China Speaks Out on Drywall Issues

It was really only a matter of time.

The Wall Street Journal’s “China Journal” has translated an article written in Chinese that provides us with some insight into how the U.S.’ Chinese Drywall crisis is playing out in Chinese media.

The verdict?   They blame America.

According to the report, China is simply confused (and I’m paraphrasing) that Knauf Plasterboard could supply 75% of the drywall for the Beijing Olympics and over a million tons of drywall to countries around the world in 2006 and 2007, yet only receive complaints from the United States.

Xu Luoyi, the head of the National Building Materials Industrial Technology Supervisory Research Center (real organization) offered this potential explanation:

It’s worth considering why this problem has only emerged in the United States.  The U.S. credit crisis has caused the real estate market to collapse, and as a result domestic drywall manufacturers have seen their sales suffer and their product is relatively expensive compared to the Chinese-made drywall, so we should also consider these issues.

Cryptic quote from Xu Luoyi, but the commentary does offer a perplexing thought:  Why is the United States the only ones complaining?   Is it a climate issue?  Is it because we’re more litigious than other countries?   Or did we coincidentally get the only contaminated drywall?

It is important to note that the concern from China (and its defensiveness) comes at the heels of 2 U.S. Senators proposing federal legislation to put a hold on certain Chinese imports.

What’s In the Drywall?

There is so much talk about tainted drywall, and homebuilders are getting pretty familiar with the problems caused by Chinese Drywall.   Over the past few weeks, however, there has been very little information about what is exactly wrong with Chinese Drywall.

Finally, there is some news about this issue coming out of Florida (who, of course, has been monitoring the problem the longest).

Last week, Florida released the findings of its drywall investigation conducted by Unified Engineering, a private lab.  Lori Streit, a principal scientist with Unified, had this to say in a letter about the findings:

There is a distinct difference in drywall that was manufactured in the United States and those that were manufactured in China.  The Chinese samples contained traces of strontium sulfide inclusions and more organic material than the GridMarx sample (United States). However, it is not yet known if either contributed to the odor.

While the findings are only a “first step” in what could be a months-long investigation, according to Florida state toxicologist Dr. David Krause, the preliminary findings did at least appear to contradict assertions that waste products from coal-fired power plants were to blame.

More is certainly to come on this topic, but at least folks are now not in complete darkness.

Louisiana Contractor Licensing 101

Are Contractors Regulated in Louisiana?

Generally, yes.   In Louisiana, contractors are regulated by the Louisiana State Board of Contractors (http://www.lslbc.louisiana.gov/).   The website has a number of good resources for contractors or those interested in becoming a contractor, such as the state’s licensing laws and a helpful Frequently Asked Questions section.

Not every participant in a construction project is required to have a license.   Licenses are only required on the following projects:

  • Commercial projects where the party’s undertaking exceeds $50,000;
  • New residential construction (ground up) where party’s undertaking exceeds $75,000;
  • Residential “improvement” construction when party’s undertaking is between $7,500 and $75,000;
  • Electrical contracting work when amount of undertaking exceeds $10,000 (recently lowered from $50,000).

How Do You Become Licensed?

Getting licensed in Louisiana is generally not an easy task – it’s really a three step process.   (1) apply; (2) test; and (3) wait.

All applicants for a Louisiana contractors license must request an application pack directly from the Louisiana State Board of Contractors.  Although a sample application is available on the board’s website, an applicant must use the actual application mailed to him or her by the board.

Therefore, the first step to getting licensed is to make a formal request to apply.   The turn-around time for this is generally 2 weeks.

Filling out the application is fairly straight-forward, but applicants must be aware of these two issues:

1)  You will be required to select a “classification.”   Unfortunately, the application makes this entirely too confusing.

There are major classifications and sub-classifications.   If you are licensed under a major classification, you are allowed to perform work on any of the subclasses.   You will be tested on “business law” and the classification(s) selected.

Since many of the sub-classes mix in an ordinary construction project, it is prudent (and usually cheaper) to just select a main classification when applying.

2)  You will be required to provide the board with financial data, and the requested financial information must be prepared by an independent account and certified by the same.   The Board is looking to see whether your company has at least $10,000 in assets.

In addition to submitting an application, you will be required to sit for an examination.  The examination will test you on “business law” and your chosen classifications.  Preparation materials are available from the Louisiana Board of Contractors.

What Happens to Unlicensed Contractors?

There are generally 3 types of consequences for contracting without a license in Louisiana:

  • Criminal penalties.  Although not the most commonly used manner of enforcing the licensing laws, it is a misdemeanor crime to contract without a license in Louisiana.
  • Contract problems.  In Louisiana, a contract with an unlicensed contractor is null & void – clearly a cause for concern to someone who gets caught without a license and depends on the terms of a contract.
  • Civil penalties.  The Louisiana Board of Contractors is given broad power to enforce the licensing regulations.   Civil penalties can be accessed against the violating party for as much as 3% of the contract price, and work on the project can be ordered to a stop.

Does Drywall Safety Act of 2009 Contemplate Help for Builders?

As reported by the Wall Street Journal and other news agencies, Louisiana Senator Mary Landrieu has joined Florida Senator Bill Nelson to propose legislation “aimed at initiating a recall and imposing an immediate ban on defective building products from China.”  The bill is the latest effort by agencies and legislatures to address problems caused by imported drywall.

The bill – aptly titled the Drywall Safety Act of 2009 – is summarized in a press release from Mary Landrieu’s office as follows:

The centerpiece of their legislation is a resolution pressing the Consumer Product Safety Commission (CPSC) for a recall on Chinese-made drywall, based in part on findings by a Florida homebuilder and state officials who have confirmed the presence of sulfide gases in homes built with the drywall. The Nelson-Landrieu legislation also asks the CPSC to work with federal testing labs and the Environmental Protection Agency to determine the level of hazard posed by certain chemicals and as yet unidentified organic compounds in the drywall. In addition, the legislation calls on the commission to issue an interim ban on imports until it can review federal drywall safety standards to ensure that consumers are protected in the future.

Rather than regurgitate the news, however, we wanted to comment on two things exposed in Sen. Landrieu’s press release.

  1. That behind Florida, Louisiana is the second largest recipient of Chinese Drywall.  This is a bit of a revealing fact for builders in Louisiana who were a bit unsure of how likely it was that they encountered imported drywall.    The press release confirms that “Louisiana has received 60.2 million pounds of imported Chinese drywall, and it may have been used in an estimated 7,000 homes in Louisiana.”
  2. That the federal government is not only interested in aiding homeowners, but has builders on its mind as well.    Sen. Landrieu’s very quote strikes at the heart of contractors’ concerns, stating “”This defective Chinese drywall represents an attack on our homeowners, a defrauding of our homebuilders and another obstacle on our road to recovery.”    While the legislation doesn’t provide any specific relief for homebuilders, the press release seems to consider the homebuilders as victims to the contamination as well, and hope that the bill will “provide clarity to businesses in the construction and homebuilding sectors.”

Good news that homebuilders are not off the federal government’s radar, but cautious news as well – since the primary focus is on the homeowners, and the government is looking for a remedy that doesn’t burden the U.S. taxpayer.

Check out this video from a Florida new-station, who landed an interview with Florida Sen Nelson:

Around the Web: Updates on Construction Law and Wolfe Law Group 3/27/09

This week, some familiar topics were being talked about in the legal blogosphere, from the Employee Free Choice Act to the Chinese Drywall situation in Florida, Louisiana and elsewhere.  Here are some selected articles and posts from around the web this week:

The Big Draw: Washington’s Stimulus Share Divulged

Washington state officials released figures to the media on Thursday, illustrating that the state is due to receive some $225 Million in funding. Initial planning earmarks all of that cash for major public building projects.

A story released by the Seattle Times, indicates that the bulk of funding will be distributed for military projects, including a new water-distribution system at Whidbey Island Naval Air Station, a training facility at Fort Lewis, replacement of a Tacoma pier that supports the Army Reserve Boat Mission, and installation of advance metering systems at Navy hubs that will help monitor energy consumption.

Additional funds will be earmarked for public housing and transportation. One highly anticipated project will likely be the new Amtrak maintenance facility at King Street Station. That project is likely to exceed $40 Million. Ongoing restoration of King Street Station is costing the City of Seattle, its new owner, over $26.5 Million.

In related news, the State Legislature released its $4.3 Billion transportation plan. Under the plan, the State will be able to pay for the new Alaskan Way Viaduct, Highway 520 bridge, and purchase new ferries.

There has been some recent distaste for the laboring that has ensued over the Viaduct and 520 projects. Senate Transportation Committee Chairwoman Mary Margaret Haugen, D-Camano Island probably said it best:

“I really probably shouldn’t say this, but I hope those people building those megaprojects would make some decisions and move forward, because the Legislature’s only going to have so much patience.”

“We’re really delighted that a decision has been made on the viaduct. We hope it can be made on 520 also.”

The projects continue to come for Seattle. Its hard to imagine more public building – in a city where projects are ever present.

Scott Wolfe Interviewed about whether Builders are nervous about Chinese Drywall

New Orleans’ Fox 8 has been reporting on the Chinese Drywall crisis as it’s appearing in Louisiana.   They recently turned the tables on the story, asking not about problems faced by homeowners, but those problems faced by builders, contractors, suppliers and other participants in the construction industry.

This has been a focus of Wolfe Law Group, who recently launched a practice group to advise and represent contractors and suppliers with regard to the Chinese Drywall crisis.   Fox’s Nancy Parker interviewed Scott Wolfe, Jr., partner at Wolfe Law Group, with respect to how contractors and suppliers are affected by the Chinese Drywall problem.

The story itself is here.  Here is a video from the newscast:

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Clash of the Strip: Vegas Construction Suit to Become Big Ticket

We step away from Washington and Louisiana for a moment to explore the outside construction world, and find that a massive lawsuit has recently come up in Delaware.

The Wall Street Journal Law Blog seems to be the first to report on a Complaint filed in the Delaware Court of Chancery alleging the breach of joint venture between MGM and Dubai-based Infinity World Development Corp. A copy of the 13 page Complaint can be found at Wall Street Journal’s website.

The suit, initiated by Infinity, alleges that MGM (the shell of wholly-owned affiliates Mirage Resorts and Project CC) has breached a joint venture agreement to develop City Center, a massive Las Vegas epicenter for tourism.

The Complaint states that MGM has issued a recent 10-K statement which illustrates that the massive company can no longer pay its debts as they become due, including a debt to make contributions to the joint venture itself (See Page 2 of Complaint). The business’ failure allegedly will cause substantial and irreparable damage to Infinity World Development, who would have to pick up slack in financing the outlandish project.

Now – Infinity World Development wants out. Significant cost overruns and delays have caused the project to run ashore with problems. Estimates for completion continue to grow with each passing day.

Though the suit concerns over $10 billion in open obligations, the Complaint itself is quite simple. Infinity has alleged breach of contract, breach of good faith and fair dealing, and sought declaratory relief for its obligations under contract.

No response has yet been offered by MGM in pleading form. But WSJ.com reports that MGM has already issued a public statement:

MGM fired back on Tuesday, calling the lawsuit “completely without merit.” A spokesman later added that the company “is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week.”

The Wall Street Journal further believes that the suit has all the makings of a giant. The celebrity and capital involved makes this case certain to draw considerable legal attention.