Volume 35, Number 11, November 2000


Legislative&Legal

Supreme Court of Virginia Sets Precedent for Industry
The Supreme Court of Virginia recently made a decision concerning the purchase of a glass company which set a precedent for buyers and sellers of businesses for years to come. According to the court’s ruling in Musselman v. The Glass Works, the buyer of a glass business must continue to make payments to the seller of the business under the sales agreement’s non-compete and sale of good will provisions, even when the principle owner of the business has died. Previously, a Roanoke, Va.-court had ruled that the buyer no longer owed the payments because the non-compete was a “personal service contract.” However, the Supreme Court of Virginia overruled the previous decision, compelling the buyer of the Glass Works to continue making non-compete payments to the principle’s estate under the original agreement.

ASA Takes Proposal to Capitol Hill
The American Subcontractors Association (ASA), based in Alexandria, Va., has presented a new bill to the House of Representatives that would regulate the U.S. government’s method for choosing contractors.

According to Chip Swab, a member of ASA, the government currently takes bids from prime contractors, who in turn must lower what they pay their subcontractors to keep the bid.

“Today, the federal government does not get the best possible value for construction,” Swab said. “This is because in most cases the final decisions as to which subcontractors, suppliers and manufacturers will be used on a project are not made until after the government accepts a bid or proposal for a prime contractor.”

The Construction Quality Assurance Act of 2000, H.R. 4012, which Swab advocates, would ensure that subcontractors’ bids prices for work on federal construction projects were respected when the government made a final decision on who would primarily manage projects.

TAA Allows GAF Members to Cut Glass in Shop
The Florida Department of Revenue has issue a Technical Assistance Advisement (TAA) permitting the cutting of glass in the shop that would be installed in real property. According to the TAA, if glass is cut for a particular job within a shop, the cutting of the glass is considered taxable fabrication because the glass has been transformed from raw material (uncut glass) into customized components to be used in performing a real property contract. If the glass is cut in the shop to ease its handling and transportation to another job site for more cutting, processing and installation, the cutting is not taxable because it does not result in the product that will be used in performing the real property contract.

Massachusetts Court Sets Precedent for Subcontractors
According to a recent ruling in a Massachusetts court case, Johnson v. Modern Continental Construction Co., a general contractor that causes an accident and pays damages to the subcontractor's injured employee cannot collect the money from the sub, even when the sub's contract contains an indemnification provision. According to the September 25 issue of Engineering News Record, the City of Boston hired Modern Continental Construction Co. Inc. to build a tunnel at Bird Island Flats in East Boston. The construction company then subcontracted ironwork on the tunnel to Mohawk Construction Co. Inc. Under Mohawk's contract, it was required to "indemnify to the extent permitted by law and save the general contractor wholly harmless from any and all claims, liabilities, liens, demands and causes of action for or on account of any injury to persons or damage to property arising out of or in consequence of the performance of any work."

However, Bruce Johnson, a Mohawk employee, was injured when a crane, operated by Modern employees, accidentally dropped a bundle of plywood on him. In turn, Johnson sued Modern for a settlement of $550,000, to compensate for his medical bills. In response, Modern sued Mohawk, citing the indemnity clause of their contract as the reason for suing. But, Modern lost the case, when the Massachusetts Appeals Court ruled that it was at fault for not alerting Johnson that a bundle of plywood was being moved above him, despite Modern's claims that the injury was Mohawk's fault, for allowing Johnson to work on the site, knowing that Modern was operating a crane nearby.

In contradiction to the Massachusetts case, an Indiana court recently ruled that a contractor was not responsible for injuries acquired on the job by a subcontractor's employee. According to Indiana law, the general principal is not liable for the negligence of its independent contractor. So, the contract between contractors and subcontractor's does not cover the safety of an employee of the subcontractor, as was the ruling in Hale v. R.R. Donnelley & Sons Co..