Development incentives are nothing new in New Jersey. In fact, they have been part of the state’s process for attracting businesses for many years. However, when the 2013 Economic Opportunity Act was allowed to expire in July of 2019, no such programs were available for businesses moving to the state. Many were left wondering what, if anything, would take the place of the Grow NJ program or the Economic Redevelopment and Growth (”ERG”) grants. With the New Jersey Economic Recovery Act of 2020, which Governor Murphy signed into law in January of 2021, Grow NJ, ERG, and other programs have returned with new programs joining them.

The New Jersey Economic Development Authority (“NJEDA”) provides a detailed breakdown on each program here and will, as before, manage these programs.

Smaller programs are already underway, such as the Emerge Program, which announced its first award at the end of September. However, for the major programs, applications are still on the horizon.

The Aspire Program, intended as successor to the ERG, has published draft program rules for public feedback. The NJEDA projects that by the end of this month, the Main Street Recovery Finance Program, a fund to support micro businesses in New Jersey and their partnering entities, will have applications online, ready for submission.

With the return of development incentives, New Jersey is again poised to attract businesses and investment. The State’s hope is that these new programs will prove as effective as those that expired in 2019.

 

 

Construction contracts generally outline various scenarios in which a party can terminate the contract.  In one common scenario, a contractor is permitted to terminate its subcontractor “for cause” if the subcontractor provides deficient work or fails to meet the project schedule.  Contracts often describe this type of deficiency as a “failure or neglect to carry out the work in accordance with the subcontract.”  Similar provisions are found in contracts between owners and general contractors.

Importantly, most contracts require that, before terminating a subcontractor for deficient work, a general contractor must first provide the subcontractor with notice of the default and an opportunity to cure the deficiency (for example, seven days).  Only after providing notice and an opportunity to cure can the contract be terminated, and only if the default remains uncured.  This kind of termination “for cause” is significant because most construction contracts provide that the subcontractor will not be entitled to receive any further payment for work performed until the project is finished.  Even then, the subcontractor will usually be backcharged for the cost of completing and/or remediating its work, and in some cases, the subcontractor may actually owe money back to the general contractor if such costs exceed the balance unpaid to the subcontractor.

The New York Supreme Court, Appellate Division, First Department, recently issued a decision addressing certain key issues surrounding contractual notice-to-cure provisions and what happens when they are not strictly observed in connection with terminations.  See East Empire Construction Inc. v. Borough Construction Group LLC, 2021 NY Slip Op 05455 (Oct. 12, 2021).  There, the First Department held that notice-to-cure provisions for termination of construction contracts can only be ignored in “very limited and rare circumstances,” and that noncompliance can eliminate the general contractor’s right to setoffs for completion and remediation costs arising out of a subcontractor’s nonconforming work.

In East Empire Construction, a general contractor terminated a steel work subcontractor based upon the claim that the subcontractor provided faulty work and had a poor safety record.  The contract required the general contractor to provide a 10-day cure period before terminating the contract for “failure or neglect to carry out the Work.”  The general contractor, however, terminated the subcontractor after providing only a 72-hour cure notice.  The parties’ subcontract permitted the general contractor to backcharge the subcontractor for costs and fees incurred in connection with the subcontractor’s failure to perform and, on that basis, the general contractor withheld payment on certain of the subcontractor’s outstanding invoices.

The terminated subcontractor thereafter sued the general contractor for breach of contract and sought recovery on its outstanding invoices, alleging that it was terminated without appropriate notice and opportunity to cure the alleged default.  The subcontractor also sought to dismiss the general contractor’s claim for setoffs, which the general contractor had asserted as an affirmative defense to the subcontractor’s complaint.

The First Department held that the general contractor’s termination of the subcontractor was “ineffective” because the general contractor failed to provide the contractually required 10-day notice and cure period.  The court described contractual notice-to-cure provisions as “strict” and stated that there are “very rare” and “limited circumstances” where a contractually required notice to cure is not necessary.  Specifically, those cases are limited to cases in which (1) “the other party expressly repudiates the contract or abandons performance” or (2) “the breach is impossible to cure.”

The court found further that neither of those situations was present, and that the general contractor was required to comply with the contractual notice to cure provision.  First, the court found that the subcontractor did not “repudiate” or “abandon” its work.  Second, regarding whether the subcontractor’s breach was “impossible to cure,” the court found that the alleged faulty work constituted nothing more than “defective performance” which is “the very situation to which the cure provision was intended to apply.”  The court also found that a “poor safety record” was also not “impossible to cure.”

As a result, the termination was improper and the subcontractor was entitled to payment on its outstanding invoices.  In addition, because the termination was deemed ineffective, the general contractor was not permitted to backcharge the subcontractor for costs incurred in remediating the allegedly defective work.  The general contractor’s failure to terminate the contract properly was particularly significant because, as noted above, the general contractor would have been permitted to backcharge the subcontractor for fixing the subcontractor’s faulty work, but the general contractor lost that right when it did not comply with the contract’s notice-to-cure provision.

The decision in East Empire Construction is a reminder that parties to construction contracts are well-advised to carefully review and comply with contractual termination provisions and associated notice-to-cure requirements.  As reiterated in this case, it is well-established under New York law that termination procedures in construction contracts are strictly enforced as written.  Therefore, careful adherence to a contract’s termination procedures is crucial to protecting a party’s rights and avoiding the negative consequences that flow from improper termination.

The construction industry, like many others, was hit hard by the COVID-19 pandemic. As the industry adjusts to the new normal, not everyone is on the same page.

Many project owners, rather than risk site shutdowns and potential inefficiencies from social distancing, are beginning to require that all project site personnel show proof of vaccination in order to work on site. Vaccine hesitancy, however, is relatively high among the labor force of the construction trades leaving contractors stuck in the middle between their clients and their workers.

Does a small to medium sized trade contractor risk alienating its clients, whether they be owners directly or general contractors, who require that everyone working on site be vaccinated, or risk upsetting its employees who may not want to be vaccinated?

For contractors with 100 or more employees, this conflict will arise whether or not the project owner demands vaccination for workers at the project site. The forthcoming OSHA Emergency Temporary Standard spearheaded by the Biden Administration will almost certainly mandate either vaccination or weekly testing for all companies that size or larger. For them, there will be no negotiation or discussion with the project owner. The costs imposed by regular weekly testing – assuming that tests will even be available on the scale required – will be significant.

Employers who are also federal contractors already have a mandate under Executive Order 14042 to ensure that all employees working in connection with a project covered by that order and not entitled to an exemption are vaccinated by December 8, 2021. The business requirements of staffing and workforce allocation effectively necessitate that all worksite employees be vaccinated by the deadline. This is the case whether or not the project owner would accept unvaccinated construction personnel.

Ultimately, we have seen across industries and across the country that threats of mass employee refusals to accept vaccine mandates have generally sputtered out. Holdouts have caved in hospitals, hospitality, and airline industries, where nearly all employees who are required to get vaccinated do so in the end. What we are seeing across the board is that people typically comply with mandates. So while contractors may feel the need to phase in vaccination requirements over time, having an owner that demands vaccination can provide the contractor cover to require its workforce to be vaccinated and help to minimize sick time and promote public health at the same time.

Summer associate, Luke Alba, contributed to this article.

Dispute resolution provisions providing for mediation as a prerequisite to arbitration are standard in AIA construction contracts. Parties may nonetheless mutually agree to eliminate or waive those provisions and proceed directly to arbitration.  Often, however, settlement discussions will ensue during the arbitration as costs begin to mount and evidence becomes available.  In such situations, the parties may agree to enlist the assistance of the arbitrator to mediate the dispute, rather than engage a new mediator who lacks any knowledge regarding the matter.  Although the parties must agree to allow the arbitrator to take on that dual role, the New Jersey Appellate Division recently held that such an agreement need not be reduced to writing.

In Pami Realty, LLC v. Locations XIX Inc., 2021 WL 2961473 (N.J. Super. Ct. App. Div. July 15, 2021), a project owner challenged an arbitrator’s award in favor of a contractor because the arbitrator also served as a mediator without the written consent of the parties.  The contract provided that: “any claim subject to, but not resolved by, mediation” shall be resolved by arbitration.  The parties’ agreement with the arbitrator did not specifically address mediation, but provided in relevant part that (i) each party was not to have private conversations with the arbitrator concerning the arbitration, (ii) each party and/or their representatives must be present at arbitration proceedings to facilitate settlement discussions, and (iii) the parties’ settlement discussions were to remain confidential.

On the afternoon of the second day of arbitration, the parties engaged in settlement discussions—facilitated by the arbitrator—but failed to settle.  The next day, the parties resumed their arbitration for a final day of testimony.  Several weeks later, the arbitrator issued an opinion awarding the contractor damages.  When the contractor moved to confirm the award, the project owner claimed that the arbitrator had “exceeded his powers when he resumed the role of arbitrator after acting as a mediator mid-arbitration[.]”  The project owner claimed that the parties never agreed to expressly waive the conflict of interest inherent in that dual role, and that any such agreement would have needed to be in a writing signed by the parties.

The court considered (1) whether the alleged agreement between the parties to allow the arbitrator to serve as mediator and then return to his role as arbitrator needed to be in writing; and, if it did not, (2) whether an evidentiary hearing was required to determine if any such agreement actually existed.  Citing New Jersey precedent, the court explained that “parties engaged in arbitration must explicitly agree” to permit an arbitrator to resume his arbitration role after participating in settlement negotiations.  Notably, however, the court held that such an express agreement need not be in writing to be enforceable. The court stated that “no doubt, the better course is to put the agreement in writing,” but it ultimately determined that not allowing parties to reach oral agreements in such situations would ignore fundamental contract principles and the public policy in favor of settling litigation.

The court further explained that where there is disagreement between the parties over whether an agreement existed for the arbitrator to mediate the dispute and then continue to serve as arbitrator, the trial court should make such a determination only after holding an evidentiary hearing on that issue.   If it is determined that the parties did not agree to the arbitrator resuming his role as arbitrator after mediation, the arbitrator will be deemed to have exceeded his authority and the arbitration award will be unenforceable.  Such a determination holds true regardless of whether the party challenging the award continued to engage in the arbitration, without objection, after the arbitrator’s mediation involvement.

In light of this decision, contracting parties engaged in an ongoing arbitration should always put any agreement concerning an arbitrator’s role as a mediator into a signed writing.  Although such an agreement need not be in writing to be enforceable, documenting the agreement will save the parties the time, cost and aggravation of potentially litigating over whether such an agreement ever existed.

Summer Associate, Dalila E. A. Haden, contributed to this blog.        

In early June, the first Commercial Property Assessed Clean Energy (“C-PACE”) transaction closed in New York City, courtesy of C-PACE financing provided by Petros PACE.  In connection with a larger $500 million dollar acquisition and construction financing deal involving a 1.2 million square-foot office building in the Wall Street area, Petros PACE provided $89 million dollars of C-PACE financing for the transaction.  According to Petros PACE, the C-PACE funds will be used to make the building more energy efficient.

With New York City’s first C-PACE financing deal in the books, more eligible building owners should begin taking advantage of the City’s C-PACE financing program,[1] especially as the carbon emissions requirements set forth in Local Law 97 begin to take effect.[2] To avoid facing hefty penalties, eligible building owners should consider C-PACE financing to implement energy efficient technologies in order to be in compliance with Local Law 97 and the Climate Mobilization Act. New York City’s PACE Program is sponsored by the Mayor’s Office of Sustainability and administered by the New York City Energy Efficiency Corporation, in collaboration with the New York City Department of Finance.

The recent Petros PACE transaction will hopefully be the start of a bright future for the usage of C-PACE financing in New York City.  As traditional lenders continue to get more comfortable with C-PACE financing programs and eligible property owners seek out this financing, New York will undoubtedly become a more sustainable and energy efficient city.


[1] For more information on C-PACE financing, please take a look at one of our previous blogs: https://www.csrealconblog.com/2020/08/articles/real-estate/finance/commercial-property-owners-new-financing-available-for-existing-and-new-energy-cap-ex-projects/

[2] For more information on Local Law 97 and the Climate Mobilization Act, please take a look at one of our previous blogs: https://www.csrealconblog.com/2019/12/articles/construction/new-york-city-building-owners-what-does-greennewdeal4ny-mean-for-you/