Working in a new state can present many new opportunities, but it also comes with many challenges. You cannot assume that the new state’s laws will be identical to your own. Some issues that might come up include: registration and licensing requirements, anti-indemnity statutes, bonding and lien requirements, and public policy limitations on contract clauses such as pay-if-paid clauses, liquidated damages clauses, or no-damages-for-delay clauses. It is critical to be aware of any differences because you may be exposed to penalties or lose rights and remedies you are used to having.

It is a good idea to familiarize yourself with the laws governing construction contracts in the new state—there may be obligations in those laws not found in your contract. It is also important to pay special attention to which laws apply to what types of projects. Most states have separate laws for procurement of construction versus other procurements, separate laws for transportation projects versus building construction, and separate laws for public projects versus private projects. You should also note what project delivery methods are available in other states such as public private partnerships (P3s), direct negotiations, reverse-bid auctions, and build-operate-transfer projects.

This article focuses on some issues that come up when bidding and performing public works contracts in other states: preferences for in-state contractors, tax exemption issues, and false claims acts.

Preferences for in-state contractors

Some states have a preference for in-state contractors. Florida has a statutory preference that requires state and local officials to give preference to Florida residents, provided that the purchase can be secured at no greater expense and at a comparable quality. Georgia, alternatively, does not give a preference to the award of construction contracts to local contractors, but there is a strong policy preference that the state use—insofar as is possible—Georgia products and labor. In some states, these provisions have been invalidated by court decisions—finding that such provisions violate the privileges and immunities clause of the United States Constitution.

Reciprocity can be an issue. Some states, such as California, will give preference to in-state contractors when an in-state contractor is competing with a contractor whose state gives an in-state preference.

An added layer of complexity applies to joint ventures. Do all the members need to be resident contractors or is one sufficient? States differ. Louisiana requires that all members of the joint venture be state residents to get the benefit while Alaska requires just one.

Because being a resident contractor can be beneficial, it is important to know what qualifies a contractor as such. For example, Georgia requires a business to maintain a place of business in Georgia for at least one year prior to any bid or proposal—post office boxes, site trailers, or temporary structures don’t count. Given the possible benefits, a contractor should consider taking the necessary steps to qualify as an in-state contractor or find a joint venture partner before bidding on public projects in another state.

Tax Exemption Issues

When the owner of a project has a tax exempt status, it is common to structure the contract to eliminate the sales tax on materials by either having the owner purchase the materials or having the contractor purchase the materials as the owner’s agent. Because every state has different tax regulations it is very important to be familiar with them so that the contract can be structured to take advantage. Tax exemptions can result in a large cost savings on a project if sufficient planning efforts are taken.

Tax exemptions in different states can vary widely. For example, it is important in Utah for the owner to not only take legal title to the materials with the right to use them, but assume the burden of risk. West Virginia, alternatively, requires the taxes to be paid first, but allows the contractor to claim applicable exemptions after paying the sales tax.

False Claims Acts

Any contractor who does federal projects should be familiar with The Federal False Claims Act. Approximately 30 states have enacted their own false claims act. Even individual counties have enacted their own false claims ordinances. False claims acts and ordinances are used to prosecute fraud against the government and provide “whistleblower” protection to anyone who brings the fraud to the government’s attention. False claim acts not only provide actions by the government against a contractor, but allow for private individuals to bring lawsuits (known as qui-tam actions).

Florida, for example, has The Florida False Claims Act which is substantially similar to the federal law. Miami-Dade County has its own ordinance, which applies to any person who “knowingly presents or causes to be presented to the County, or to any officer, employee, agent, or consultant of the county, a false or fraudulent claim for approval.” Other Florida ordinances include Broward County, Hallandale Beach, and Bay Harbor Islands.

One area to watch out for is called certification liability. To receive payment the contractor must sign a certification that warrants the contractor complied with certain provisions of the contract, or perhaps all provisions depending on how the certification is written. A fraud claim can arise if any provision was not complied with, even if it is insignificant or unimportant to completion of the project. To avoid any liability for certification liability, it is important to state exactly what contractual requirements are material to payment in the contract, and therefore spell out explicitly what the contractor is certifying each time they request payment.

Another way to avoid liability under a false claims act is to make sure everything is documented in writing. It is common on a project to resolve difficulties through discussing the matter. If those discussions are then written down, fraud claims against a contractor for failing to comply with the contract can be avoided.

Summary

It is very important to familiarize yourself with the laws of any state in which you plan to work as they can be drastically different from the state you are used to. This article presents just a small sample of things to look out for when working in another state.