Apr 9

The Time May Be Right for an Outright Repeal of the Wicks Law

Download original article from The New York Law Journal.

When a private developer embarks upon a construction project, an important up-front decision centers on which delivery system to employ to construct the project.

Many owners prefer to retain a single general contractor whose responsibility is to build the entire project. Others elect to hire a construction manager as their agent to coordinate the work of various prime contractors who specialize in particular areas of construction.

And some owners elect to retain a design-build firm with the unified responsibility of designing and constructing the entire project. Still others under serious time constraints may implement “fast-track” construction whereby the initial phases of the project are built before the finalization of the architect’s complete plans and specifications.

An owner’s decision about which project delivery system to embrace often depends on the nature of the particular project being built, the owner’s budget constraints and the time available to complete the work.

No Choice in New York

But for the past 90 years or so, owners of public construction projects in New York have had no such choice. Rather, a number of provisions in several different statutes, collectively known as the Wick’s Law, requires public entities on any construction project totaling more than $50,000 to submit and accept bids from four different trade contractors for work involving electrical, plumbing, heating, ventilating and air conditioning, and the remaining general construction work.(1)

The effect of the Wick’s Law has been to prohibit a public entity from awarding a contract to a single general contractor with overall responsibility to complete all of the work. By requiring the public agency to award work instead via a multi-prime delivery system, Wick’s also requires the public owner to manage the overall construction, to coordinate schedules of the several independent prime contractors and to resolve any disputes that arise during construction.

To meet these responsibilities, public owners typically employ internal construction personnel or an outside construction manager. However, on private projects where a sole general contractor is retained to perform all the work, the coordination and management of the work are undertaken exclusively by the general contractor.

The Wick’s Law has had its detractors over the years and the list may be growing. Every year since 1996, Governor George E. Pataki has proposed amendments placing limits to the Wick’s Law as part of his local government mandate relief package. And from time to time during the late 1990s, former Mayor Rudolph Giuliani criticized the law.(2)

However, all prior efforts to limit or modify the Wick’s Law have proven unsuccessful as its supporters have always managed to garner enough political support to rebuff all challenges. That is precisely what makes Governor Pataki’s 2003 Executive Budget proposal on Wick’s Law Reform so interesting. This year, instead of attempting to limit the effect of Wick’s by raising its $50,000 monetary threshold, the governor is going for broke: For the first time, perhaps seeing a change in the political climate, he is seeking a complete repeal of the Wick’s Law(3) and, to no one’s surprise, the battle lines are once again being drawn.

The Debate

Those favoring the law — including the mechanical, electrical and plumbing trades and the unions whose members service those trades — contend that Wick’s stimulates competition among trade contractors and leads to reduced construction costs.(4) They argue that multi-prime bids are more competitive without either a general contractor’s mark-up or any pressure from the general contractor to procure lower bids from the trades after the bid has been awarded. They also point out that Wick’s assures better cash-flow to the prime contractors and, they believe that in the long run it saves the public money.

In interpreting the Wick’s Law over the years, the courts have held that it exists to protect taxpayers and municipalities, not to benefit contractors,(5) and that it was enacted to ensure expertise in the electrical, plumbing and HVAC trades.(6)

Wick’s detractors are generally public owners, general contractors and various independent watchdog groups. They point out that the construction industry has changed immensely since the first quarter of the last century by becoming increasingly more complex and expensive. This necessitates, they contend, that a public owner be given the choice to decide which delivery system is best for each particular project.

They also assert that tying a public owner’s hands to multi-prime construction is not in the public’s interest and all too frequently results in significant increases in both the cost and duration of projects.

Critics of the Wick’s Law also ask:

• Why should public agencies, which are not necessarily qualified to coordinate and supervise multiple prime contractors, be required, at additional cost, to undertake those responsibilities?
• Why should Wick’s statutory protections be afforded to electricians, plumbers and HVAC contractors, but not other ontractors such as masons, roofers, and carpenters?
• Why should there be a restriction on the public entity’s construction options, thereby encouraging, and perhaps even requiring, the use of onerous unilateral exculpatory provisions in public works contracts?(7)

In 1994, the head of the Corporation Counsel’s Commercial Litigation Department branded Wick’s as “a manifestly unjust law whose purpose is to protect the selfish interests of a group of mechanical contractors seeking special privileges at the expense of the public.”(8)

Exempt from Law

There are a number of public and semi-public entities that have obtained exemptions from having to comply with the Wick’s Law.

Most notable is the New York City School Construction Authority, a major player in public works construction, which has been exempt since its inception in 1988.(9)

The City of Buffalo School District is also exempt as are energy-saving retrofits under New York’s Energy Law. Neither the New York State Power Authority nor City University of New York need comply and Wick’s has no application to the New York State Thruway Authority, since the authority is not the “state” but a separate and distinct corporate entity.(10)

The anti-Wick’s faction frequently con¬tends that the sheer number of exemptions proves their point that Wick’s is a dinosaur with no current raison d’etre.

Over the years, a number of studies have been conducted to compare the pluses and minuses of Wick’s versus non- Wick’s construction projects and the majority have concluded that, on the whole, Wick’s Law projects are more costly and take longer to complete than non-Wick’s projects.

In May 1987, the New York State Division of the Budget issued a report concluding that a full repeal of the Wick’s Law could reduce total spending for public construction projects by over $3 million a year and that Wick’s projects were approximately 24 percent to 30 percent more expensive than comparable non-Wick’s projects.(11)

In 1993 and 1994, the School Construction Authority issued reports concluding that (i) Wick’s projects took an average of 15.6 months longer to complete than non-Wick’s jobs, a 60 percent increase in time and (ii) Wick’s projects cost 13 percent more than non-Wick’s projects of the same intended use, size and complexity.

The 1994 report noted that (i) in addition to increasing the cost of construction, Wick’s has its largest impact, about $9 per square foot, on internal agency costs and (ii) multi-prime construction caused an increase in post-contract costs, the cost of change orders and claims by approximately $4.50 a square foot.

The 1994 report also concluded that any initial monetary savings on Wick’s jobs — the bids received on Wick’s projects were project¬ed to cost $3 per square foot less than bids from a lone general contractor on similar projects — was more than offset by the subsequent increase in construction costs and added internal costs to the public agency due to having to manage a multi-prime project.(12) In 1999, the School Construction Authority issued a follow-up report mirroring the same conclusions.(13)

City Bar Calls for Repeal

In 1994, the Association of the Bar of the City of New York issued a report calling for the repeal of the Wick’s Law, stating that “mandated use of four-prime contracting for all building projects is not a sound policy for any owner performing a substantial volume of construction, whether public or private.”(14)

Despite these unflattering reports, Wick’s has withstood the test of time and all attempts to challenge its constitutionality have failed.(15) However, in light of some recent developments in the laws affecting public contracting, it may be that support for the Wick’s Law is beginning to wane.

Pay-when-paid clauses — which allowed general contractors to refrain from paying their subs until the owner has paid the general contractor — are now void as against New York’s public policy.16 Furthermore, a public agency can require bidders to list the names of their subcontractors as part of the bids, thereby providing some protection against the practice known as “bid shopping” (when a contractor quotes the price of one subcontractor in preparing a bid and then searches for a different, lower priced subcontractor after it has been awarded the job).

Perhaps the best argument today in favor of repeal of the Wick’s Law is to remember that it was enacted, in large part, to prevent a general contractor from taking unfair advantage of subcontractors by having the subcontractors’ costs undercut.

Wick’s mandate of multi-prime construction was intended to address that and related concerns, not because multi-prime construction is the best project delivery system. When conducting a balancing test today of the need to fund and generate public construction compared to protecting subcontractors from an unscrupulous general contractor, it goes without saying where the greater interest lies.

Perhaps those in the state Legislature should bear that in mind as the time approaches to vote on Governor Pataki’s most recent proposal.

(1) Two of the major statutes comprising the Wick’s Law are General Municipal Law Section 101 and State Finance Law Section 135.
(2) In January 1998, Mayor Giuliani called for the repeal of the Wick’s Law as long as the local governments received 50 percent of the savings on renovating or rebuilding schools. The New York Times, Jan. 27,1998, “Alter Law on Contractors, Giuliani Urges Legislators”, Section B at page 5.
(3) Governor Pataki’s Executive Budget Proposal seeking a complete repeal of the Wick’s Law is being introduced as Part EE of Bill S.1406/A.2106.
(4) Pro-Wick’s groups include such trade organizations as IBEW, NECA and MCA.
(5) Depot Construction Corp. v. City of New York, 46 N.Y.2d 859, 414 N.Y.S.2d 511, 387 N.E.2d 222 (1979); General Building Contractors of New York State v. Board of Trustees, Village of Cayuga Heights, 42 A.D.2d 660, 345 RY.S.2d 195 (3d Dept 1973).
(6) hlager Electric Co. v. Office of General Services, 56 Misc.2d 975, 290 N.Y.S.2d 943 (Albany Co. 1967), af?d 30 A.D.2d 626, 290 N.Y.S.2d 947 (3d Dept 1968), appeal denied 22 N.Y.2d 645,295 N.Y.S.2d 1026, 242 N.E.2d 492.
(7) New York Construction Law Manual by Postner & Rubin and Catherine Kettle Brown, published by Shepards/McGraw-Hill, Inc. at §1.14 at page 7.
(8) March 1, 1994, New York Law Journal letter to the editor entitled “Keeping of Wick’s Law Called Irresponsible” by Marilyn Schechter.
(9) See NY Pub. Auth. Law Section 1725 et seq.
(10) Plumbing, Heating, Piping and Air Conditioning Contractor’s Association, Inc. v. New York State Thruway Authority, 5 N.Y.2d 420, 158 N.E.2d 238, 185 N.Y.S.2d 534 (N.Y. 1959).
(II) May 1987 New York State Division of the Budget Report entitled “Fiscal Implications of the Wick’s Law Mandate”, the report examined 39 projects for three separate samples of public facilities-academic buildings, prisons and fire stations.
(12) “Impact of the Wick’s Law on Public Construction in New York City,” May 25, 1994, by Ashenfelter and Ashmore.
(13) “Impact of the Wick’s Law on Public Construction in New York City,” March 17, 1999, by PricewaterhouseCoopers LLR
(14) “Report of the Committee on Construction Law: New York’s Wick’s Law,” Association of the Bar of the City of New York, 1994.
(15) Building Contractors Association v. State of New York, 603 N.Y.S.2d 763 (2d Dept 1995); Felder v. Fullen, 27 N.Y.S.2d 699 (N.Y. Co. 1941); McKinnon v. Delaney, 27 N.Y.S.2d 713 (N.Y. Co. 1941).
(16) West-Fair Electric Contractors v. Aetna Casudty & Surety Company, 87 N.Y.2d 148, 661 N.E.2d 967, 638 N.Y.S.2d 394 (N.Y. 1995).

Neal Eiseman, Esq.

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