The Construction Advantage
Never Ignore a Summons and Complaint
The legal system is a finicky and impatient creature. One of the most common and problematic mistakes is the simple failure to promptly respond when you have been served with a summons and complaint. While it may seem minor, the consequences can be drastic.
For example, on November 15, 2018, subcontractor Stiles Plumbing and Heating (“Stiles”) initiated a lawsuit against general contractor D.E. Murphy Constructors, Inc. (“D.E. Murphy”) by serving its attorney with a summons and complaint. Stiles was seeking $8,760.01 in unpaid invoices. D.E. Murphy was required to file its Answer to the Complaint by December 5, 2018, or face potential default.
In a civil suit, default can occur when a defendant does not respond to the service of a Complaint in a timely manner. If the plaintiff is able to substantiate the amount of money owed, the Court will issue a default judgment for the plaintiff – which the plaintiff can then use to collect against. The case is over, and the plaintiff has won before the defendant has taken any action.
Because D.E. Murphy failed to respond to the lawsuit, the Court granted Stiles a default and entry of default judgment. In order to undue this judgment, D.E. Murphy filed a motion for relief from judgment pursuant to M.R. Civ. P. 60(b)(1), which requires a showing of excusable neglect. The Court denied that motion reasoning that “D.E. Murphy has not shown . . . that there was a reasonable excuse for its failure to respond to the summons and complaint for more than two months even though service had been accepted by the attorney who now represents D.E. Murphy.”
The moral of the story is simple, if you are served with legal paperwork promptly contact your attorney. Silence or denial only guarantee a loss.
The Trump Tariff Effect [i]
On March 8, 2018, President Trump issued two proclamations: Proclamation 9704, Adjusting Imports on Aluminum into the United States, and Proclamation 9705, Adjusting Imports on Steel into the United States. These proclamations imposed tariffs of 10 percent on imported aluminum and 25 percent on imported steel. Earlier this year, under Proclamation 5595, President Trump applied tariffs to Canadian soft wood lumber. Even though domestic steel and aluminum producers generally supported the protectionist tariffs, many expressed reservations regarding the tariffs’ expansive reach. The Aluminum Association expressed disappointment that the tariff extended beyond China to “additional vital trading partner countries.”[iii] The Steel Manufacturers Association similarly spoke out to support exemptions for key U.S. allies, like Mexico and Canada.[iv]
The construction industry accounts for two-fifths of US steel shipments[v] and Canada provided 28% of the U.S. soft wood market in 2017.[vi] Therefore, experts have speculated on the effects that tariffs would have on a construction industry still rebounding from the economic downturn. Now, months later, the effects of these tariffs are starting to emerge, but their full impact is yet to be seen.
What We Know: Construction Materials Cost More
According to an analysis by the Associated General Contractors of America, the cost of construction materials rose 7.4 percent over the past year due to double digit increases in commonly used construction materials.[vii] Steel and aluminum products were major contributors to the large increase.[viii] Specifically, from September 2017 to September 2018, steel pipe and tube’s producer price index increased 22.1 percent, fabricated structural steel metal increased by 11.7 percent, and aluminum mill shapes increased by 10.7 percent.[ix]
The tariff on Canadian lumber has had a more dramatic effect; prices rose 25 percent in the last year and lumber today costs 60 percent more than it did two years ago.[x] Cost increases in lumber have had a significant impact on homebuilders who employ wood frame construction, even forcing some companies to important materials from Russia to meet project price and schedule terms.[xi] This result does not appear to support the purpose of the tariff, which was to spur domestic lumber sales.
The administration’s tariffs have also introduced uncertainty and volatility into the market and the industry. Previously, contractors could generally rely on pricing from known suppliers, foreign and domestic. But today, tariffs are affecting not only pricing, but also availability of materials as contractors attempt to shift to domestic suppliers to control costs. Domestic steel suppliers, however, cannot meet the needs of an industry which has been heavily reliant on foreign imports.
On-going projects are seeing increased cost and decreased availability of materials, which is stretching budgets and schedules, and could result in failed projects, bankrupt contractors, and calls on surety bonds. In Seattle, the Federal Way Link Extension light rail project is expected to cost $460 million more than expected and the Key Arena reconstruction project is looking at an increase of approximately $100 million due to the resulting increase in steel prices.[xii]
As to upcoming projects, uncertainty and price volatility of materials is already affecting bidding. For example, in 2018, Kansas City, voters approved an increase in sales and property taxes to fund a streetcar extension, which was in development for over a year and had previously been estimated to cost at least $250 million.[xiii] But Kansas City is now rethinking the project; “We are anticipating our prices to increase because of the tariffs,” said Donna Mandelbaum, communications director for the Kansas City Streetcar Authority.[xiv] The uncertainty and price volatility has resulted in contractors either taking the risk of material pricing in their bids or more often, adding contingency to their bids to cover the price risk. This may result in some contractors losing money on projects (or making slim margins) and others being out bid, but it will most certainly result in owners paying more for projects, as expected by Kansas City.
What We Should Expect
Higher material costs could cause construction slowdowns, reduce construction spending, and increase construction disputes as costs and schedules extend beyond parties expectations. The National Association of Home Builders has raised concerns that the tariffs will affect affordable housing, even though steel and aluminum make up only half a percent to one percent of the final price of projects.[xv] For departments of transportation around the country the effect on planned projects will be more noticeable as steel related products account for about 10 percent of the cost of highway and bridge projects, according to Alison Black, chief economist at the American Road & Transportation Builders Association.[xvi]
Seattle and Kansas City may be harbingers of the results of higher construction costs derailing the president’s goal to rebuild the nation’s transportation infrastructure. As prices and domestic demand for American steel rise, the cost for the reconstruction of bridges, reinforced concrete highways, and railroads may become commercially unreasonable. Infrastructure projects may have to be further postponed or reduced in scope to meet funding availability.
According to a study by the Trade Partnership Worldwide, an international trade and economic consulting firm in Washington, DC, jobs in industries that make steel will see a boom, growing more than 25,000 positions in the next three years to meet the needs of U.S. industries.[xvii] This effect is already being seen as companies have announced expansions and the opening of dormant mills, like the one in Mingo Junction, Ohio.[xviii] At the same time, Trade Partnership Worldwide has forecasted that the U.S. will lose more than 400,000 jobs overall due to the tariffs, with 28,000 of those in construction trades.[xix] The majority of jobs will be lost from manufacturing industries, which are heavily affected by higher steel and aluminum prices.[xx] Overall, factoring in the estimated impact of retaliation by U.S. trading partners, these experts estimate that the overall cost to the U.S. economy could be as much as $37 billion.
[i] This Article was first published in The Construction Lawyer (Vol. 39 No. 1: Winter 2019), the Journal of the ABA Forum on Construction Law.
[ii] Brian R. Zimmerman is a shareholder at Hurtado Zimmerman S.C. in Milwaukee, Wisconsin.
[iii] Brittany Renee Mayes, Ted Mellnik, Kate Rabinowitz, & Shelly Tan, Trump’s Trade War Has Started. Who’s been Helped and Who’s Been Hurt?, The Washington Post, July 5, 2018, https://www.cdp-inc.com/articles/current-news-tariffs-and-impact-construction
[v] Marcus Turner, Trump’s Tariffs: How Will U.S. Construction Fare?, Global Trade, Oct. 4, 2018, http://www.globaltrademag.com/global-trade-daily/trumps-tariffs-how-will-us-construction-fare.
[vi] Bill Tryon, The Impact of Global Tariffs on Construction Risk, GlobeSt.com, Aug. 27, 2018, https://www.globest.com/2018/08/27/the-impact-of-global-tariffs-on-construction-risk/?slreturn=20181018205247
[vii] Construction Material Costs Increase 7.4 Percent, As Contractors Continue To Be Squeezed By Tariffs And Rising Fuel Prices, Oct. 10, 2018, https://www.agc.org/news/2018/10/10/construction-material-costs-increase-74-percent-contractors-continue-be-squeezed
[x] Turner, supra note iii.
[xii] Kim Slowey, Tariffs Rain on Seattle Building Boom, Construction Dive, Aug. 27, 2018, https://www.constructiondive.com/news/tariffs-rain-on-seattles-building-boom/530985/
[xiii] David A. Lieb (Assoc. Press), Trump’s Own Tariffs Make It Harder to Rebuild Infrastructure, U.S. News & World Report, June 30, 2018, https://www.usnews.com/news/business/articles/2018-06-30/trumps-own-tariffs-make-it-harder-to-rebuild-infrastructure
[xv] Turner, supra note iii.
[xvi] Lieb, supra note xi.
[xvii] Mayes, supra note i.
[xix] Tryon, supra note iv.
[xx] Mayes, supra note i.