Georgia is Ready (and Waiting) to Experience the Benefits of Performance Contracting

Last year, Georgia enacted a statute allowing state agencies to enter into energy savings performance contracts.  The Georgia Environmental Finance Authority (GEFA), which is the agency that will oversee the procurement of performance contracts for state agencies.  According to the 2012 Georgia Energy Report that was recently released by GEFA, it has been working with advisory groups to develop rules and regulations for the program as well as standardized procurement and contract documents.

Although there have not yet been any solicitations for proposals for ESPC projects for state agencies, GEFA recently announced the ESCOs that have been pre-qualified to compete for future performance contracting projects.  The prequalified ESCOs are: AECOM, Chevron Energy Solutions, ConEdison Solutions, Constellation Energy, Eaton-EMC, Energy Systems Group, Honeywell, Johnson Controls, Linc Mechanical, NEXTera Energy Solutions, Noresco, Pepco Energy Services, Schneider Electric, Siemens and Trane. Additionally, GEFA has posted samples of its proposed Investment Grade Energy Audit Agreement and Energy Savings Performance Contract forms on its website.

According to the 2012 Energy Report, GEFA expects that performance contracting will help product 11,000 direct and indirect jobs and will ultimately help to reduce the state’s energy bills by up to 20 percent. In this month’s issue of the Construction Specifier (pg. 12), I have written an article about the benefits of ESPCs for both public agencies and contractors, particularly in a bad economy.  Hopefully, we’ll start to see some of these benefits in Georgia as the new performance contracting projects are initiated.

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Georgia’s Solar Energy Bill Needs Immediate Support to Pass In 2012

The Atlanta Business Chronicle reported Monday that Georgia State Senator, Buddy Carter, withdrew his proposal for a bill that would have bolstered the use of solar energy in this state because he believed it did not have enough votes to pass.  This is sad news to the solar industry in Georgia and to really anyone that is not Georgia Power or an existing utility company in this state.

Senate Bill 401 was introduced in February to encourage private investment in renewable solar energy by allowing individuals and companies to finance solar installations on their property through private power purchase agreements (PPAs).  PPAs work like this:  a solar company owns and installs the solar panels that are placed on the customer’s property (usually rooftop installations).  The customer either leases the solar equipment from the solar company for a monthly fee, or enters into a PPA to make regular payments to the installer based upon the amount of energy that will be generated.

PPAs are the most common form of financing for these projects because they typically involve significant up-front capital costs.  Many other states, particularly those with Renewable Energy Portfolios, allow the use of PPAs for solar and other renewable energy projects.

The reason they are not currently allowed in Georgia is because a Georgia law, known as the “Georgia Territorial Electric Service Act,” limits the sale of power to regulated utilities like Georgia Power and local EMCs.   Under the current state of the law, anyone can purchase and install their own solar panels to produce electricity for themselves.  But, they can’t rent the panels from a third party, buy the power generated from the panels from a third party, or sell the excess energy created from their panels to a third party.

It’s hard to believe that anyone would oppose to a bill that would encourage investment in renewable energy and foster a burgeoning industry that is bringing good jobs to this state.   It just makes sense to use one of the state’s most abundant resources—sunshine—to reduce demand from coal and gas-based energy plants and create jobs at the same time.  But, as predicted, Georgia Power has put up a vigorous fight and is lobbying hard to defeat this bill at all costs.  Georgia Power and existing utilities are heavily invested in coal and gas-based energy plants, and they do not want to see a reduction in demand and revenue due to these PPAs.

The fact that Senator Carter has pulled the bill for lack of votes means that Georgia Power is currently a louder voice in the legislative ears than the solar industry and advocates for green energy.  In order for this bill to have any real chance of becoming law in 2012, it must pass the senate by Wednesday in order to be sent to the House for consideration.

If you support renewable energy and solar-friendly legislation, then you should contact your representatives right away to urge them to vote for the passage of SB 401.  Otherwise, the expansion of solar energy in Georgia will be delayed for at least another year.  That’s a lot of sun that we will have missed out on!

 

Using Green Building for a Good Cause

 by Cheryl Treadwell

Today’s guest post is written by Cheryl Treadwell.  Cheryl is a member of the Construction and Labor and Employment sections of Chamberlain Hrdlicka’s Atlanta office.

Green building initiatives are typically associated with large corporations, governmental entities, and expensive, custom-built homes because these are typically the projects that receive the most publicity and attention.  However, I wanted to highlight a unique green building initiative that is being used by a local non-profit group to improve the homes and lives of economically-disadvantaged families.

The Green and Healthy Homes Initiative (“GHHI”) is part of a national movement to create green, healthy and sustainable homes in low-income areas.  The Center for Working Families, Inc.  (“TCWFI”) is a non-profit organization that is leading the charge in Atlanta.  Through public-private partnerships, TCWFI is updating older homes in Atlanta neighborhoods near Turner Field by providing weatherization, energy-efficiency, lead hazard reduction, and other measures.

By addressing asthma triggers, allergens, lead poisoning and other unsafe conditions in housing, TCWFI is working to reduce the prevalence of certain illnesses, medical costs, and absences from school and work.   TCWFI will also provide training and green jobs for residents.  This investment in residential areas will obviously result in energy conservation and reduced energy costs, which is usually the focus of most green initiatives.  However, TCWFI is also taking a community based approach by considering the long-term economic and social advantages of “Going Green.”   Job training, economic stimulus, health benefits, and higher property values are just some of the benefits resulting from this partnership.

What I really like about this program is that it is a reminder that the fundamental principles of green building are really based upon improving the quality of our environment, through the enhanced performance and efficiency of the buildings in which we live and work.  Beyond the LEED certifications and Energy Star ratings, there are people whose lives are better because of this program.

To learn more about TCWFI and GHHI or volunteer, visit http://www.tcwfi.org.  This is a very interesting program that I think will continue to gain traction in Atlanta as well as in other cities.

 

New Georgia Appeals Case Holds Contractors Responsible to Deceased Construction Worker’s Estate for Sub’s Non-Compliance with Insurance Minimums

At first glance, this case looked like a personal injury case and I had very little interest.  But, as I read further, I quickly realized that this case turns on contract law and has serious implications for owners and contractors with respect to liability for third-party claims.  The case is called Estate of Pitts v. City of Atlanta, and the troubling decision was entered by the Georgia Court of Appeals on October 5, 2011.

Here’s what happened:

• On June 14, 2007, a construction worker named Mack Pitts was killed on a project at the Atlanta airport when he was struck by a vehicle driven by an employee of A&G Trucking, Inc.

• In an action separate from this case, the estate of Mr. Pitts sued and obtained a wrongful death judgment against A&G Trucking, but the judgment exceeded the limits of A&G Trucking’s auto liability insurance coverage

• The estate of Mr. Pitts then sued the City of Atlanta and several contractors alleging that the City and the contractors breached their contractual duties to require that A&G Trucking carried the minimum required auto liability insurance; the estate further alleged that the City breached the ministerial duty to require A&G Trucking to carry insurance in the amount dictated by the contract

• The trial court granted summary judgment in favor of the contractors and the City on the breach of contract claims on the grounds that the Estate lacked standing to enforce the contractual minimum insurance requirement, and granted summary judgment to the City on the ministerial duty claim (this part of the decision was not overturned by the Court of Appeals)

• The Court of Appeals reversed the trial court’s summary judgment in favor of the City and the contractors on the breach of contract claims holding that Mr. Pitts was a third-party beneficiary to the construction contracts (the prime and subcontract) that contained minimum auto liability insurance requirements of $10,000,000

The most fascinating (and scary) part of this case is how the Court of Appeals persuaded itself that Mr. Pitts was an intended third-party beneficiary of the prime and subcontract.  Normally, to make a claim as a third-party beneficiary, a claimant has to show that the parties to the contract clearly intended to provide a benefit to that claimant.  The benefit can not be merely incidental, but must have been intended.  That’s usually a pretty high standard.  The defense raised several good arguments against finding that Mr. Pitts’ Estate had standing to sue for breach of contract.  After all, he wasn’t a party to any of these agreements and probably never even saw the contracts themselves or knew of their contents.  To conclude that the Owner, prime contractor, and subcontractor all entered into agreements with the intent to provide Mr. Pitts third-party benefits and rights to enforce those agreements on his behalf seems like a stretch.  But that’s exactly what the Court of Appeals held.

The Court was apparently persuaded by language contained in the OCIP (Owner Controlled Insurance Program) that stated its purpose was “to provide one master insurance program that provides broad coverages with high limits that will benefit all participants involved in the project.”  The Court looked to the definition of “participant” to determine that it was broad enough to include individual workers on the project, not just other contractors.

There was one argument buried deep in the decision that addressed a provision of the subcontract that expressly stated that no third-party benefits were created.  This seemed like a great argument and might well have changed the outcome of the case.  However, the provision was worded too narrowly.  The exclusionary language referred only to Subcontractor’s lower tier subcontractors and vendors.  Thus, the Court correctly found that this provision did not apply to Mr. Pitts because he was not a subcontractor or vendor the Subcontractor.

Some of the defendants are seeking the Court’s reconsideration of this decision, and given the impact of this decision, there may be further appeals to come.  But until the dust has settled and the final decision on this case has been made, there are at least two lessons that every owner, contractor, and construction lawyer in Georgia should take away:  (1)  be absolutely sure that contractors and subcontractors at every level are carrying the minimum insurance coverages required by their contracts; and (2) draft “no third-party beneficiary” clauses very broadly to expressly exclude rights of third-party beneficiaries of any kind.

 

Recent Surety Cases With Surprising Outcomes

Last week, my partner, Seth Price, and I gave a presentation about Payment and Performance Bonds to the Construction Section of the Atlanta Bar Association.   Part of our presentation focused upon recent cases (decided within the last 18 months or so) involving payment and performance bond issues.  We called them “scary” cases because the outcomes were very surprising and unpredictable and could not have been contemplated or foreseen by the claimants without extraordinary “due diligence” before providing labor or materials to the project.

I’ll share a couple cases to see if you agree with our characterization:

Scary case #1:

U.S. ex. rel. Roc Carter Co, LLC v. Freedom Demolition, Inc., 2009 WL 3418196 (M.D. Ga. 2009)

• In this case, the U.S. leased property on a military base to a private corporation for the purpose of constructing, operating and maintaining a military housing facility

• The lease limited government’s liability to that of a lessor and stated construction was a private undertaking

• The corporation then entered into design-build contract to construct military housing on the leased property

• The contractor provided payment and performance bonds naming the U.S. and project lender as co-obligees

• A second-tier subcontractor sued the contractor and surety its under the Miller Act for labor and materials provided to the project

• The U.S. District Court dismissed the subcontractor’s suit, holding that the Miller Act did not apply because U.S. was not a party to the design-build contract and the project did not involve a contract to construct a “public work”

• The District Court set for the three elements that it determined were required to have a “public work” contract: (1) there must be a construction contract, (2) the U.S. must be a party to the construction contract; and (3) the contract must require Payment and Performance bonds that are in favor of U.S.

The “scary” part of this case is that there would have been no reasonable way for the second-tier subcontractor to know that the Miller Act would not apply to its claims against the surety.  The subcontractor would not have had access to the lease between the U.S. and the private company, and likely would not even had access to the construction contract between the lessee and the general contractor.  The work was performed on a U.S. military base, and involved the construction of military housing.  The payment and performance bonds issued by the contractor named the U.S. as a co-obligee, and therefore, it would have been reasonable to assume that the U.S. was a party to the construction contract.

I suppose the lesson of this case is that now all parties supplying labor and materials to a construction project which they believe to be a federal government project must undertake “due diligence” to make sure that the U.S. is a party to the construction contract and that the payment and performance bonds are written in favor of the U.S.

Scary case #2:

U.S ex. rel. Sigler v. AMC and E.C Scarborough, 2010 WL 5100913 (D. Nev. 2010)

• This case involved a second-tier supplier suing a surety under the Miller Act

• The surety was an individual, not a corporation (yes, that’s possible under the Miller Act in very limited circumstances)

• The individual surety collected a premium for only one year and the payment bond stated that it was limited to the first year of the project

• The supplier did not deliver materials to the project until Year 2 of the project

• The supplier argued that the limitations period in the bond impeded the purpose of the Miller Act, and that the GC violated the Act.

• The U.S. District Court granted the surety’s motion for summary judgment, finding that “The Court cannot hold a surety liable for coverage that it did not intend to provide.”

Again, the “scary” part of this case is that there was no reasonable way for the supplier to have known at the time that it supplied the materials that the limitations period for the bond had already expired!!  Typically, subcontractors and suppliers do not request a copy of the payment bond until after they supply materials and labor and do not get paid.  In fact, the Miller Act only requires a Contracting Officer to provide a copy of the payment if requested by a subcontractor or supplier by affidavit post performance. At that point, it was already too late for the supplier to file a bond claim under limitation provided for in this bond.

In this case the supplier has filed a motion for reconsideration that is still pending, so this decision is not yet final.  But this case, like the Roc Carter case described above, require subcontractors and suppliers to take exceptional measures to secure copies of the contracts and bonds prior to beginning any work—measures that have not been common practice in the construction industry to this point. 

From our perspective, these cases are scary for contractors and their lawyers who counsel them about precautions to take to preserve and protect payment bond claim rights.  The two cases create new hurdles for contractors performing work on federal public projects to jump in order to protect their bond claim rights.

What do you think—is “scary” an appropriate adjective to describe the outcomes of these cases?

 

How Bright Is the Future for Georgia’s Solar Energy Tax Credit?

The Green Building Chronicle reported yesterday that a bill restoring the solar energy tax credit has hit a dead-end in the Georgia legislature. The bill—HB 146—would have restored funding for the credits through 2014 and would have increased the total funds available for the credits from $2.5 million per year to $10 million per year for 2012, 2013, and 2014.

Last year, it seemed like Georgia was turning a corner on its conservative approach to energy policies. First, there was the decision of the Public Service Commission announced that it approved an increase in the amount of solar energy purchased by Georgia Power—effectively doubling the amounts that had been allowed previously. Then, the citizens of Georgia voted for a constitutional amendment to allow state agencies to enter into energy savings performance contracts. It looked like Georgia was serious about reducing energy demands and increasing alternative energy production. So, what happened?

Some believe that the solar tax credits were re-prioritized because the legislature has been focused on proposals to make sweeping changes to the Georgia tax code in an effort to make Georgia more competitive in attracting businesses to move here while maintaining revenue needed for the budget.

Granted, that is a compelling issue for policy makers. But, if we believe that we must reform the tax code to entice businesses to come to Georgia, then isn’t it equally important to include tax credits that support and promote the businesses that are already here?

Georgia has a budding solar industry that includes solar manufacturers, installers and vendors. These businesses are here now—employing Georgians and paying taxes. As alternative energy becomes more prevalent, these companies will continue to grow and become an even more important part of our state economy. We want them to stay here and grow here. One way to support these businesses is by funding tax credits that promote their industry.

There is another good reason for the solar tax credits. Georgia has some of the greatest solar capacity of any state in the U.S. We should be a leader in solar energy production and a model for states trying to reduce energy costs and reliance upon fossil fuels. Instead, we lag behind states like Pennsylvania, which has used energy policies and tax credits to develop a highly successful solar energy program despite the fact that its solar capacity is significantly less than Georgia.

Does anyone see a downside to increasing solar energy production in Georgia?

 

Performance Contracting 101 for Public Owners

A new law went into effect on January 1, 2011 allowing state agencies to enter into performance contracts.  While this type of contracting is new to Georgia, it is has been in use by the federal government and many other states for many years.  Georgia’s law has some unique features that are different from other states’ laws, and in the next few weeks I’ll be explaining the new law and posting updates about GEFA’s progress in finalizing the details for implementation of the new law.

This week, I participated in what I hope will be the first of several workshops for state agencies about performance contracting.  The workshop was really an introduction to performance contracting–I would liken it to a “Performance Contracting 101.”   Performance contracts are not like traditional construction contracts or service agreements, and the goal of the workshop was to teach public owners the nuances of performance contracts and to make them comfortable with the process.

Here is a rundown of the workshop:

Richard Stogner,  C.O.O. of DeKalb County: Richard gave opening remarks as the host of the workshop and shared his experience in having overseen the first major county-wide performance contracting project in Georgia.

David Godfrey, Director of Georgia Environmental Finance Authority (GEFA): David’s office is in charge of overseeing and administering the performance contracting program in Georgia.  He provided a review of important sections of the performance contracting statute and gave an update on status of implementation.

Wayne Robertson, Principal at EnergyAce: Wayne explained the fundamentals of the technical aspects of performance contracting, such as energy audits, baseline energy use calculations, and measurement and verification methods.

Peter Floyd, Partner at Alston & Bird: Peter addressed some of the statutory requirements for performance contracting, and explained some of the unique features of the financing aspects to performance contracts.

David Fisher, Director of Facilities Management of DeKalb County: David gave a detailed presentation about DeKalb County’s nearly $10 million performance contracting project, which was so successful that it has turned out to generate even more savings than had originally been projected.

My presentation focused on best practices and avoiding pitfalls of performance contracts.

It was clear from the questions and comments made by the attendants that public agencies are excited about the opportunity to use performance contracting and anxious to get started.  There will be no shortage of “potential customers” for performance contracting projects.  I suspect that the only limit will be whatever cap is established (as required by the statute) for purposes of including the financing obligations in the state budget.  (I’ll explain that in more detail in a later blog post).

If you are interested in learning more about the workshop or performance contracting, the presentations have all been posted on the website of the workshop’s sponsor, EnergyAce.

 

Is A Georgia Mechanic’s Lien Assignable?

Happy New Year Blog Readers!  After a lengthy holiday break, we are now resuming our regular posts.  Forecasts for the construction industry for 2011 are mixed, but virtually everyone agrees that green building is permeating every sector of design, construction, and building operation and management.  So, here’s to a green 2011!

Over the past few years, more and more contractors are finding it necessary to file liens in an attempt to collect money for work performed on projects.  I have personally filed more liens for my clients in the past two years than in all of my prior years of practice before then.  It’s a sign of the times.

However, I recently ran into an issue that I had never before encountered.  I filed a lien for a client, who was a subcontractor on project.  He later negotiated with the prime contractor to be paid in exchange for an assignment of my client’s rights to proceed against the owner, including the lien rights.  So, I had to determine whether a Georgia lien is assignable.

I was surprised to learn that there is a very old Georgia case from 1914, Logue v. Walker, which basically held that a mechanic’s lien was assignable.  But, that Court specifically relied on a Georgia statute that is no longer in existence.  Additionally, the assignee of the liens in that case was itself a contractor that had performed work on the project.

While this case has not been reversed or otherwise overruled, there is some uncertainty as to whether the courts would interpret the current Georgia lien law, which is typically strictly construed, as permitting assignable rights in liens created under that statute.

Additionally, there is no case law at all that addresses whether a lien can be assigned to a person or company that could not file its own claim of lien on the project.  In other words—while a subcontractor may be able to assign his lien rights to the project’s general contractor, there is currently no authority that suggests the subcontractor could assign his lien to a person or company unrelated to the project, such as a bank or other creditor.

Of course, if you are the party assigning the claim of lien, you have little interest in this issue.  However, if you are considering taking an assignment of a lien or lien rights, you definitely want to understand the enforceability of those rights during your negotiations with the lien holder.

 

To LEED or Not to LEED—That Is the Question

I read an article recently on the Atlanta Journal Constitution’s website in which representatives from local property management firms expressed opinions about the costs v. benefits of applying for LEED certification for their buildings and projects.

Some of the property managers that were quoted in the article said that they did not seek LEED certification—even for buildings that would likely meet LEED standards—because the costs of filing for the certification were too high.  Additionally, they state in the article that they don’t believe that they have lost any tenants for non-LEED buildings.

As an alternative to LEED certification, some of the property management firms are seeking other green building/energy efficiency certifications such as Energy Star ratings.  In some instances, the property management firms themselves have developed their own “green building” promotional branding, which highlights the sustainable and efficiency characteristics of the property.

Of course, all of the property management firms identified in the article have embraced LEED buildings to some extent within their businesses and portfolios—even those firms whose property managers felt that LEED certification costs were too high for some projects to be of value.  So, obviously none of these firms have completely

Do you agree that LEED certification costs are too expensive to be of value to property management firms or building owners?

 

 

Will 2011 be the Rebound Year for Construction?

The Wall Street Journal recently reported that the nation’s construction industry will begin a slow recovery next year.  According to the article, the increase in construction will be led by the development of single-family homes, multi-family housing, and commercial properties, while government and infrastructure projects will decline from 2009 levels.

I think it’s reasonable to project that public projects will decline next year due to the fact that stimulus funds will largely be spent.  And, I certainly want to believe that private development and construction will pick up during 2011.  But there are also plenty of people still predicting that 2011 will be even worse than 2010 for new development and construction back log.

What do you think?  Do you believe that 2011 is the turn-around year for construction or do you think we will have to wait until 2012 before the industry starts to see any real increase in activity?