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Prevailing Wage/Davis-Bacon Requirements

Over the past several years, many organizations have sought to repeal or modify programs such as the Prevailing Wage Law and the Davis-Bacon Act.  Generally the Prevailing Wage Law applies to Pennsylvania public works projects and the Davis-Bacon Act applies to federally funded projects.  These policies set minimum wages for various labor classifications.

The direct increased labor costs imposed by these regulations are only part of the costs.  Contractors also incur compliance costs because a violation of these rules can result in a suspension from performing public work.    For many construction firms, such a suspension puts the company at financial risk, especially when a substantial amount of its work comes from the public sector.  A firm wishing to avoid situations that may lead to suspension may hire a full-time employee focused on labor compliance.  Absorbing the additional labor cost ultimately results in higher prices to the taxpayers.

DBE/MBE/WBE/SBE/DVBE Goals or Requirements

Federal, state and local governments have goals for business participation of firms owned by disadvantaged (DBE), minority (MBE), and women (WBE) business owners. Newer programs include project goals for disabled veterans (DVBE) and small businesses.  However, confusion often occurs because the rules are unclear and vary among the different public agencies.  This requires contractors to spend time and resources understanding the meaning and intent of each requirement.

In most cases, a prime contractor bidding on public works projects is required to try to meet a goal of awarding a percentage of project work to a disadvantaged firm.  However, these goals impose two obvious costs to a company (and, in turn, to the public).

Instead of self-performing work at the lowest cost, a firm must consider allocating work to a disadvantaged firm.  Even if a contractor wanted to subcontract that item of work, setting a ‘goal’ of work being performed by a disadvantaged firm limits the marketplace.  Not all companies that can cost-effectively provide a service are “disadvantaged.”

Another cost occurs when a low bid is rejected because of a technical error of failing to meet a DBE goal.  For example, in Glasgow Inc. v. DOT, 851 A.2d 1014 (Pa. Cmwlth. 2004), a bid rejection resulted in the public paying $800,000 more to award the project to the second bidder.

DBE goals have also resulted in some construction firms trying to take advantage of the system.  A few years ago, a Central Pennsylvania company attempted to do so by setting up a fake DBE company.  Investigators spent thousands of hours researching the matter and gathering evidence.  This resulted in the criminal conviction of multiple company executives, which jeopardized the employment of those company employees who had no connection to the scheme.

Non-criminal forms of following the letter of the system but not its spirit include keeping a business owner’s assets below a threshold to continue to qualify as disadvantaged.  The result is that a profitable family business can continue for generations as “disadvantaged” using such a method.

The Cost of Construction Materials

It is understandable that the government wants to ensure that contractors use quality materials on public contracts.  As a result, the construction materials must be tested and certified.  For example, rebar being used in a PennDOT road project must be tested and certified by PennDOT’s lab.  The method of testing (and certification) can sometimes be confusing.  For example, different public owners have different testing requirements.  A contractor or material supplier may face dire consequences with a small mistake, such as failing to record a test.

Construction materials are also subject to provisions such as Buy America or Buy American requirements (similar sounding programs that have different requirements).  While some requirements advance good policies, others are complicated, ambiguous and arbitrary, resulting in infractions and penalties that ultimately impose costs unrelated to the actual project work.

The public is protected in multiple ways from poor construction practices.   For example, the public works contractors are required to have performance bonds and (for Pennsylvania agency matters) there is no statute of time limitation for legal challenges.  Pennsylvania still has the Common Law doctrine of Nullum tempus occurrit regi – or “no time runs against the king”  - allowing for a state agency to file a lawsuit without needing to worry about the time limitations of private parties.

In addition, public works contracts contain offset provisions whereby payments on current projects can be withheld or deducted from past projects where problems developed.  A contractor with significant performance issues could also be suspended or debarred from future work.

In summary, while it is understandable that policy makers want to advance protections for the public, such policies are not free.  Regulatory compliance may interfere with the free market, which often increases costs.  Compliance issues can stand in the way of our progress as a nation by imposing higher than necessary costs to repair our crumbling infrastructure.  Ultimately, this causes American goods and services to be more expensive on the world market and requires higher taxes to fund public works.

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An individual submitted an open-records request to PSATS, pursuant to Pennsylvania’s Right-to-Know Law (RTKL), seeking records, including correspondence between PSATS and the Office of the Governor, related to Act 13 of 2012, a recent state law limiting local regulation of Marcellus Shale drilling and implementing drilling impact fees.  PSATS denied the request by asserting that it was not an agency subject to the RTKL.

The requester appealed PSATS’s denial to the Office of Open Records (OOR).  The OOR issued a final determination holding PSATS is an extension of its member township governments and therefore a local agency subject to the RTKL.  Brasch v. PSATS, AP 2012-1184 (OOR 9/4/2012).  The OOR reasoned that state statutes authorize PSATS formation, limit PSATS voting membership to elected or appointed township officials, and authorize PSATS funding from township membership dues.

PSATS filed a petition for review of the OOR’s final determination in the Cumberland County Court of Common Pleas.  President Judge Kevin A. Hess allowed the parties to submit briefs and heard legal argument before issuing a decision.  In a scholarly opinion issued March 7, 2013, PSATS v. PA Off. Of Open Records, et al., 62 Cumb. 129 (2013), Judge Hess concluded PSATS is neither a “Commonwealth agency” nor a “local agency” as defined by Section 102 of the RTKL.  65 P.S. § 67.102.

First, Judge Hess concluded PSATS is not a Commonwealth agency because it does not perform an essential government function.  He relied on the Commonwealth Court’s recent decisions in Scott v. Delaware Valley Regional Planning Commission, 56 A.3d 40 (Pa. Cmwlth. 2012) and the Supreme Court’s decision under the prior version of the RTKL in Community College of Philadelphia v. Brown, 554 Pa. 31, 674 A.2d 670 (1996) which held, respectively, that a metropolitan planning organization and a community college do not perform essential government functions.   Those cases set forth a three prong test to determine whether an organization performs an essential government function: (i) whether a statute identifies the organization as providing essential services, (ii) whether the organization provides constitutionally mandated services, or (iii) whether the organization’s services are indisputably necessary to the continued existence of the Commonwealth.  Judge Hess found PSATS services did not meet any of the three prongs under this essential government function test.

Second, Judge Hess concluded PSATS is not a local agency because it is not a governmental entity similar to a local, intergovernmental, regional or municipal agency, authority, council board or commission.  PSATS is not empowered to enact or interpret laws or ordinances and has no statutory power to perform governmental functions.  Judge Hess found support for this conclusion in an unpublished Commonwealth Court Opinion, Philadelphia Industrial Development Corporation v. Ali, N. 528 C.D. 2010, 2011 Pa. Commw. Unpub. LEXIS 317 (Pa. Cmwlth. April 18, 2011), which held a not-for-profit corporation formed cooperatively between the city and the chamber of commerce to promote economic development was not subject to the RTKL.  Judge Hess’s analysis turned primarily on the statute authorizing the formation of PSATS.  He found townships are not empowered to “create” PSATS, but rather that the statute authorizes townships to voluntarily assemble as PSATS.

As the RTKL continues to evolve, this case provides guidance on the question of whether an entity is an agency subject to the RTKL.

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Act 13 provides that every county within the Commonwealth shall receive some portion of the impact fees.  In Central Pennsylvania, local counties received impact fees as follows:  Dauphin – $227,456; Cumberland – $199,718; Lebanon – $113,319; Perry – $39,000; Lancaster – $440,697; and York – $369,030.

The case of Robinson Township, et al v. Commonwealth of Pennsylvania in which a number of municipalities and residents challenged the constitutionality of Act 13 and its preemption of local regulation, including environmental laws and zoning code provisions, remains pending before the Pennsylvania Supreme Court.  A decision is expected this summer.  Meanwhile, the Order entered by the Commonwealth Court enjoining the Public Utility Commission (“PUC”) from issuing Advisory Opinions on the validity of municipal ordinances regulating gas drilling activities remains in effect.

Marcellus and Utica Shale drilling activities have limited impact in Central Pennsylvania.  However, regional planners have begun preparation for the inclusion of provisions for potential Marcellus and Utica Shale drilling in their comprehensive plans.  The Dauphin County Commissioners recently approved funding for the replacement of its existing comprehensive plan, so as to include provisions for potential Marcellus and Utica Shale drilling.  In addition, communities in Central Pennsylvania are likely to be the sites for Marcellus and Utica Shale natural gas transmission facilities.

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Therefore, it is going to be imperative upon requesters to be certain that they identify correctly who the open-records officer of the agency to whom they are submitting their request is and that the request be submitted directly to that person.

Two trial court opinions also decided novel and potentially far-reaching issues under the Law.  A trial court in Philadelphia has concluded that metadata is subject to public disclosure under the RTKL.  Scott v. Southeastern Pennsylvania Transportation Authority (Phila. C.C.P., 8/3/2012).  In that court’s opinion, an agency must honor a request to provide an electronic document in the format in which the document was originally created including its metadata.

Metadata is “information that provides information about other data.”  See: http://www.merriam-webster.com/dictionary/metadata.  Examples of metadata include an electronic document’s name, location, format, and size.  This type of information is embedded into the electronic document, but it cannot be seen when the document is printed out.  Metadata can be removed or “scrubbed” from an electronic document by converting the document from its original format to another format such as Portable Document Format (.PDF).  Metadata can be a useful tool in determining if an electronic document was altered.

The Scott case involved a request for emails.  The requester specifically requested that the emails be provided in their “original format.”  The agency granted the request but provided the emails in .PDF file format rather than their original format.  The Open Records Office affirmed the agency’s decision and the requester appealed.  Since no appellate court in Pennsylvania had addressed the issue of whether metadata is a “public record” as defined by the RTKL, the trial court reviewed court decisions from other states with open records laws similar to the RTKL.  The trial court found there is “… an emerging national consensus on the role of metadata – namely, that metadata is fundamentally a part of the computer file in which it is embedded.  Absent particular concerns about usability, metadata is presumptively discoverable, especially where the requesting party specifically requests documents in their original or ‘native’ format.”

In light of the reasoning adopted by courts in other states, the trial court determined that the embedded metadata was an inseparable part of the requested e-mails.  It ordered SEPTA to disclose the e-mails to the requester in their original format.  The case is currently on appeal to the Commonwealth Court.

Finally, Judge Nealon in Lackawanna County examined the question of how a successful requester, who has won a determination from the Open Records Office requiring an agency to turn over records, may force that turnover when the agency refuses to do so.  In Ledcke v. County of Lackwanna, issued 2/7/13 the court held that a requester seeking to enforce a Final Determination of the OOR should do so by a Complaint in Mandamus or, possibly a motion for civil contempt.  Judge Nealon found a “Petition to Enforce Final Determination of OOR” was not an appropriate method of enforcing such an order.  The Court held that, once the 30 day appeal period has run from the issuance date of the OOR’s Final Determination and no appeal has been filed by the agency, it does become a final order and the delivery of the records required by the Final Determination is no longer a discretionary act, but mandatory, thus mandamus is appropriate.

The decision gives requesters some logical, procedural bases to enforce Final Determinations of the OOR which are not appealed by an agency.  Some agencies would simply ignore the Final Determinations knowing the OOR has no ability to enforce them, thus, forcing the requester to take some additional court action and incur additional expense.  Trouble was no one knew what that “action” should be.  Absent some further appellate or statutory guidance, Judge Nealon’s well-reasoned opinion provides two avenues of relief which are well-grounded in the law and provide requesters with a pathway to enforce the OOR’s Final Determinations.

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Copyright is a form of protection provided by the federal government to authors of “original works of authorship.” The purpose of copyright law is to protect the exclusive rights of authors to control and financially benefit from their works. Most people are aware that copyright protects films, music and books. However, copyright law also protects a much wider category of works which are important in the business world, including: web sites, computer programs, manuals, newsletters, technical publications and drawings, building designs, and promotional and advertising materials.

In the United States, copyright protection is free, and automatically arises when the work is created. Copyright protection becomes more powerful if the work is registered, for a small fee, with the United States Copyright Office. Registration entitles the copyright holder to more potent legal remedies, and thus, makes copyright infringement suits more economically feasible. Businesses maximize protection of valuable copyrightable assets by registering their works.

The use of a copyright notice is no longer required; however, it is beneficial because it provides notice to would-be users that the work is copyright protected. A good rule of thumb is to include the copyright symbol, the year of first publication, and the name of the owner. For example: © 2013 Company Name.

Copyright infringement occurs when an individual or business uses copyrighted material without permission. Unauthorized use includes copying, reproducing, displaying, making derivations of, or utilizing a work without authorization.

Generally, companies can use most copyrighted material under the conditions laid down by the copyright owner. For software or computer programs, for instance, companies must purchase licenses. The payment for the right to use does not give the company the right to copy the work or to re-produce and sell the work. In order to avoid infringement, additional use of the copyrighted material must be authorized and may require paying extra licensing fees or royalties.

The internet has become the Wild-West of copyright law. Copyrighted material posted online can be easily copied and used without authorization, and in fact millions of people commit copyright infringement every day. Companies should be aware that posting a work on the internet does not compromise its copyright protection. Just like any other work, if you want to use a work found on the internet, you need to comply with the conditions laid down by the copyright owner.

If an employee decides he or she wants to use a picture or part of an article for some business purpose, he or she should contact the author and secure permission. Managers reviewing work-product should double check to ensure that copyrightable material is being used under authorization. Failing to follow these safety measures can open up the company to copyright infringement lawsuits.

An example may provide clarification.  X Company needs to create packaging for a new product.  Joe Employee is assigned to the task. In order to make the packaging aesthetically pleasing, Joe searches the internet for a picture and includes it on the packaging. Joe never sought permission from the copyright owner. Sue Manager loves the packaging and approves it for production. Sue never bothers to check whether the picture is copyrighted. The new product hits the market. One month later, X Company gets a notice in the mail that it is being sued for copyright infringement. When X Company loses the copyright suit, not only will it have to remove the packaging from the market and spend  time and money re-working it, X company could also end up paying a high amount of damages, including statutory damages and the copyright owner’s attorneys fees.

There are exceptions in the copyright laws that allow copyrighted material to be used without permission in certain situations. The fair use doctrine allows small portions of a work to be used for purposes of criticism, comment, news reporting, teaching, scholarship or research. However, fair use does not apply when use of the copyrighted material leads to a commercial benefit, or affects the value of the work. The fact that companies are generally engaged in commercial, for-profit activities, limits the applicability of the fair use doctrine for them, as the doctrine is aimed more toward organizations such as libraries and schools.

The main point to be drawn from this discussion is that companies and their employees must be familiar with copyright law. A working knowledge and respect of copyright law benefits a company in two ways. First, the company can use copyright to protect its own valuable business assets. Second, the company can put procedures in place to prevent copyright infringement and resulting costly lawsuits. Although the law is complex, and availability of copyrightable material on the internet provides a host of opportunities for copyright infringement, problems can be avoided fairly simply: seek permission before you use.

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The first thing that a possible director should check is whether or not the organization is incorporated.  Although it is possible to be an unincorporated association in Pennsylvania, such organizations provide no limitations as to the liability of directors and members.  Incorporation for business corporations and for nonprofit corporations is relatively simple.  Under the modern Pennsylvania business and nonprofit laws, organizational operation is fairly straight forward.  Certain corporate functions are delegatable by statute to directors and officers.  With an association, essentially all decisions must be made or ratified by the members guided only by parliamentary law and procedure.  This is, at the very least, cumbersome, and in some cases, a vague standard under which to operate.

There are other business organizations in which liability can be limited by law.  For instance, there are limited liability corporations (LLCs), limited liability partnerships (LLPs) and limited and general partnerships.  These organizations are not within the scope of this article, but some of the things to review in deciding whether to become a corporate director are the same as should be reviewed in deciding whether to participate in the governance of such organizations.

Under Pennsylvania law, a person has the highest duty of care, a fiduciary duty, in his or her actions with regard to the corporation for which he or she is a director.  However, when an organization is incorporated, directors of both business and nonprofit corporations can assert as a defense the Business Judgment Rule.  This rule allows a director in performing his fiduciary duties to the corporation to rely on “information, opinions, reports or statements including financial statements prepared and presented by 1) corporate officers or employees reasonably believed to be reliable and within their competence, 2) legal counsel, public accountants and other experts reasonably believed to be reliable and within their competence and 3) a corporate committee on which the director does not serve reasonably believed to be reliable and within its competence.”

In evaluating whether to become a director, a person should review the corporate bylaws to see if there is an additional limitation of director liability provision for monetary damages.  Under Pennsylvania law, directors are not personally liable for such damages unless a breach of fiduciary duty constitutes “self-dealing, willful misconduct or recklessness”.  This limitation of liability must specifically be in the corporate bylaws. There are two exceptions to the limitation.  These are responsibility or liability under criminal statutes and liability for payment of taxes.

Pennsylvania business corporations and Pennsylvania nonprofit corporations are required to indemnify directors if they are successful in a third party action, an action brought by a person not a director, shareholder or member, or in a derivative action, an action brought by a shareholder or member.  Pennsylvania business corporations and Pennsylvania nonprofit corporations may indemnify directors against expenses while those actions are being brought i.e. pay legal fees.  Such indemnifications are only a protection for a director if the assets of the corporation are sufficient to fund those indemnifications.  This may be a problem especially with nonprofits.

Pennsylvania business corporations and Pennsylvania nonprofit corporations may purchase D&O insurance to cover potential indemnification liability.  A person thinking of becoming a director should ask whether the corporation has D&O insurance.  Directors and officers liability insurance provides for the cost of a legal defense and pays damages in the event directors are sued along with their corporation because of their decisions.  D&O insurance is protection in cases where a director can be held personally liable.  Frequently, cases of this type are ones involving employment practices in accordance with policies approved by directors.  This insurance is often conditioned on the availability of a limitation of liability in the bylaws discussed above.

D&O insurance can also be purchased by business corporations and by nonprofit corporations without having indemnification provisions in the corporate bylaws.  Sometimes, there is a choice of having either corporate indemnification or D&O insurance.  As indicated above, an indemnification is limited by the value of the assets of the corporation.  However, there may be a deductible in the D&O insurance coverage, making necessary indemnification to cover all of a director’s liability.  On the other hand, there is the risk of the corporation not paying the D&O insurance premium.  We think the safest course for a director is for the corporation to have both.  A question arises as to whether it is self-dealing for a director to recommend D&O insurance and indemnification.  Because the presence of that insurance and indemnification is so important to attracting knowledgeable and attentive directors, it is well within the fiduciary duty of a director, and probably a requirement under such a duty, to make such a recommendation.

Professionals such as lawyers and accountants are often asked to serve as directors because of their expertise.  With regard to insulation from liability, this presents a special problem.  Professional liability insurance does not generally cover serving a director.  Probably, if a lawyer or accountant answers questions put to him by officers or directors of a corporation of which he is a director, the D&O carrier will say he or she is acting in his professional capacity and is not covered by the D&O policy.  This raises a question of fact which could involve much time of the professional director if the claim is significant.  In evaluating whether to become a director, a professional should ascertain whether the corporation has a lawyer or accountant to whom legal or accounting questions should be referred for a final answer to such questions.  If the corporation is expecting free legal advice or accounting services, such questions should be answered as if the corporation was a client and not as a director.  Note the reliance by other directors on such answers discussed above in the application of the statutory Business Judgment Rule.

D&O insurance does not cover liability claims for compensatory and general damages sustained as a result of bodily injury, property damage, personal injury, and advertising injury (damage from slander or false advertising).  This is what general liability insurance covers.  A person thinking of becoming a director should inquire whether the corporation has general liability insurance.  If it does not, the question then becomes what is the extent of exposure of the corporation to such liability.  Note that punitive damages are not covered under general liability insurance policies because they are considered to be punishment for intentional acts.

Unfortunately, corporate losses of money, securities and other property as a result of wrongful acts of employees, such as wrongful use of a corporate credit card, are becoming more and more frequent.  A director could be brought into recovery of the loss if a policy approved by the directors helped or allowed the employee to commit the fraudulent act.  A person thinking of becoming a director should inquire whether the corporation has an employee dishonesty policy or that coverage in an Office Package.  If it does not, the question also becomes what is the extent of exposure of the corporation to such liability.

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