News

112, 2017

Joint Ventures: Calculating Performance of Work Requirements & Subcontracting Limitations

December 1st, 2017|

Written by:  Carissa Siebeneck Anderson

Joint ventures have always been a popular tool for small businesses, but with the introduction of the All Small Business Mentor Protégé Program, joint ventures seem to be even more common.  There has been much discussion of the SBA’s subcontracting limitations, but calculating compliance can get a little tricky when dealing with joint ventures.

Small businesses may form joint ventures authorized under the Small Business Administration (SBA) regulations.  When performing covered small business contracts, small business prime contractors must adhere to subcontracting limitations.  In the case of a joint venture (JV) performing a covered small business contract, the JV must adhere to two levels of limitations.  For purposes of compliance with subcontracting limitations, the JV is considered the Prime, so the work done by both/all JV partners will determine how much work is performed by the “prime” compared to subcontractors.  See 13 CFR 125.6.  In addition, the JV partners must comply with the performance of work limitations applicable to the individual JV partners.

Small Business Subcontracting Limitations.  For covered small business service contracts, the JV must perform at least 50% of the amount paid out under the contract.  Materials are first excluded, then the 50% applied to the remaining total under the contract.  If the JV is utilizing any similarly situated entities (SSEs), any SSEs’ work may be combined with the JV’s amount of work to achieve the 50% minimum of work.  Other contract types require the prime to perform different minimum amounts of work: construction (15%), specialty construction (25%), and supplies (50% but see rules for non-manufacturers 125.6).

JV Performance of Work.  JVs must also ensure compliance with a second level of requirements that apply to the amount of work that the small business/8(a) must perform of the JV’s work.  We will call this a performance of work limitation to distinguish it from the generally applicable small business subcontracting limitations above.  For example, in a JV between a big business mentor and its 8(a) protégé under SBA 8(a) Mentor Protégé Program (MPP), the 8(a) protégé must perform a minimum of 40% of the work performed by the mentor-protégé JV.  It is important to note that the protégé must also receive profits commensurate with its work performed and the protégé must own a minimum of 51% of the JV.  Thus, while the minimum performance of work is only 40%, in practicality we recommend that proteges plan to perform 51% of the JV’s work (or work up to 51% during the contract term) to earn 51% of the profits of the JV.  This is not required, simply recommended.  The same 40% minimum of the JV’s work applies to joint ventures under the All Small MPP and to joint ventures between non-MPP 8(a) and non-8(a) concerns under the 8(a) Program.

The following example illustrates the combination of limitations.  On a services contract, if the MPP JV (as prime) performs the 50% minimum of the contract award amount received by the JV contractor, and the protégé performs the 40% minimum of the work done by the JV, then the protégé performs 20% of the services portion of the contract value overall.

If you have any questions regarding how these rules apply to your business, please contact Carissa Siebeneck Anderson (csiebeneck@dc.bhb.com) or Jon M. DeVore (jdevore@dc.bhb.com), or via phone at 202.659.5800.

 

 

2811, 2017

Impact of SB54 – Alaskan Municipalities and Amended State Criminal Laws

November 28th, 2017|

Written by:  Jack R. McKenna

Alaska’s criminal statutes have undergone significant revision in the last two years.  Many of those modifications to state law have necessitated corresponding changes to various Alaskan communities’ municipal codes.  On November 26, Governor Walker signed Senate Bill 54 (“SB54”), making additional significant changes to the state’s criminal statutes. Those changes in SB54 could invite further action by municipalities.

In 2016, the enactment of Senate Bill 91 (“SB91”) significantly altered how many crimes were defined and punished.  In most instances, SB91 lowered the length of jail time that could be imposed for many low-level offenses, or, in some instances, altogether removed the possibility of incarceration.  Following SB91’s passage, municipalities in Alaska had to amend portions of their municipal codes because a municipality cannot impose a more punitive sanction than the analogous state statute.  See Alaska Const. Art. X, s 11 and AS 29.25.070(g).  So, for instance, municipalities had to amend code sections defining sentences of imprisonment for misdemeanors when SB91 lowered the allowable punishment for those crimes under state law.

Following SB54’s enactment, municipalities will again need to decide whether and how their codes must be altered to comply with state law.  Among many changes relevant to municipalities in Alaska, SB54 contains numerous revisions to how misdemeanor crimes are classified and punished.  In contrast to SB91, SB54 generally increases the length of potential jail sentences that can be imposed for particular crimes.  SB54 also reclassifies as misdemeanors some offenses that had been reduced to violations.

For example, SB91 had raised the dollar-value amounts that were used to classify various levels of property offenses.  The most visible example of this was in the definitions of felony theft in the second degree, as defined in AS 11.46.120, and misdemeanor theft in the third degree, as defined in AS 11.46.130.  Prior to 2016, the difference between the two offenses was set at $500.  Theft of property that was valued at less than $500 was a misdemeanor while a theft above that amount was a felony.  SB91 increased that amount to $1,000.  SB54, as currently written, decreases the value back down to $750.  This same change has been enacted for other property offenses that are similarly classified by dollar value.  Those include, among many others, criminal mischief, concealment of merchandise, and vehicle theft.  Most municipalities that have enacted criminal offenses as part of their code include offenses against property.  Those that specify dollar amounts will have to decide whether to update their code to align their codes with state law.

Another significant change that is emblematic of SB54’s impact on municipalities’ criminal codes is the reclassification of violation of conditions of release (“VCR”) as defined in AS 11.56.757.  Prior to 2016, that crime was a misdemeanor.  SB91 reclassified VCR as an offense for which only a fine and no jail time could be imposed.  SB54 restores the possibility of jail time by making VCR a class B misdemeanor.  Municipalities, such as Dillingham and Anchorage, that have code provisions criminalizing VCR will need to decide whether to bring their codes in line with the increased punishment authorized under state law. See Dillingham Municipal Code § 9.70.010 and Anchorage Municipal Code § 8.30.110.

Municipalities that specify penalties for violations of their codes might also be affected by SB54’s passage.  The bill contains multiple revisions to misdemeanor sentences as specified in AS 12.55.135.  The maximum penalty for committing a class B misdemeanor, as set out in AS 12.55.135(b), now includes a maximum sentence of 5-days imprisonment for VCR.  AS 12.55.135(l) has also been amended to alter the penalty for theft in the fourth degree.  Municipalities will need to choose whether to amend their criminal codes to align with these new penalties.

Some have argued that SB54 likely contains at least one unconstitutional provision.  That potential issue concerns the similar range of sentences for class C and class B felonies.  As of now, no municipality in Alaska has enacted felony offenses as part of their codes.  This potential issue with SB54 should therefore not impact municipalities who have enacted criminal offenses.

Because the revisions in SB54 generally make state laws more punitive than their previous versions, current municipal codes that were brought into line with SB91 will likely not violate AS 29.25.070(g).  (As noted above, that statute mandates that municipality cannot impose a greater punishment than the state for a similar offense.)  But municipalities in Alaska will likely want to decide whether to follow the Alaska Legislature’s recent approach as laid out in SB54.  For instance, changes could potentially be made to the definition of property offenses and the penalties prescribed for various violations.  Each community will now be able to decide whether to follow suit with the state.

1811, 2017

‘tis the Season: Christmas Party Liability Guidelines

November 18th, 2017|

Written by:  William A. Earnhart

The holiday season is almost upon us and in most businesses so is the company Christmas party.  This annual rite is an American tradition that employees often look forward to all year.  Increasingly, however, it can be the source of liability for the employer and not just for serving alcohol.  Christmas and other holiday parties may be primarily social.  However, if employees are required to attend either officially or unofficially, if clients may be present, or even if the party simply increases company morale, it may be found that the party is part of employment.  This can make an employer subject to liability beyond that of an ordinary social host.  In Alaska, a social host, such as a company sponsor of a Christmas party, cannot be held liable for serving alcohol per se.  There are, however, many other forms of liability that can arise out of this type of social situation.  An employer can still be held liable for negligence, such as not providing adequate security or supervision for the gathering.  Other areas of concern include:  Workers Compensation coverage; compliance with Wage and Hour Law; Compliance with Title VII and the ADA; sexual harassment; and the general safety of employees.  With proper planning and adequate preparation, all of these potential problems can be avoided.

Liability for Serving Alcoholic Beverages

Alaska Statute 04.21.020 states that a social host who provides alcoholic beverages to another person may not be held civilly liable for injuries resulting from the intoxication.  The Alaska Supreme Court has expressly held that it will not carve out an exception to this statute for employers acting as social hosts.  However, the court will not exempt employers from other forms of negligence liability that may arise from a social situation.  The Court has upheld decisions based on failure to provide adequate security, and for negligence by an intoxicated employee while driving for the benefit of his employer. (Within the scope of his employment.)  It should be noted that “social host” does not include licensed servers.

Workers’ Compensation

Workers’ compensation covers injuries “arising out of and in the course of employment.”  If employees are in any way required to attend a social gathering, or the gathering is in the employer’s interest, workers’ compensation will likely cover injures to employees at the party.

The Alaska Workers Compensation statute was amended in 1994 to exempt sporting activities from workers’ compensation coverage.  Christmas parties are not sporting activities.

Wage and Hour

If employees are in any way required to attend a social event or the event party is in the employer’s interest, wage and hour laws are applicable.  The Alaska Department of Labor has adopted the federal standard for the applicability of wage and hour laws to attendance at meetings outside of work time, 29 CFR § 785.27.  Essentially wages must be paid if the holiday party is during normal work hours or attendance is not fully “voluntary.”  

Title VII and The Alaska Human Rights Act (AS 18.80)

Employers must recognize that some employees may not share their employer’s holiday spirit and desire to celebrate Christmas.  Christmas is, after all, a religious holiday despite the retail hype.  An employer must be careful to be sensitive to an employee’s feelings on this issue.  Although there are no hard and fast rules, it is a good idea to keep official functions primarily secular, if not wholly secular, unless the feelings of all employees are truly known on this issue.  An employer cannot discriminate against an employee on the basis of religion.

Discrimination includes limiting, segregating or classifying employees in any way that would deprive or tend to deprive an individual of employment opportunities.  42 USC § 2000e-2.  If an employee voices strong objection to attending the company Christmas party, they should be allowed to perform some other function during the party.  It should be made clear that non-attendance will not affect the employee’s current duties or possibility of future promotions.

ADA

An employer must be careful that all employees will have access to the Christmas party.  This may even include access for spouses or guests with disabilities.  An employer cannot discriminate against an employee on the basis of disability.  Discrimination includes limiting, segregating, or classifying employees in any way that would deprive or tend to deprive an individual of employment opportunities.  42 USC § 12112.

Accordingly, employers should make reasonable accommodation to allow spouses and guests to attend holiday parties.

Sexual Harassment

It is unlikely that a single incident at a holiday party will be a violation of Title VII.  However, a social situation, especially where alcohol is served, may create an atmosphere which will lead to problems that evolve into a hostile or discriminatory situation in the workplace.  What is acceptable conduct at a holiday party may be more relaxed than conduct under normal working conditions.  However, sexual harassment guidelines still apply.  An employer should make this clear to all employees.

If a harassing situation does occur at a holiday party, an employer must take prompt and appropriate action.  With respect to contact between fellow employees, an employer is responsible for acts of sexual harassment in the workplace where the employer (or its agents or supervisory employees) knew or should have known about the conduct, unless it can show that it took immediate and appropriate corrective action.  29 CFR § 16704.11.  An employer will be responsible for harassment conducted by its management.  This does not mean that an employer should ban all intraoffice social relationships.  Relationships between men and women are an integral and important part of our society.  An employer, however, must control unwelcome sexual advances, actions or discussions, and must closely monitor potential problems, e.g. employee/supervisor relationships.

Checklist:  How to Avoid Problems at Your Holiday Party

  1. To avoid problems with holiday parties, anticipate situations before they become problems. Preparation and common sense are essential:
    • Is there adequate supervision?
    • Are responsibilities for supervision at the party clearly defined?
    • Is someone with supervisory authority present, sober, and able to deal with potential problems as they arise?
    • Is there control of who enters and exits the party?
    • Is there control over the dispensation of alcohol to prevent minors and intoxicated persons from drinking?
  2. Make sure that food, especially protein rich and starchy food, is available to control alcohol abuse. Food not only lessens the effects of alcohol, but also tends to slow down drinking.
  3. Consider having activities such as dancing available. This will tend to slow down drinking and may add to the fun.
  4. Make sure employees who may have work responsibilities later that day are not drinking.
  5. If the party is held at a remote location, is there adequate safe transportation to return people home?
  6. If the party is during working hours or employees are required either officially or unofficially to attend, are the employees being paid?
  7. Are all employees adequately informed as to rules on sexual harassment?
  8. Are the party’s theme and decorations primarily secular? If not, will anyone be offended?
  9. Is the party located so that it is accessible to all employees and their spouses or guests?
  10. Are there adequate non-alcoholic beverages available?
  11. When the location of the party is chosen, survey the location for accessibility and potential hazards.
  12. Immediately before the start of the party, survey the location for accessibility and potential hazards.
  13. Make sure a phone is available as well as phone numbers for taxi cabs to assist intoxicated persons to return home. Consider cab vouchers.
  14. Make sure no one is being put in a position where they feel they are forced to drink.
  15. Remember, it takes about an hour for the effects of one drink to wear off. Cold showers and coffee do nothing to sober anyone up.  They only make a wide awake drunk.
  16. Have fun!

William A. Earnhart is an attorney with the law firm of Birch Horton Bittner & Cherot in Anchorage.  His practice emphasizes employment and labor advice and litigation on behalf of employers.

1511, 2017

Construction Bonds and Insurance are Not the Same Thing

November 15th, 2017|

Written by:  Adam W. Cook

Construction projects in Alaska and elsewhere are often protected by a surety bond and are also often covered by more than one insurance policy.  Although a bond and an insurance policy are two very different things, they are often confused with each other.  This confusion is somewhat understandable.  Both are essentially “emergency protection” in case the contractor encounters a major problem or cannot finish the project.  Both are usually required by the owner before the start of work, as a way of making sure the job gets done.  Very often the insurance company and the bonding company are the same large business entity.

Anyone who owns a car or gets health care is familiar with the concept of insurance.  An insurance policy is a contract which obligates an insurance company to pay the policy-holder in the event of a loss.  In construction projects, there are various layers of insurance purchased by the owner, the contractor, or both, before the project even begins.  “Builder’s risk” insurance protects the insured from actual physical damage at the jobsite, such as fire or flood.  “General liability” insurance covers the contractor for loss caused by serious and sometimes dangerous mistakes made in performance of the project, such as a collapsed scaffolding or electrical accident.  Worker’s compensation insurance is required by Alaska state law, and covers the workers themselves in the event of injury or death.  In every case, insurance is purchased through premiums and is paid out by the insurance carrier once the type and quantity of the loss is confirmed.

By comparison, a bond is essentially a line of credit.  In the case of a performance bond, the contractor purchases the bond, and the bonding company agrees to guarantee the satisfactory performance of the project.  If the contractor runs into a problem such as bankruptcy or legal liability, and can’t finish the project, the bonding company is obligated to spend whatever it takes, up to the amount of the bond, to get the project to completion.

Importantly, the builder is not off the hook once this bond coverage is triggered.  If the bonding company spends one million dollars finishing the project, it will demand that the contractor pay back the million dollars once the project is complete, through a legal requirement called indemnity.  In this way, the bond has acted as a sort of loan, with the bonding company loaning the money needed to finish the project, and then expecting to get paid back by the contractor.  Of course, if the contractor is bankrupt or has other serious financial problems, this “loan” might never get repaid.

The confusion between insurance and bonds comes from the fact that both are utilized by an owner to make sure that the project is finished after something goes wrong.  For example, if a worker makes a mistake and causes a fire which seriously damages the project, the first thing the owner and/or the contractor will do is contact the insurance company and see if the loss is covered.  In this situation, the bond plays no role, because even though a loss has occurred there is no indication (yet) that the contractor will not be able to eventually finish the project.

Bond coverage, unlike insurance coverage, is often triggered by a “quiet problem” rather than a catastrophic loss.  For example, an owner might believe that there is nothing wrong at all but then unexpectedly learns from a subcontractor or supplier that the contractor is having trouble paying its bills.  Nonpayment to other parties is often a sign of a problem, and it may be that the contractor is in financial trouble and unable to finish the project on time and on budget.

After receiving notification of nonpayment, the owner will contact the bonding company.  The owner will advise the bonding company that if the contractor is not going to be able to complete the project, then the bonding company will be expected to take over the job.  Unlike in the example with fire and the insurance policy, this is not a situation in which the owner or contractor will be “made whole” following a loss.  Instead, the contractor’s “line of credit” with the bonding company is essentially being tapped because the contractor does not have the financial means to proceed.  The bonding company now has to pay to finish the project and must accept the fact that it may not recover what it has paid out from the troubled contractor.  As one might imagine, the bonding company will be very focused on minimizing the cost of completion in this situation.

It is important for both contractors and owners (as well as architects, subcontractors, and suppliers) to understand both insurance and bonding before they get started on a project.  All projects can take an unexpected turn.  Unfortunately, cost overruns and mistakes on the jobsite are a common occurrence.  Insurance and bonding will protect the owner in the event that things go wrong, but only within certain limits and under certain circumstances.  Legal advice is almost always a good idea both before the project is underway and after something goes wrong.

2310, 2017

Jason Brandeis’ Recent Journal Article Explores Marijuana Law Changes

October 23rd, 2017|

Written by:  Jason Brandeis

In an article published in the most recent edition of The Bar Rag, the Alaska Bar Association’s quarterly journal, Birch Horton attorney Jason Brandeis writes about emerging legal issues and regulatory changes in Alaska’s marijuana industry.

In the piece, Brandeis discusses the expansion of the Alaska marijuana industry, which now includes over 100 licensed marijuana cultivators operating throughout the state and about forty retail stores open to the public.  During the first half of 2017, the industry conducted $17 million in retail sales and generated over $1 million of state tax revenue.

The article also examines how regulators and businesses have responded to the industry’s growth. Regulators, for example, have been busy addressing the practical realities of managing a new industry in a state with unique geographic and supply chain concerns. Over the past few months, the State of Alaska’s Marijuana Control Board (MCB) and Alcohol & Marijuana Control Office (AMCO) have released a slate of new regulations intended to streamline and improve industry operations. Similarly, new marijuana businesses have similarly had to adjust on-the-fly. Having only recently navigated their way through complex local land use codes and a rigorous state licensing process, marijuana start-ups now find themselves having to quickly get up to speed on traditional business law practices such as corporate governance, tax collection, and employment law matters.

Finally, the article discusses how inconsistencies between state and federal law still pose problems for marijuana businesses in Alaska. The continued federal prohibition means that industry participants often do not have access to traditional banking services, requiring them to operate mostly in cash. Some of the challenges facing cash-only businesses were anticipated (such as security concerns and the inability to accept credit card payments), but others were not (such as the U.S. Postal Service’s refusal to mail a cultivator’s cash tax payments to the processing center in Anchorage).

The full article, “Federal rules complicate growing Alaska marijuana business,” explores these topics and other aspects of the Alaska marijuana industry in more detail.  You can read the article here.

2310, 2017

BHBC Welcomes Associate Katie Davies’ New Daughter to Our Family

October 23rd, 2017|

Big sister Molly checks Paige’s reflexive breathing.

Please welcome the newest member of the BHBC family, Paige Taylor Davies. Mom, associate Katie Davies, and dad Bryn, welcomed Paige into the world on September 28, 2017. Paige and her big sister, Molly, are excited to be two of the firm’s most junior associates!