Thursday, January 10, 2013

Chapman 2013 Economic Forecast

Each year since 1978 Chapman University has published an economic forecast.  These reports are widely anticipated and regarded as one of the better forecasts known for their detail and, most times, accuracy.

At the bullet points below, I've provided some of the highlights per my review of the report.  For those wishing to read the full report, and I encourage you to do so, you can find a copy here.  The full report has many charts, graphs and tables which are quite useful.

  • The recovery is in its 3rd year and Chapman forecasts the recovery to continue into a 4th year in 2013 with an estimated increase in GDP of 2.1%, roughly similar to 2012.
  • Housing continues to be a bright spot.  Nationally, housing inventory is low and housing starts have increased significantly.  Housing starts increased 25% in 2012 and are forecast to increase again at a 13% clip in 2013.  Nationally, prices increased 6% in 2012 and are forecast to increase 3.5% in 2013.  In Orange County, Chapman forecasts price appreciation of 4.2% in 2012 and 6.8% in 2013.
  •  Household Net Worth is forecast to return to its pre-recession high by the end of 2013 which explains the boost in consumer confidence seen in recent months.
  •  “California and Orange County economies will be facing headwinds in the coming year that may derail the recent pickup in job creation.  Higher taxes – sales, income and payroll – are the primary concern.” 
  •  “On the bright side, the Anderson Center’s California Consumer Sentiment Index increased to 94.2 in the third quarter of 2012, a level not seen since the third quarter of 2007.” 
  •  “Another positive development is the rebound in construction spending…construction spending…is projected to grow by 10.0 percent in Orange County in 2013.” 
  •  “Overall, our forecast calls for an increase of 1.8 percent in total payroll employment in Orange County in 2013…Job growth in construction, professional & business services and leisure & hospitality will outperform all the other sectors of the economy in Orange County and California.” 
  •  “The combination of job and real income growth along with historically low mortgage rates bode well for the housing market.” 
  •  “In fact, Orange County’s notices of default is currently the lowest in Southern California and showed the sharpest decline in the third quarter of 2012 and is also at its lowest level since the housing slump.”

New California Law Will Prevent Contractors From Shifting Liability for Their Own Active Negligence to Downstream Contractors and Suppliers

by Greg Clement, Partner, Burkhalter, Kessler, Clement & George LLP

Senate Bill 474, codified in California Civil Code section 2782.05, will broaden the types of indemnity provisions that are unenforceable under California law.  Effective January 1, 2013, “Type 1” indemnity provisions in construction contracts, which cover a contractor’s concurrent active negligence, will no longer be enforceable.  In conjunction with the new law, the contractor’s ability to shift the costs of defense to downstream contractors and suppliers will also be limited.

Under existing law, contractors can include broad indemnity provisions in commercial construction contracts which shield the contractor from liability even for its own “active” negligence.  These “Type 1” broad indemnification provisions have been enforceable as long as the liability does not arise from the “sole negligence or willful misconduct” of the contractor or owner.  Civ. Code §2782(a) (emphasis added).

California Civil Code section 2782.05 now renders “Type 1” indemnification provisions unenforceable, imposing liability upon general contractors, construction managers, or other subcontractors for “claims of death or bodily injury to persons, injury to property, or any other loss, damage, or expense” arising out of the “active negligence or willful misconduct of that general contractor…”.  Civ. Code §2782.05(a) (emphasis added).  Furthermore, although construction contracts with public agencies and owners of privately owned real property are expressly excluded from section 2782.05, public agencies and private owners are similarly prohibited from including “Type 1” indemnity provisions in their construction contracts pursuant to section 20782(b)-(c).

Another change in the law is that contractors will be prohibited from allocating the costs of defense of claims to their downstream contractors and suppliers.  The new restrictions contained in section 2782.05 prohibiting indemnity for one’s own active negligence specifically include the “costs to defend” claims in litigation.

Senate Bill 474 describes the express purpose of the new law as a means “to ensure that every construction business in the state is responsible for losses that it, as a business, may cause.”  The statute also prevents a contractor from “forum shopping” to avoid the effect of the new law by imposing a requirement that California law will apply to these contracts without regard to any choice-of-law rules that might otherwise apply.  In addition, any waiver of any of these provisions is contrary to public policy, void, and unenforceable.  Civ. Code §2782.05 (c)-(d).

Consequently, contractors must be especially mindful of the new law to ensure that any indemnification provisions included in their construction contracts or subcontractor agreements, entered into after January 1, 2013, are in compliance with the new law; and contractors must understand they can no longer shift liability for their own active negligence to downstream contractors and suppliers.