rate will go into effect beginning Jan. 1, 2012, and will apply to the use of cars, vans, pickup trucks or panel trucks. 

The standard mileage rates for business purposes are based on an annual study of the fixed and variable costs of operating an automobile.  A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle.  The business standard mileage rate cannot be used for more than four vehicles used simultaneously.   

For more information on the standard mileage rates, visit the IRS website.

President Signs 3 Percent Withholding Tax Repeal Into Law

Repeal of the three percent withholding tax repeal contained in section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was signed into law by President Barack Obama on Nov. 21.

The bill, H.R. 674, was passed in a 422-0 vote by the U.S. House of Representatives on Nov. 16 and was approved a week earlier by a unanimous vote in the Senate. The bill amends the Internal Revenue Code to repeal the 3 percent withholding tax for government contractors.

The withholding mandate, hidden in the fine print of TIPRA, would have required 3 percent to be withheld on all payments for goods and services made by federal, state and local governments with total expenditures of $100 million or more beginning Jan. 1, 2013.  Implementation of the provision had been subject to annual delays by Congress and regulators, respectively, until bipartisan support for repeal coalesced during the recent focus on jobs legislation. 

To learn more about legislative happenings within the construction industry, please contact Associated Builders and Contractors at www.abc.org or the construction professionals of McKonly and Asbury, LLP.

Liquidated Damages: A Contractor’s Boogeyman

Contractors often live and perform their contractual obligations under the specter of liquidated damages. The threat of liquidated damages causes sleepless nights; the assertion of liquidated damages devours profits. Liquidated damages provisions are common in construction contracts; particularly on public projects and large privately funded projects.  Subcontractors should take note that even if your contract does not contain a liquidated damages provision, you may be subject to liquidated damages by virtue of a flow down provision incorporating obligations and contract terms between your contracting partner and the owner of the project. 

            Just what are liquidated damages, and why are they so frightening?  “Liquidated damages” is a term of art used in construction industry parlance to describe a specific sum a party to a contract agrees to pay if it fails to timely perform its obligations under the contract.  Typically, liquidated damages are expressed by a set dollar amount per day for each day that the contractor fails to complete its work on a project.  This dollar amount is to be arrived at in good faith as an estimate made in advance of the actual damages that the project owner will likely incur as a result of the contractor’s breach.  Contractors that sign contracts containing liquidated damages provisions perform under justifiable trepidation until their work is completed inasmuch as the courts of Pennsylvania have consistently upheld such provisions.  Liquidated damages provisions are routinely enforced by the courts so long as the “liquidated” sum agreed to is a reasonable approximation of the expected loss, and not imposed as a penalty. 

            If a court case arises and it includes a dispute over liquidated damages, the party asserting the liquidated damages has the burden of showing that the other party failed to timely substantially complete its contract obligations, and that the period for which liquidated damages has been assessed is proper.  Once the party claiming liquidated damages has met its initial burden, the burden will then shift to the contractor who must then show that any delays in the substantial completion of its work were excusable and that it should be relieved of the assessment of liquidated damages.  If the contractor facing liquidated damages can show that the other party was actually the cause for the delays or that there were delays that were out of the control of the contractor, for example, extraordinary bad weather, or unforeseen conditions, the contractor may have the liquidated damages reduced or removed altogether. 

            Contractors should be vigilant in their documentation of delays and all conditions that impede their ability to complete their work.  Contractors should provide timely written notices of these conditions as this documentation will assist the contractor in refuting any future claims or backcharges from project owners for liquidated damages. 

For more information on liquidated damages, please contact Tom Williams of Reager and Adler, PC at twilliams@reageradlerpc.com or contact the construction professionals of McKonly and Asbury, LLP.

Understanding Fiduciary Responsibility in an Employee Benefit Plan

Having an employee benefit plan (EBP) can be a crucial aspect of attracting top talent as part of an organization’s benefit package.  Participants in plans such as 401(k)’s can reap the benefits of potential employer matching contributions as they try to pad their savings for retirement.  However, it is not to be overlooked that EBP’s also require a great deal of diligence on the part of the plan sponsor in maintaining fiduciary responsibility.  There are strict regulations stemming directly from the IRS and Department of Labor (DOL), and noncompliance can lead to serious consequences.

A fiduciary is essentially any party who can exhibit control and make decisions in some manner relating to the plan.  This can include many different parties, which will vary based on the organization and the plan, but the plan administrator, custodian, and trustee are generally the most prominent.  Fiduciary responsibility begins with an understanding of the roles and responsibilities of the plan sponsor.  The plan sponsor needs to adhere to their ownership of the plan, and the responsibility to ensure proper administration and regulatory compliance that comes with the ownership.  This aspect can tend to be violated when a plan sponsor tries to push responsibilities to a custodian or trustee or fails to keep up with changing regulations.

Similar to other areas of a company’s business, internal controls are also an integral part of an EBP.  It is the plan sponsor’s responsibility to design and maintain effective internal control practices to help identify errors and minimize the possibility of fraud from occurring.  An effective internal control system will ultimately minimize the risk associated with the plan and help ensure that participant’s funds are being handled properly.  Adherence with these aspects of fiduciary responsibility will ultimately point a plan in the right direction towards compliance with IRS and DOL regulations.

Pennsylvania's New Fair Share Act

On June 28, 2011, Pennsylvania joined approximately 40 other states in adopting what has become known as the "Fair Share Act." The Fair Share Act limits a defendant's liability (where there are multiple defendants at fault) in negligence actions to the percentage of the individual defendant's fault. Most business groups support the new law and have tried for several years to get the bill passed. At least one prior version was declared unconstitutional (for unrelated procedural reasons), and Governor Rendell vetoed a prior bill which passed the General Assembly.

To give you an understanding of the new law, it is helpful to review the "old" law. Under the "old" law (Le., prior to June 28), if multiple defendants were found liable, each defendant was liable to the plaintiff for the full amount of the judgment, regardless of the defendant's level of fault. By way of example, suppose a plaintiff sues three different contractors for an injury he sustained while walking on a construction site. The jury finds that Contractor A was 75% at fault, Contractor B was 24% at fault, and Contractor C was I % at fault, and awards the plaintiff $100 in damages. Even though the extent of each contractor's responsibility was different, each contractor is liable to the plaintiff for the full amount if the other defendants cannot pay.

If Contractor A and Contractor B are bankrupt, Contractor C must pay the full $100, even though the jury determined that he was only 1% at fault. This is known as "joint and several" liability. Contractor C can try to recover the $99 from Contractor A and B (this is known as contribution), but we all know if they are out of business he will probably pay the full amount. Under the old law, the defendants shared the risk that each defendant could pay his share of the judgment. On the other hand, as long as one defendant had enough to cover the judgment, the plaintiff was protected.