Built on the Blockchain—Procuring Built Assets in a Digital World

March 2018 

by James L. Salmon, Esq., Benjamin, Yocum & Heather, LLC

Blockchain, a.k.a. distributed ledgers, promise to revolutionize business. Some say change associated with blockchain technologies rival the changes the internet prompted in business models. Others argue blockchain heralds a brave new internet all together. Regardless, trade contractors and suppliers need to understand its profound impact on the built environment.

Blockchain technologies utilize distributed immutable ledgers to cryptographically secure a transparent record of transactions. The most famous use case to date, Bitcoin, tracks ownership of the cryptocurrency Bitcoin. But the underlying computer protocols apply to virtually any computational transaction. The promise for the built environment is a secure immutable and transparent ledger that the industry can use to track the flow of information critical to the creation and operation of built assets.

This article explores three advances in this technology that promise improvement in construction. First, we address full integration of information related to the built environment through graph databases that tap into blockchains as a service. Second, we consider the use of smart contracts deployed on blockchains to procure intelligent built assets. Third, we consider mechanisms for achieving secure cost-effective operation and maintenance of smart built assets in a blockchain environment. While the ideas set forth in this article are futuristic, in the emerging knowledge economy the future is now!

A Better Database

Graph-oriented databases operate more like neural networks in the brain than as traditional sequential databases. The design and creation of traditional databases took two critical constraints into account, processing power and storage capacity. In the early days of computing a mainframe used to process computer code might fill a room and the ensuing data was likely stored on a reel-to-reel tape. Those two constraints dictated the architecture of the hardware and software used to create databases. Vendors of those databases, as well as their clients, adopted and deployed software, hardware and business models that overcame those two constraints. Today, though, such legacy software, hardware and business models shackle enterprises to that original architecture.

Graph databases ignore those two constraints and free designers of hardware, software and business models to operate in an environment where processing power and storage space cost a fraction of what they did in 1970. Enter FlureeDB, a graph-oriented database technology stack built for deployment in a blockchain enabled environment. FlureeDB separates the query engine from blockchain transactions to simultaneously support multiple database types, including graph-oriented databases, SQL databases and others. This enables horizontally scaling of queries and low latency. Utilizing sharding, flaking and even time travel within the database, FlurreDB seeks to cast off the shackles of legacy software and hardware designs and inspire a new generation of business models capable of excelling in the emerging knowledge economy.

Running a series of databases in the built environment on the FlureeDB platform might provide a secure, flexible but immutable and transparent record of information, data and transactions related to the creation of a built asset. Creating a common data environment—an agreed truth—provides certainty. If building information modeling and similar construction management software tools leveraged that common data environment from the supply chain through planning design construction operations and maintenance, the elimination of dozens of complex wasteful processes looms as a real possibility.

Smart Contracts on the Blockchain

New and improved computer programs empower users of blockchains to create so-called smart contracts. Simple online agreements and processes, like existing digital banking tools, EBay and PayPal all leverage Bitcoin to facilitate quicker payments today. But the Bitcoin blockchain, Ethereum’s network, Iota’s tangle, RChain’s cooperative, and Swirld’s promised worlds all represent advances in the use of smart contracts on blockchains. Bitcoin introduced us all to crypto currency. Ethereum brought Turing capacity to the world of blockchain and enabled forking and logic loops. Iota, RChain and Swirld each provide interesting twists on so-called virtual machines that process computer code on a blockchain on the Web. While the math proofs, software protocols and business models underpinning these new tools vary they each purport to enable the creation of distributed autonomous organizations (DAOs) that have the potential to increase efficiency and productivity in numerous sectors of the economy.

For now, suffice it to say the built environment, and those who provide services and materials in that environment, are poised to make a giant leap forward in terms of efficiency and productivity by leveraging this new generation of tools and processes to deploy and execute smart contracts.

Bidding, design, construction planning, supply chain logistics, scheduling, requests for information, change orders and pay applications are among the processes likely to be disrupted by blockchain technologies applied to construction. For more insights regarding the use of blockchain technologies to increase the efficiency with which pay applications are processed see the article “Pay Me on the Blockchain” in the July 2017 edition of The Contractor’s Compass. In future issues of The Contractor’s Compass we will explore other use cases in more detail.

Smart Built Assets on the Blockchain

For now, industry professionals need to know change is coming and prepare their enterprises to respond nimbly to that change. For example, not only can we leverage new and improved databases and create, deploy and execute smart contracts on the blockchain, we can actually create, operate and maintain smart built assets on the blockchain. A smart built asset enjoys a live connection to the internet and constantly broadcasts data related to critical real world conditions. Information broadcast over the network might include energy usage, temperature, water pressure, surveillance video and a myriad of other data points of interest to the owner and the owner’s operations and maintenance personnel. Few smart built assets exist in the world today. And very few owners understand the concept, much less the value of a smart built asset.

One way to think about a smart built asset is to compare it to a smartphone. Just 10 years ago Apple introduced the iPhone and we began replacing “dumb” flip phones with “smart” phones that connected us to the Web. Prior to that we treated cell phones as communication devices that we used to talk, text, and send messages to voicemail or beepers. After the advent of the iPhone we learned a smartphone could be a navigation tool, provide seamless access to email, record notes, record audio and video, send data, receive data and surf the wider Web generally. We didn’t know what we didn’t know about smartphones. Today, we don’t know what we don’t know about smart built assets.

And we really don’t know what we don’t know about smart built assets connected to immutable and transparent information that resides in a common, but secure, data environment like the one envisioned by blockchain technologies. Imagine the tools and processes deployable in a built environment where key stakeholders enjoy access to such information on a need-to-know basis. Software vendors, suppliers, service providers, trades, constructors, owners and their operations and maintenance personnel all benefit for access to critical information as such information leads to informed decisions made at the right moment in time. This is the central promise of blockchain technologies deployed in an integrated, collaborative and secure (thus trusted) built environment.

The question trades, suppliers and other involved in the built environment must ask, relative to the digitization of construction, is whether you wish to position your enterprise on the cutting or bleeding edge of these new tools and processes. Those on the cutting edge gain insight and competitive advantages. Everyone else winds up on the bleeding edge, where competitive advantages bleed away and the enterprise dies.

James L. Salmon, Esq., joined Benjamin, Yocum & Heather as a BIM and IPD consultant in 2010. As president of Collaborative Construction Resources, LLC, Salmon advocates the use of virtual planning, design and construction tools and integrated project delivery. Salmon also serves as an adjunct instructor of a master’s-level BIM strategy course offered by Middlesex University in London. Salmon is also a special advisor to the buildingSMARTalliance’s Thought Leadership Committee. Salmon advocates the use of integrated project delivery and the use of virtual planning, design and construction software tools. He relishes the challenge of replacing the built industry’s broken culture with a smart procurement culture. Salmon works with clients to modify existing legal frameworks to ensure support for the vision, skills, incentives, resources and actions required to achieve the changes necessary to adopt, adapt to and deploy a smart procurement culture throughout the built industry. He can be reached at (513) 721-5672 or jameslsalmon@gmail.com.




Cranes: Who Owns the Project Air?

March 2018

by Donald Gregory, Esq., Kegler, Brown, Hill and Ritter

The recent surge in construction activity in urban settings has accelerated the use of cranes in tight spaces. Frequently large cranes find themselves moving over neighbor’s buildings. Unfortunately, there is little definitive law that tells us exactly what the obligations of the crane operators are as to the neighbor’s property and what “air rights” may be utilized by the neighbors to prohibit unwanted crane activity in their neighborhood.

Typically, American law states that the owner of property owns everything below the surface of the earth extending indefinitely into the air space above the surface. However, the U.S. Supreme Court has ruled that the flying of airplanes as low as 83 feet over the earth didn’t constitute a trespass on the landowner’s property. Therefore, the issue is presented as to whether cranes can safely operate more than 83 feet above a neighbor’s property without constituting a trespass on that property.

Other cases have tried to balance the neighboring property owner’s rights against the reasonable need of a contractor to temporarily utilize the air space for construction purposes. Courts have been reluctant to restrain cranes or scaffolding arguably within the air space of neighboring property when that space was temporarily necessary for construction and there did not appear to be much risk of potential damage. Nevertheless, there is little certainty in this area of law and the risk of an injunction slowing a construction project, and causing great harm, is significant.

Therefore, the safest approach is for the owner of the property under construction to secure a temporary air space easement or license agreement under which the neighboring property owner allows the owner/developer to use the air space above his or her property during the construction project. In the alternative, owners and developers should consider a plan where the footprint of the crane would not violate the air space of neighboring property owners. Of course in certain tight urban settings that might be impossible.

In the alternative, owners and developers and the crane operators that are hired on their construction projects will simply take a risk that the use of their crane over the nominal “air space” of neighboring property owners could result in a trespass claim or an effort to secure an injunction against further operations with the crane on the site, potentially impacting adversely the construction of the project. Careful consideration of these issues should be considered on projects where a tight site gives the crane little room to move.

Subcontractors and suppliers are wise to consider these issues and inquire about access before providing cranes or scaffolding that may encroach on neighboring properties.

Donald Gregory, Esq., is a director and chair of the construction practice area for Kegler, Brown, Hill & Ritter, Columbus, Ohio, ASA’s legal counsel. Gregory can be reached at (614) 462-5400 or dgregory@keglerbrown.com.



ASA Members Elect Courtney Little, ACE Glass Construction, as Next ASA President

March 2018

by American Subcontractors Association

ASA members elected Courtney Little, ACE Glass Construction, Little Rock, Ark., to serve as the Association’s 2018-19 President. His term will begin on July 1. He will succeed Jeff Banker, Banker Insulation, Chandler, Ariz. Members also elected Anthony Brooks, Platinum Drywall, Little Rock, Ark., as Vice President, and Brian Cooper, AROK, Inc., Phoenix, Ariz., as Secretary/Treasurer. They will join Little in serving a one-year term, from July 1, 2018, through June 30, 2019.

Little is president and general counsel of ACE Glass. He earned his degree in business management with a focus on finance from the University of Arkansas in 1995. He was the liaison between inside sales and architectural sales for U.S. Aluminum before returning to ACE in 1997. Little opened the Northwest Arkansas branch for ACE in 1998 before attending the William H. Bowen School of Law, where he earned a Juris Doctor with Honors in 2004. He closed his private practice in 2008 when he purchased ACE and was named president and general counsel.

Little currently serves as ASA Vice President. As ASA President, Little will preside at meetings of ASA’s Board of Directors, Executive Committee and the membership of the Association. He also will serve as the principal spokesperson for the Association and appoint the chairs, vice chairs and members of ASA committees and task forces.

ASA members elected five individuals to the Board of Directors: Paul Brennan, NAPCO Precast, LLC, San Antonio, Texas; Gloria Hale, Hale Glass, Placentia, Calif.; Scott Holbrook, Crawford & Bangs, Covina, Calif.; Ray Moya, Prime Electric, Inc., Albuquerque, N.M.; and Rusty Plowman, Delta Drywall, Inc., Denver, Colo. These directors will serve a three-year term, from July 1, 2018, through June 30, 2021.

In his acceptance speech during the ASA annual meeting on March 2, held in conjunction with ASA’s annual national convention, SUBExcel 2018 in Tempe, Ariz., Little was honored and humbled to have been chosen as the Association’s next president. Through his involvement with ASA on both the chapter and national levels, Little said, he has learned more than he ever expected about leadership. “My time with ASA has been extremely positive for my business and personal growth that has come from the lessons and advice offered by those I have served with,” he said.

During his acceptance speech, Little also announced ASA would launch a campaign to promote the construction trades in an effort to address the trade shortage facing the industry. “We will help construction trades tell our story and describe what makes the trades so appealing and fulfilling,” he said. “The trades afford young people an opportunity to gain an education, develop a skill, and earn good wages without accumulating any student loan debt.”

Photos taken during the annual meeting are posted in a Photo Album on ASA’s Facebook page. Additional photos of SUBExcel 2018 provided by ASA of Arizona and Lifestyles Media Group are posted in Dropbox.






ASA Bestows Prestigious Hampshire Award on Anne Bigane Wilson, Bigane Paving Co.

March 2018

by American Subcontractors Association

ASA awarded its highest and most prestigious honor, the John H. Hampshire Distinguished Lifetime Service Award, to Anne Bigane Wilson, Bigane Paving Company, Chicago, Ill. The Hampshire award is presented to an individual for outstanding lifetime contribution to ASA and the subcontracting industry. It is presented to an individual who shares the vision of ASA’s early leaders and dedicates his or her lifetime working to achieve that vision. John H. Hampshire, Inc., is a Baltimore, Md.-based subcontractor that helped found ASA.

ASA Task Force on Ethics in the Construction Industry Chair Shannon MacArthur, MEMCO, Spring, Texas, and Walter Bazan Jr., Bazan Painting Company, St. Louis, Mo., a member of the task force and an ASA past president, announced the awards during a ceremony on March 2 in conjunction with SUBExcel 2018 in Tempe, Ariz. MacArthur and Bazan also presented the following awards:

Outstanding Service Award

ASA awarded its Outstanding Service Award to Shannon MacArthur, MEMCO, Spring, Texas, for special recognition of outstanding achievement.

Certificate of Excellence in Ethics

ASA presented its national Certificate of Excellence in Ethics to 12 construction subcontractors for achieving “the highest standards of internal and external integrity for a subcontracting firm.” Recipients of the ethics certificate were:

  • ACE Glass Construction Corporation, Little Rock, Ark.
  • Banker Insulation, Chandler, Ariz.
  • Bazan Painting Company, St. Louis, Mo.
  • EyeSite Surveillance, Inc., Chandler, Ariz.
  • Haley-Greer, Inc., Dallas, Texas
  • Holes Incorporated, Houston, Texas
  • Kent Companies, Grand Rapids, Mich.
  • Markham Contracting Company, Phoenix, Ariz.
  • Shapiro & Duncan, Inc., Rockville, Md.
  • Sorella Group, Inc., Overland Park, Kan.
  • South Valley Drywall, Inc., Littleton, Colo.
  • Western Engineering Contractors, Loomis, Calif.

National Construction Best Practices Award

ASA presented its National Construction Best Practices Award to Bigane Paving Co., Chicago, Ill., for demonstrating “an extraordinary level of commitment to best industry practices.” General contractors and specialty trade contractors that have signed a contract within the past year directly with a construction owner under which it performs construction services are eligible to apply for ASA’s best practices award. This award honors general contractors and specialty trade contractors for their commitment to such practices as safety management, prompt payment, prompt processing of change requests and claims, and effective project scheduling and coordination.

ASA Chapter of the Year (Over 50 Members)

ASA named ASA of Baltimore its Chapter of the Year (Over 50 Members). Executive Director Carolyn Panzer accepted the award on behalf of the chapter. The Chapter of the Year is presented to an ASA chapter that exemplifies outstanding achievement in chapter operations and member service.

ASA Innovation Award

ASA presented its Innovation Award to ASA of New Mexico. Chapter President Marni Goodrich, Yearout Mechanical, Inc., Albuquerque, N.M., and Executive Director Gia Espinoza accepted the award on behalf of the chapter. The Innovation Award recognizes chapters that have developed creative or innovative programs and services during the previous fiscal year.

ASA Chapter President of the Year

ASA named ASA of New Mexico President Marni Goodrich, Yearout Mechanical, Inc., Albuquerque, N.M., the ASA Chapter President of the Year for her accomplishments as president in 2016-17. This award honors chapter presidents for superior leadership efforts and service to his or her association.

ASA Executive Director of the Year

ASA named Jennifer Swinney, executive director, ASA–San Antonio Chapter, the Executive Director of the Year. This award honors executive directors for outstanding performance in overall association management.

ASA President’s Award

2017-18 ASA President Jeff Banker, Banker Insulation, Chandler, Ariz., presented the ASA President’s Award to current ASA Vice President and President-Elect Courtney Little, president and general counsel, ACE Glass Corporation, Little Rock, Ark. The ASA President’s Award is given annually by the current ASA president on a discretionary basis to an individual who has helped the president the most during his or her term.

Photos taken during SUBExcel 2018 are posted in a Photo Album on ASA’s Facebook page. Additional photos of SUBExcel 2018 provided by ASA of Arizona and Lifestyles Media Group are posted in Dropbox, and more images are available on Flickr.com.



LEGALLY SPEAKING: An Overview of Immigration and Customs Enforcement Worksite Raids and Inspections for Subcontractors

March 2018

by Philip J. Siegel, Hendrick, Phillips, Salzman & Siegel

Immigrations and Customs Enforcement is an investigative branch of the Department of Homeland Security charged with enforcing the country’s immigration and customs laws. ICE was created in 2003 and took over the responsibility of enforcing the immigration laws from the Immigration Naturalization Service, commonly known as INS. During its first two years, ICE limited its worksite enforcement efforts to sensitive facilities, such as military bases, airports, shipyards, chemical plants and power plants. In 2006, however, ICE shifted its focus toward those workplaces and industries that had been associated with employing large numbers of unauthorized workers. The construction industry was one of the industries expressly made a part of ICE’s focus. Given the increased enforcement efforts of ICE, particularly within the construction industry, it is important that subcontractors know and understand their rights and make preparations for how the company will respond if it is the subject of a worksite raid or if ICE issues a notice of inspection and conducts an audit of the company’s I-9 forms.

The I-9 Audit

ICE verifies employer compliance with I-9 requirements by conducting inspection audits, which are initiated by serving a Notice of Inspection to an employer compelling him or her to produce I-9 documents. ICE may also conduct an audit pursuant to a search warrant or subpoena. Unless ICE has a warrant or subpoena, it is required by law to provide the employer with three days notice to produce the I-9s for inspection and copying (ICE should never be allowed to remove original documents from the employer’s premises). If ICE does have a warrant or subpoena, no advance notice is required and the employer must instead allow ICE to conduct its search in accordance with the scope set forth in the warrant itself. If the employer refuses to comply, ICE can seek judicial enforcement of the subpoena or warrant. Should an ICE investigator appear at a worksite without a warrant or subpoena, subcontractors should know and understand that the investigator cannot demand an immediate production of the employer’s I-9 forms.

One important step is to designate a management representative who is authorized to meet and talk to ICE or DHS personnel. Regardless of whether an ICE investigator appears with a subpoena, the company representative authorized to meet and talk to DHS or ICE personnel should be contacted. Subcontractors also should immediately contact immigration or employment counsel for assistance with the audit.

In the event of an audit, subcontractors are advised to keep their I-9 forms separate from other employment-related documents that are kept within an employee’s personnel file. This is because in the event ICE discovers a possible violation of the law within the Department of Labor’s jurisdiction during the course of the I-9 audit, ICE must contact the appropriate DOL field office.

During an audit, the company representatives should always be polite and assume an attitude of cooperation with ICE and DHS. The designated company representative also should keep records of all information sought by ICE or DHS and the questions the ICE investigator asks. A record also should be kept of the responses given to any questions posed by the ICE investigator. If the ICE or DHS official intends to remove documents from the premises, the company representative should make copies of all documents given to ICE and an inventory should be created that identifies the number of original I-9 forms that were relinquished to ICE.

When the I-9 audit is complete, if the audited employer is found to be in compliance, the notice received from ICE is referred to as a Notice of Inspection Results, or a compliance letter.

On the other hand, if, after its review of the I-9 forms, ICE determines an employee is unauthorized to work, it advises the employer of the possible criminal and civil penalties for continuing to employ that individual. This notice is referred to as a Notice of Suspect Documents. The notice provides the employer and employee an opportunity to present additional documentation to demonstrate work authorization if they believe the finding is in error.

If ICE is unable to determine a particular employee’s work eligibility, ICE provides a formal Notice of Discrepancies. A Notice of Discrepancies advises the employer to provide the employee with a copy of the notice and to give the employee an opportunity to present ICE with additional documentation to establish employment eligibility.

When technical or procedural violations are found, ICE issues a Notice of Technical or Procedural Failures. This notice gives the employer 10 business days to make corrections. If corrections are not made in a timely manner, ICE determines a substantive violation has occurred. An employer may receive a monetary fine for all substantive and uncorrected technical violations.

If a fine will be issued, ICE publishes a Notice of Intent to Fine to the employer. Penalties for substantive violations, which include failing to produce an I-9 form where retention of the form was required, range from $110 to $1,100 per violation.

If a Notice of Intent to Fine is issued, the employer has 30 days to contest the intended fine by requesting a hearing before an administrative law judge. If the employer requests a hearing, DHS files a formal complaint with the office of the chief administrative hearing officer, and the case is assigned to an administrative law judge. The office of the chief administrative hearing officer then sends all parties a copy of a notice of hearing and the complaint.

If the matter is not resolved in settlement or not disposed of by the judge in response to a dispositive motion, the matter proceeds to a hearing. Following the hearing, a final agency order is issued by the administrative law judge. If the employer disagrees with the decision of the administrative law judge, the employer has 45 days to file an appeal with the appropriate federal circuit court of appeals.

ICE Worksite Raids

A worksite raid is much different than an I-9 audit. While the number of worksite raids has increased in recent years, the total number of raids represents only a small fraction of one percent of the companies in any given industry. ICE worksite raids are not random. Unless you consent to the search, ICE is prohibited by law from raiding a worksite or project site without a warrant. If ICE does have a warrant, the warrant was obtained from a judge after the judge was presented with evidence showing there was probable cause a violation of the law was being committed. Probable cause is defined as a reasonable belief that a crime has been committed. Employers that are the subject of a worksite raid have done something to attract ICE’s attention. For example, those companies who exploit unauthorized workers for financial gain or who act with impunity are likely to be the subject of a worksite raid. Where there is evidence an employer recruits, houses and transports unauthorized workers, that employer is likely to be the subject of a workplace raid.

Employers that are the subject of a worksite raid should carefully review the warrant provided by ICE. The scope of ICE’s search is limited to the scope as set forth in the warrant, and Employers have a right to review the warrant. Employers are not required to answer ICE questions during a worksite raid. Employers should also never give consent for ICE agents to speak with any of the employees on the premises. In the event of a worksite raid, the company’s legal counsel should be contacted immediately.

If during a worksite raid, ICE discovers or learns of unauthorized workers at the worksite, those workers are subject to being arrest and detained by ICE. Subcontractors facing this situation should be sure to obtain from ICE the contact information, including phone number, of the local ICE detention center. Employers should also find out where to obtain contact information for other detention centers in case detained employees are transferred out of the local area. The employer can assist the employees with obtaining immigration counsel, but it is not advised that the company’s attorneys also represent the employees that may be subject to deportation as an unauthorized worker.

Philip Siegel is a partner and shareholder with the firm Hendrick, Phillips, Salzman & Siegel, P.C., whose practice focuses on labor and employment matters within the construction industry. Siegel earned his bachelor’s degree from the University of Michigan and his law degree from Emory University School of Law. He can be reached at (404) 469-9197 or pjs@hpsslaw.com.





March 2018

Senate Committee Approves Bill Banning Reverse Auctions in Construction

On Feb. 14, the Senate Committee on Homeland Security and Government Affairs approved a bill that would prohibit federal agencies from using reverse auctions to procure construction and design services. S. 2113, the “Construction Consensus Procurement Improvement Act,” introduced by Sen. Rob Portman (R-Ohio) and Sen. Mazie Hirono (D-Hawaii), was initiated by the Construction Industry Procurement Coalition.

A reverse auction essentially is an online, real-time dynamic auction between a buying entity and vendors who compete against each other to win a contract. These vendors compete by bidding against each other, usually over the Internet, by submitting successively lower-priced bids during a specified bid period, usually about one hour.

“While this method may be suited to buying well-defined commodities, it is not suitable for skilled services with a high degree of variability like design and construction services,” ASA Chief Advocacy Officer E. Colette Nelson told the Senate Committee. “Electronic reverse auctions have brought ever greater efficiency to the practice of “bid shopping” in the construction industry.”

S. 2113 also would require federal agencies to use a two-step procurement method to contract for design-build services on projects of $3 million or more. Under the two-step process, a federal agency first evaluates the qualifications of potential proposers and then invites the most highly-qualified to prepare and submit a proposal. The Senate Committee approved the bill by a unanimous voice vote.


Anti-Forum Selection Clauses in the 50 States Is a No-Cost Benefit for ASA Members

Out-of-state prime contractors commonly require their subcontractors to sign forum-selection clauses, arguing that it’s more convenient and less expensive for them to resolve disputes in a jurisdiction of their choice. For example, a prime contractor headquartered in Idaho may place a forum-selection clause in a contract on a project in Delaware stating that “Regardless of the site of the project, the laws of the State of Idaho shall govern in the interpretation of any contract-related issues, and any hearings or dispute resolution meetings shall be held in the State of Idaho.”

Such clauses may create an undue hardship for the subcontractor on such a project. The subcontractor may have to comply with laws and regulations with which it is not familiar and be held accountable for failure to comply; the subcontractor may have to bear the expense of travel and litigation in a distant location. Further, the subcontractor may not be able to access witnesses or provide other evidence to support its position in a dispute. Ultimately, the additional burdens of a distant forum can often be prohibitive and effectively deprive a subcontractor of its day in court and/or leverage it to heavily discount, if not abandon, even the most worthy of claims. Many states view forum-selection clauses as against public policy and make them “void and unenforceable.”

The Foundation of ASA’s Anti-Forum Selection Clauses in the 50 States helps subcontractors understand how forum-selection clauses are treated in the 50 states and the District of Columbia. ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual, which is available under the “Contracts & Project Management” section in the members-only area of the ASA Web site at no cost to ASA members.


ASA Helps Subcontractors Master Final Payment

In ASA’s most recent member needs assessment, respondents reported that obtaining final payment remains their most serious problem. Certainly, the time between substantial completion of the project, when the owner occupies the project, and final completion, is rife with uncertainty for prime contractors and their subcontractors. The risks of delay or non-receipt of final payment extend well beyond the ordinary credit risks associated with progress payments. A subcontractor should give serious consideration before a project is even bid, to the risk that disputes, whether meritorious or contrived, will severely impact or even prevent the receipt of final payment after substantial completion.

ASA’s white paper, Mastering Final Payment, provides subcontractors with steps they can take to assure their receipt of final payment. The white paper also provides an analysis of the problem, and reviews industry policies and practices. The white paper is a no-cost member benefit available under “Contracts and Project Management” in the Member Resources section of the ASA Web site.


ASA Introduces White Paper on Contingent Payment

Observers of the construction industry have seen companies go bankrupt, or go through torturous downsizings, layoffs and disputes, because of slow payment and nonpayment by customers. One cause of such difficulties is the contingent payment clause. In addition to the economic damage pay-if-paid clauses cause, they also raise serious legal and ethical questions in business. Simply put, “contingent payment” describes a contractual provision that makes one party’s right to be paid for services provided to a second party contingent on the payment of the second party by a third party. In the construction industry, this clause often translates into a subcontractor’s right to be paid being contingent on the owner’s payment of the prime contractor for the subcontractor’s work.

ASA members can master contingent payment by studying ASA’s Mastering Contingent Payment white paper. This white paper helps readers understand the important differences between pay-if-paid and pay-when-paid clauses, discusses industry practices, reviews existing law and trends, and provides tips on how a subcontractor can protect its business. The white paper is available to ASA members under “Contracts and Project Management” in the Member Resources section of the ASA Web site.


ASA Payment Script Teaches Negotiation Skills

ASA’s Negotiating the Payment Clause: A Script is a case study designed to help ASA members improve their ability to negotiate better subcontracts. The Script illustrates through everyday language how to negotiate more equitable payment terms.

“Subcontractors have little opportunity to observe how a negotiation with a prime contractor might proceed,” said Brian Cubbage, contracts administration counsel, Heico Construction Group, Alexandria, Va., and chair of the ASA Task Force on Contract Documents. “After all, no one has made an Oscar-winning movie or an Emmy-winning television show that portrays a construction prime contractor-subcontractor negotiation. Even a search of YouTube doesn’t reveal such an example of negotiations.”

The script was designed to provide ASA chapters with a tool to demonstrate to members what a prime contractor-subcontractor negotiation on payment terms may look like. However, the document also can be used for internal subcontract education by individual subcontracting firms. The script demonstrates critical negotiation skills and techniques, such as establishing a friendly tone and common goals, confirming the reasons behind the low bid, asking for clarifications rather than changes, focusing on benefits the contractor received from the owner, and setting a precedent for future contracts.

Negotiating the Payment Clause: A Script is located under “Contracts and Project Management” in the Member Resources section of the ASA Web site.


Guideline Helps Prevent Change Order Headaches

Change orders are one of the most common causes of misunderstandings and disputes on construction projects. Fortunately, there’s an easily accessible resource subcontractors can use to smooth out potential issues with change orders and, hopefully, even help prevent problems from happening.


The resource is the “Guideline on Procedures for Change Orders,” which is one of the Guidelines for a Successful Construction Project developed and published by ASA, the Associated General Contractors of America (AGC), and the Associated Specialty Contractors (ASC). The guideline describes best practices for a change order initiated by the owner, contractor or subcontractor, as well as the different kinds of change orders that may be used (lump sum, unit price, time and material, change directive, recorder minor change).

With the guideline, subcontractors can read what details these different types of change orders should contain, and even cite the guideline in explaining their need for information to employees and contractors. One critical point made in the guideline is that “[c]hange order work should not begin until after the owner or owner’s agent issues a written authorization to proceed.” Even if the subcontractor can’t obtain a signed, completed change order, the subcontract may allow for an alternative way of handling the dilemma if the client insists that the subcontractor proceed with work. If a price and time for a change cannot be agreed upon in advance, the subcontractor should obtain a written authorization in the form of a signed change directive. A change directive would provide documentation of the authorization to proceed while preserving the subcontractor’s rights to time and price adjustments—rights that the subcontractor risks losing if it simply proceeds without any written authorization. Some of the guideline’s most critical points for lessening or preventing disputes are not contained in its best practices for what’s “in” a change order, but rather in the best practices it describes for setting up and following processes to communicate change order information and authorization. To prevent disputes, it is critical that the persons with authority to agree to change orders be clear. The guideline notes:

“Special care should be taken with subcontractors and material suppliers to clarify the proper communication paths and to identify the persons in authority … Appropriate communication processes should be clearly outlined during the Pre-Construction Conference attended by all parties.”

The pre-construction conference is where the subcontractor’s and contractor’s points of contact for change order authorizations should be clarified. Subcontractors should also take heed of the guideline’s warning not to let change orders accumulate until the end of a project. If a subcontractor waits too long, it may not be able to follow the contractual procedure for submitting change orders.




Legally Speaking: Innovation in Construction Procurement: Legal Implications of Decentralized Databases and Blockchain

by James L. Salmon, Esq., Benjamin, Yocum & Heather, LLC

Procuring a substantial built asset requires an owner to engage dozens of entities via a myriad of contracts. Those entities engage others, including specialty designers, suppliers and trade contractors. Stakeholders, represented by individuals, then deliver on the promises set forth in that complex array of contracts. The antiquated legal framework used to procure most built assets often collapses under the strain, failing all parties involved.

ASA recently convinced the Kentucky Supreme Court to allow subcontractors in that state to pursue claims for unjust enrichment against owners under that legal framework. In a case styled, Superior Steel, Inc. and Ben Hur Construction Company, Inc. vs. the Ascent at Roebling’s Bridge, LLC, Corporex Development & Construction Management, LLC, Dugan & Meyers Construction Company and Westchester Fire Insurance Company the court adopted arguments set forth by Thomas Yocum of ASA-member firm Benjamin Yocum & Heather in an amicus, or friend-of-the-court, brief funded by ASA through the Subcontractors Legal Defense Fund. While ASA successfully defended the interests of trade contractors in Kentucky, the win may prove pyrrhic for the subcontractors and suppliers involved.

Those litigants, represented by law firms other than Benjamin Yocum & Heather, spent more than $1 million pursuing claims worth approximately $400,000. Precedent-setting litigation like this, while beneficial to many, remains prohibitively expensive and raises serious questions regarding the viability of the existing legal framework within which the built industry operates. ASA recognizes the challenges facing its members and seeks not only to understand those challenges but to overcome them. This article briefly explores the current state of procurement, emerging procurement processes and concludes with a look at the looming impact of blockchain technology on construction.

Rethinking Procurement Models

Consumers of services required to deliver built assets traditionally seek competitive bids for such services under the Design-Bid-Build procurement model. Pursuant to that opaque system design firms create construction documents in a silo and general contractors review those instruments in a vacuum, with no opportunity to explore the design with its creators. The winning general contractor tosses those documents created in a silo over the wall to key subcontractors and solicits hard bids for certain scopes of work reflected in those documents. In tough economic times bids received may be further shopped to tamp down costs, though when the construction market booms subcontractors return the favor by increasing prices. Estimates of costs, from materials to equipment and labor are notoriously inaccurate and actual construction occurs months or even years after bids are accepted. Accordingly, to account risks inherent in bidding early and building later, every bidder pads the bid a little. Meanwhile, the owner eventually gains an understanding of what is being built and invariably requests changes. In addition, subcontractors arrive on site and confront as built conditions that impact their ability to deliver their scope of work. These issues trigger requests for information, at a minimum and often require change orders that modify the controlling contract. When disputes arise the parties typically resolve those disputes via litigation. All of the foregoing actions are encouraged, if not mandated, by the contracts that represent the component parts of our broken legal framework. Conventional industry wisdom teaches novice owners that the hard bid process described above ensures best price. Nothing could be further from the truth.

In reality the built industry, operating primarily on the Design-Bid-Build procurement model, wastes more than 60 percent of the resources used to create built assets and expends approximately 10 percent of those resources on legal disputes. Addicted to extracting profits from that enormous waste stream, industry leaders cringe at the prospect of adopting innovative new procurement models that reward value rather than waste. Granted, in the late 1990s and early 2000s the use of modified procurement models like Design-Build, Construction Manager at-Risk and public-private partnerships increased, but Design-Bid-Build remains the dominate procurement model.

You get what you contract for and the contracts executed in the built environment require or reinforce fragmentation of the team, adversarial resolution of disputes and mistrust. To improve we must adopt, adapt to and deploy contracts that foster delivery of built assets by integrated teams that identify and resolve disputes proactively, as they arise in an environment characterized by trust based relationships. The baby-steps taken via the alternative delivery models mentioned above fail, utterly, to substantially modify the existing legal framework that controls procurement of built assets in the built environment. But bigger changes loom on the horizon.

The Blockchain Revolution in Construction

Innovative solutions percolating in the built environment pose dire risks to that broken legal framework and responsible professionals owe it to their clients and the firms to understand those solution. Two highly disruptive innovations, building information modeling and integrated project delivery, may soon threaten the status quo. While each developed independently, and in respective silos, combining the tools increases efficiency and productivity to an alarming or amazing degree, depending on one’s perspective. Alarming if your firm operates in an old school silo but amazing if your firm seeks to deploy BIM and IPD in a collaborative environment. BIM and IPD represent the tip only of the towering iceberg of innovation in the built environment. Blockchain technology, the software protocol that underpins Bitcoin and similar cryptocurrencies, threatens to blowup existing paradigms in the industry by enabling BIM and IPD on the Web.

Planning, designing, constructing and operating a facility virtually first enables stakeholders to adopt, adapt to and deploy tools and processes never thought practical before. In the next 10 years expect to see built assets procured utilizing a new generation legal framework that leverages virtual planning, design and construction tools and processes to create a virtual asset that users explore and critique in advance followed by a physical asset tied to a virtual version that augments the users’ reality in powerful and practical ways. Decentralized databases that leverage blockchain technology, incredibly powerful computer processing speeds and vast amounts of cheap, secure storage space on the Web all promise to revolutionize our built environment. Decentralized blockchain-driven databases, in particular new graphic databases, promise to speed the exchange of data and enable innovation in the built environment only dreamed of in the past.

These new generation, decentralized graphic databases promise interactive virtual software tools that access dynamic data and feed smart contracts built on innovative blockchains. Traditional databases, created in the 1960s and 1970s, remain in use today and like their antiquated counterparts in the legal environment those traditional databases shackle users to constraints that no longer exist. In a dynamic, Web-based world data is created, moved and leveraged at light speed. Storing, tracking and sharing data on decentralized graphic databases powered by blockchain will free built industry professionals from the clutches of slow cumbersome databases, outdated legal instruments and our broken legal framework. Delivering built assets utilizing BIM, IPD and blockchain technologies requires participants throw off the shackles and constraints imposed in the past and embrace the future.

The Future of Procurement in Construction

Would you rather be on the cutting edge or the bleeding edge? It’s your choice. Many owners are choosing the cutting edge.

In Canada, innovative public owners seeking to procure built assets from integrated teams issue requests for qualifications to determine which planners, designers, constructors, trades and suppliers are ready and willing to play in the BIM and IPD sandbox. After identifying those entities those innovative owners then ask qualified firms to form integrated teams and respond, as teams, to requests for proposals for the planning, design and construction of built assets for which the owners created a relatively robust program. In the next phase of that innovative procurement process select integrated teams are asked to submit a guaranteed maximum price for fulfilling the requirements of a validation period contract. That validation period contract essentially asks the integrated team whether the owner’s program is viable. For a proposed fixed price each integrated team agrees to place the owner’s program under a BIM and IPD enabled microscope to determine whether the scope, cost and schedule, along with other priorities of the owner, make sense from a design, construction, supply and operations perspective. The owner then interviews three to five integrated teams and selects a team to complete the validation period contract. Low bid is NOT the deciding factor, though cost is a component. The team selected to complete the validation period contract reviews the owner’s program requirements, including scope, cost and schedule and reports back to the owner regarding the viability of the project. If the project proves not viable the owner terminates the process. However, if the project proves viable the owner and the integrated team proceed to negotiate and execute an integrated agreement for delivery of the built asset.

Canada isn’t the only place where BIM and IPD are being successfully deployed. Those innovative game-changing tools are here to stay. Now blockchain is coming, and the exponential increases in efficiency it threatens may decimate existing enterprises in the built industry. Many experts with knowledge of blockchain and its potential contend that every business on the planet is at risk of being disrupted by a blockchain version of itself. Entities operating in the built environment are no more immune from that risk than those operating in any other sector.

Blockchain technologies and smart contracts crafted and deployed on the blockchain promise profound change in the built environment and especially procurement therein. Lip service paid to collaboration in the past few years will give way to concrete action when the transparency, immutability and consensus decision making that underpin blockchain manifest themselves in integrated agreements signed by owners and integrated teams for the delivery of smart built assets accompanied by robust and smart digital assets. Big law, like the big banks and insurance companies may be slow to change but change it will, or it will find a whirling dervish of innovation tearing through it similar to the digital revolution that killed Blockbuster and decimated Sears, K-Mart and the rest of a recalcitrant retail industry.

Sit idly by while the foregoing innovations tear down the existing legal framework or get in the game. The choice is yours. Collaborative Construction Resources, LLC, through its Smart Built Culture program intends to participate, actively, in the coming revolution. We invite you to join us!

James L. Salmon, Esq., joined Benjamin, Yocum & Heather as a BIM and IPD consultant in 2010. As president of Collaborative Construction Resources, LLC, Salmon advocates the use of virtual planning, design and construction tools and integrated project delivery. Salmon also serves as an adjunct instructor of a master’s-level BIM strategy course offered by Middlesex University in London. Salmon is also a special advisor to the buildingSMARTalliance’s Thought Leadership Committee. Salmon advocates the use of integrated project delivery and the use of virtual planning, design and construction software tools. He relishes the challenge of replacing the built industry’s broken culture with a smart procurement culture. Salmon works with clients to modify existing legal frameworks to ensure support for the vision, skills, incentives, resources and actions required to achieve the changes necessary to adopt, adapt to and deploy a smart procurement culture throughout the built industry. He can be reached at (513) 721-5672 or jameslsalmon@gmail.com.