eNews September 6, 2018
In the News
September 6, 2018
GDPR Noncompliance Nearly 80% Between US, UK, EU
Even before the General Data Protection Regulation (GDPR) was implemented in the United Kingdom, a vast majority of companies around the globe were not optimistic about meeting the May 25 deadline. Today, three months since GDPR took effect, new research shows a mere 21% of U.K. and U.S. companies are currently compliant, while the remaining 79% claim they are held back by the regulation’s high costs and complexity.
GDPR gives European citizens complete control of their businesses’ personal storage and processing data, impacting businesses all over the world that have customers in the U.K. The GDPR Compliance Status: A Comparison of U.S., U.K. and EU Companies report, released in July, received input from 600 respondents, with many in the retail, finance, technology and manufacturing sectors. The study was completed by TrustArc technology and security company in collaboration with Dimensional Research.
The results indicate compliance is worse than anticipated when compared to an April survey by international law firm McDermott Will & Emery and independent data protection researcher Ponemon Institute. The Ponemon survey found more than half of U.S. and U.K. businesses wouldn’t be compliant by the initial May deadline. Noncompliant companies run the risk of hefty fines, including fines of up to 10 million euros or 2% of the worldwide annual revenue of the prior financial year (whichever is higher) at the lower levels and up to 20 million euros or 4% of the worldwide annual revenue of the prior financial year at the higher level.
However, there was some improvement over research conducted in August 2017. According to the TrustArc survey, more than half of respondents are in the process of becoming compliant.
“The number of companies whose GDPR implementation is underway or completed increased from 38% to 66% in the U.S. and from 37% to 73% in the U.K.,” the study states. “Comparing U.S. against U.K. companies in terms of being fully compliant, U.K. companies have made greater progress.”
Getting the highest mark is the EU, where twice as many companies are compliant compared to the U.S. Various challenges plagued respondents, ranging from insufficient budgets to limited knowledge and understanding. The complexity of the regulation was the top challenge, more so in the EU (72%), followed by the U.S. and U.K.
Meanwhile, many respondents claimed they were behind because compliance was a costly endeavor—nearly 70% of respondents spent more than six figures and roughly the same number of respondents plan to spend another six figures before the year is out.
“It’s still a process and [is] impacting my job in terms of external communications,” said a credit professional. “We’re working strictly with a [data protection officer] in order to understand the content [that’s] allowed to be shared externally. Of course, a lot of the job was done in updating the website, contracts and other marketing material to be compliant with GDPR.”
Although the regulation still raises questions within their company, the professional agreed with GDPR’s objectives; however, it will take time to see if it has any positive or negative impacts.
—Andrew Michaels, editorial associate
Connect and Learn with Credit Professionals in your Region
Regional conferences are a wonderful opportunity for members to network and share news, information and tips with fellow credit professionals from their respective geographic regions.
Central Region Credit Conference
September 13, 2018
Hosted by: NACM North Central
Western Region Credit Conference
October 10-12, 2018
Salt Lake City, UT
Hosted by: NACM Business Credit Services, Utah & Arizona
All-South Credit Conference
October 21-23, 2018
Clearwater Beach, FL
Hosted by: NACM Tampa
For more information and to register, contact the local Affiliate.
Hurricane Season and Disaster Preparedness: Review Your Construction Contracts Now, Not After the Storm
The Gulf Coast hurricane season runs from June 1st to Nov. 30th each year. Because this is a known risk, many businesses prepare emergency response plans to mitigate risks to persons and property, but many of those same businesses are not prepared to mitigate economic risks arising from ongoing construction projects. As we approach the one-year anniversary of Hurricane Harvey, now is the time to be thinking about how to preserve your rights under existing construction contracts if faced with another natural disaster.
Do Your Contracts Have a Force Majeure Clause?
One of the ways to be prepared for a natural disaster is to review existing contracts and determine whether they contain force majeure clauses. This is important because the general rule in Texas is that an act of God or a natural disaster does not relieve the parties of performing their contractual obligations unless the parties expressly provide otherwise in the contract. This means if you are unable to perform on a project due to a natural disaster, you are not automatically shielded from suffering the consequences of your nonperformance. Accordingly, “[t]o avoid liability for acts of God, contracts frequently contain force majeure clauses, which are enforceable under Texas law.”
Relief From Force Majeure Clause Depends on the Contract Language
The general purpose of a force majeure clause is to excuse nonperformance of obligations when the nonperformance is caused by circumstances beyond the reasonable control of the party or by an event which is unforeseeable at the time the parties entered into the contract. However, it is important to remember that “[t]he scope and effect of a ‘force majeure’ clause depends on the specific contract language, and not on any traditional definition of the term.” As a result, whether or not an event rises to the level of a force majeure event is “utterly dependent upon the terms of the contract in which it appears.” Thus, when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect and scope of the force majeure clause. Reviewing courts are not at liberty to rewrite the contract or interpret it in a manner which the parties never intended.
Invoking Protection of a Force Majeure Clause
If you review your contract and find a force majeure clause, your next step should be to review it carefully to determine whether you have to give notice after the event begins to invoke the protections of the clause. This is important because there are often notice requirements and deadlines included in force majeure clauses, and compliance with them may be a condition precedent to seeking relief under the clause. You should look for any requirements to give notice within a certain amount of time after an event and determine whether notice must be given to a specific person or sent in a specific way, e.g., by certified mail to a specific person at a specific address. In short, you should carefully review your contracts and determine whether there is any immediate action that must be taken to secure your rights. Make a note of your findings and have it in an accessible location. That way, if disaster does strike, you will not be left scrambling at the last minute to figure out how to protect yourself.
Reprinted with permission from Porter Hedges, LLP.
Sean McChristian is a partner in the construction practice group of Porter Hedges, LLP. He represents contractors, subcontractors, developers, owners, suppliers, sureties and design professionals in all types of construction-related disputes. Sean is certified by the Texas Board of Legal Specialization in Construction Law.
 GT & MC, Inc. v. Texas City Ref., Inc., 822 S.W.2d 252, 259 (Tex. App.—Houston [1st Dist.] 1991, writ denied); Metrocon Constr. Co. v. Gregory Constr. Co., 663 S.W.2d 460, 462 (Tex. App.—Dallas 1983, writ ref’d n.r.e.).
 Hydrocarbon Mgmt., Inc. v. Tracker Exploration Inc., 861 S.W.2d 427,435-36 (Tex. App.—Amarillo 1993, no writ).
 Virginia Power Energy Mktg., Inc. v. Apache Corp., 297 S.W.3d 397, 402 (Tex. App.—Houston [14th Dist.] 2009, pet. denied).
 Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d 277, 283 (Tex. App.—Amarillo 1998, pet. denied).
 Allegiance Hillview, L.P. v. Range Texas Prod., LLC, 347 S.W.3d 855, 865 (Tex. App.—Fort Worth 2011, no pet.).
The "New and Improved" Credit Learning Center
NACM is proud to announce the launch of our new Credit Learning Center, featuring an upgraded platform with improved capabilities and security, including:
- Ability to watch your modules on tablets and smart phones
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As always, choose the modules and courses you need to improve job performance and complete them at your convenience, any time, anywhere!
Three Parties Required to Be Served
Filing for mechanics’ liens across different states has its caveats, and each set of rules varies from state to state, often with unpleasant surprises. When extending credit through multiple state lines, assumptions serve no purpose as the laws cannot be predicted.
In at least three states in the U.S., a total of three parties must be served preliminary notices at the time of first furnishing, with one of those parties being the lender. On California, Arizona and Illinois private projects, the lender must be notified for the claimant to have lien rights. While a failure to notify may not nullify a lien in each of these states, at the very least—in the case of Illinois—it will render the claim subordinate. Keeping solid records and accurate job information sheets are crucial elements for filing, especially in an unfamiliar state.
In the case where three parties are served on the preliminary notice, the lien becomes more complicated. In some instances, this may even extend into public projects when notifying the surety is required.
On a recent public project in California, a small equipment rental company in Texas sought to work on a state project. Before following through with the deal, the small company attempted to get job information, but the customer did not provide surety information on the job information sheet. In California, sureties must be served a preliminary notice to have rights against the general contractor’s payment bond. When the customer left out the bond details on the job information sheet, the fetch quest for the bond began.
To date, there are limited options for obtaining surety information in California. There are no websites that can provide this information or a database of those records. Since the Texas company does not have proof of the payment bond, sending out a notice and subsequently filing becomes much more difficult. Complicating the matter even more, California statutes do not require a payment bond to be recorded at all.
The only option left prior to furnishing for the Texas company would be to request a copy of the bond from the general contractor. Getting the copy of a bond before even supplying or shipping material is the safest course of action as customers are generally more willing to provide information before the job begins. If getting a copy of the bond is impossible, asking for surety information at the very least can still be helpful.
“NACM recommends pursuing a Stop Payment Notice on all public jobs,” NACM’s Lien Navigator for California reads. “Serving the Preliminary Notice compels the withholding of funds. Bond claim remedies can be simultaneously pursued by serving a timely notice to the principal and surety.”
Even if the state doesn’t require the recording of a bond or other information, it is important to get the record anyway. Obtaining as much information as possible helps limit what needs to be hunted for, while also reducing any future headaches for obtaining lien rights or filing against bonds.
—Christie Citranglo, editorial associate
It's a Big World Out There! Are You Prepared?
Here are the essential tools you'll need for doing business abroad:
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PRS Country Reports
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Political Risk Newsletter
The “best in class” monthly Political Risk Newsletter, written by the PRS Group and available to members through FCIB, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs, such as turmoil, financial transfer and export market risk. You’ll also find rating changes, providing an excellent method of tracking ratings and risk, for the countries you’re exporting to.
FCIB and NACM members receive a 10% discount on PRS Country Reports and the Political Risk Newsletter.
To learn more, visit www.fcibglobal.com.
Quebec Plagued With Late Payments
Late payments in Canada have contractors and others in the construction industry in a stranglehold. However, one province is looking to get out in front of the matter and address the issue that plagues the sector.
The effects of late payments to contractors and subcontractors in Quebec have led some in Montreal to stop bidding on public projects, according to the Montreal Gazette. It is not unheard of for contractors to wait 180 days to get paid, said Eric Côté, executive vice president with the Corporation des Entrepreneurs Generaux du Quebec, in the article.
Roughly 85% of construction companies in the province employ five workers or fewer, he said, resulting in a time crunch for payments to stay in business.
On Aug. 10, Robert Poëti, minister responsible for integrity in government procurement and information resources, announced a pilot project to combat late payments. “It is inconceivable that businesses suffer because of unreasonable late payments for the work they perform,” he said in a release. “The government must set an example by paying, in a timely manner, the work done by the companies so that general contractors as well as subcontractors can benefit from them. This is a vital issue for the development and sustainability of these.”
A 30-day payment schedule is required for the government to pay contractors. This applies to the Ministry of Transport and the Société québécoise des infrastructures. Contractors then have five days to pay subcontractors, and subcontractors will have five days to pay their subcontractors. The Coalition Against Late Payment in Construction applauded the minister’s announcement, saying “We are proud to know that Quebec is a leader at the Canadian level in reducing late payments in the construction sector.”
While the plan in Quebec is not fully original, the province will be the first to apply the new terms. "This is a welcome initiative to come and settle a situation that has been going on for far too long and that is jeopardizing many of the links of companies that are involved daily in the production of our books," said Yves-Thomas Dorval, president and CEO of Conseil du patronat du Québec.
Ontario paved the way after passing the Construction Lien Amendment Act, 2017 in December. However, the second phase of the Act, which includes adjudication and prompt payment, does not go into effect until Oct. 1, 2019. Manitoba has followed suit with the Prompt Payments in the Construction Industry Act, and Saskatchewan is expected to do the same later this fall. New Brunswick and British Columbia also have prompt payment grass roots movements in place.
—Michael Miller, managing editor
Reclaim Your Valuable Time and Resources—Let Us Do the Work
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Illinois Governor Vetoes Retainage Reform Bill
Illinois Governor Bruce Rauner vetoed Senate Bill 3052, commonly known as the retainage reform bill, on Aug. 24. This bill was drafted and supported by the subcontractors lobby, was only mildly embraced by the general contractors lobby and was opposed by the private owners and developers lobby. It would have established a cap on retainage and mandated a retainage reduction midway through most private construction projects.
Gov. Rauner said:
“This legislation severely restricts private entities’ ability to negotiate retainage amounts by codifying a 10% retainage cap prior to 50% project completion, and a 5% cap thereafter on private construction contracts, except those pertaining to single- or multi-family homes with 12 or fewer units. The retainage restrictions aim to alleviate cash flow issues for contractors and subcontractors, but they consequently deprive owners of the ability to negotiate and withhold appropriate retainage due to poor and nonperformance. Furthermore, retainage amounts often differ by project, and these caps may be too low for retainage to adequately ‘insure’ investments on certain projects, which may ultimately end in fewer approved construction loans or higher financing costs—especially when partnering with firms with less-established track records, such as startups.”
The governor acknowledged that upstream parties should retain only reasonable amounts of retainage and that “owners and contractors sometimes engage in improper retainage practices. This governmental overreach, however, intrudes upon private entities’ right to negotiate their own contracts, and it may constrain economic development,” the governor concluded.
The governor’s veto appears to have been based on policy grounds. In addition to these policy considerations, the bill arguably contained a number of important drafting problems that would have resulted in increased litigation.
The bill would have amended the Contractor Prompt Payment Act, 815 ILCS 603.
The Senate Judiciary Committee originally passed the bill in March, awaiting approval from the Senate, House and, ultimately, the governor. According to another article from Saul Ewing Arnstein & Lehr LLP, Is Illinois Ready for Retainage Reform?, published later that month, the bill’s opponents wanted to keep the current retainage standards in place so that contractors and subcontractors would finish the project and there would be funds available if problems arose.
The American Subcontractors Association (ASA), based in Alexandria, Virginia, has been quite vocal about retainage over the years, stating the practice should be banned because it causes “higher prices, invites fraudulent withholding of payments, and stifles economic growth.” Advantages of reducing retainage include increased business competition, better prices and improved company image.
“The retainage system has become increasingly inequitable and counterproductive,” the association states. “ASA supports the elimination of retainage on all construction projects. In addition, ASA supports legislation to prohibit a prime contractor from retaining a higher percentage from its subcontractors than the owner is retaining from it.”
Reprinted with permission from Ogletree, Deakins, Nash, Smoak & Stewart, PC.
Eric A. Berg, Esq., of Ogletree, Deakins, Nash, Smoak & Stewart, PC, focuses his practice on construction law, in both litigation and transactional work. Eric has represented developers, international corporations, contractors, subcontractors, construction managers and designers on diverse projects.
Jonathan Mraunac Esq., of Ogletree Deakins, represents general contractors, subcontractors, suppliers and other participants in the construction industry. As a member of Ogletree's construction practice group, Jonathan advises clients relative to all aspects of the construction process including the prosecution and defense of claims in federal and state court, arbitration and mediation, the perfection and prosecution of mechanic’s lien claims, and the formation and negotiation of contract documents.
Randolph E. Ruff Esq., of Ogletree Deakins, has been representing general contractors, subcontractors, suppliers and other participants in the construction industry since 1986. As chair of Ogletree’s construction practice group, that U.S. News and World Report has ranked as a Tier-1 practice group, Randolph prosecutes and defends claims arising out of public and private construction projects in federal and state court litigation, arbitration and mediation.
NACM Editorial Associate Andrew Michaels contributed to this article.
To view the original article in its entirety, visit the Ogletree Deakins blog.
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