Construction Law Toolbox : Mississippi Construction Lawyer & Attorney : Robinson Biggs Ingram Solop & Farris Law Firm : MS & Southeast Construction Law Toolbox

The Federal Times.com recently reported on proposed procurement "reforms" that will adversely impact business opportunities for small businesses. The term "procurement reform" suggests changes aimed at increasing contracting opportunities, improving fairness in the procurement system, or lowering the cost of goods and services. The Administration’s proposed changes do not aim to do any of these.

The Obama Administration is considering, among other things, converting services typically performed by small businesses from private performance to government performance. According to Federal Times.com, this change would impact service contractors that provide maintenance services, food services, and information technology services which are typically performed by small businesses. Contacting reforms anger small businesses. 

The Obama Administration is also looking at other changes that will burden small businesses. It is feared that "strategic sourcing", which combines government needs to achieve economy of scale, will limit those needs for goods or services that small businesses can meet. Stricter environmental requirements are likely to make it difficult for small businesses to compete effectively, too. 

Another change is the Administration’s "High Road" contracting policy which would favor the award of federal contacts to employers who pay higher salaries or provide better benefits. The Service Contract Act and Davis-Bacon Act already require service contractors to pay not less than prevailing, that is, market, wage rates. Why is an initiative that would increase costs to business and the government on the agenda?

Some critics claim the High Road initiative will inject more subjectivity into the procurement process while others say it is meant to reward union support for Obama. AFL-CIO union head opposes ‘High Road’ contracting policy. The FederalTimes.com points out that it is likely to damage small businesses. While small businesses do not have the financial resources to outpace the market for wages or benefits, larger companies aren’t likely to have them, either. Could it be that the High Road policy is not meant as a reform to reduce government contracting costs but meant to re-engineer American enterprise through government purchasing—at any cost?

• Email This
• Print
• Comments
• Trackbacks

On March 9, 2010, the Mississippi Court of Appeals denied a rehearing in the case of J. Criss Builder, Inc. v. White, but it is not clear the controversy has ended.  The Court has not yet released its opinion for publication which means the decision is still subject to revision or withdrawal.  Perhaps that is because the Court was clearly divided regarding the case as reflected in the four to three decision.

In this case, J. Criss Builder, Inc. ("JCB"), an unlicensed residential contractor, purchased land on which it built a house.  Janie Criss ("Criss"), the owner of JCB and an individually licensed residential contractor, oversaw the construction of the home.  On November 21, 1996, Criss purchased the home from JCB and occupied it as her homestead until February 17, 1997, when it was sold to the Whites.  Even though within one year of moving into the house the Whites noticed a hairline crack in the scored concrete floor which grew bigger over time, the Whites did not file suit for damages from foundation problems until February 12, 2003 – 6 years, 2 months and 22 days after the home had first been occupied by a resident.  On that date, the Whites sued both JCB and Criss, individually.

JCB and Criss sought to have the action dismissed on the basis that the Mississippi statute of repose barred the action.  Specifically, Miss. Code Ann. § 15-1-41 requires an action for damages arising out of construction to be brought "no more than six (6) years after the written acceptance or actual occupancy or use, whichever occurs first." There could be no disputing the fact that the first occupancy of the house occurred on November 21 1996, when Criss purchased the home from JCB for her homestead.  Thus, JCB and Criss contended suit had to be filed by November 21, 2002.  The Court also upheld liability against Criss, individually, even though the property was owned and constructed by JCB "[s]ince Criss was the licensed builder and JCB was legally prohibited from performing residential construction."

The Court majority relied upon a prior decision to conclude that the statute of repose did not apply to circumstances where the possessor and builder were the same and that the statute of repose would not begin to run until the "builder/owner, Criss, undisputably the builder, sold the home to the Whites."  Since suit was filed within 6 years of Criss selling the house to the Whites, the Court ruled the action was not barred.  The three dissenting justices would have barred the action.  They concluded that "Criss-even if considered the builder-purchased the completed home from JCB and actually occupied and used the home in her personal capacity."

The decision leaves more questions than answers.  Would the decision be the same if JCB had been properly licensed?  Residential builders commonly build a home which they occupy first and then sell to someone else.  Under this decision, could a licensed builder build a home, sell to its owner, live in the house ten years, thirty years, or more, and yet the statute of repose still not begin to run until the time the owner sells to a third party?  Clearly, more direction from the Court will be necessary.  Until that time, builders beware: "six years" under the statute of repose may not be six years.

• Email This
• Print
• Comments (1)
• Trackbacks

Do you want an attorney that defends personal injury claims or a construction lawyer representing you where there has been an allegation of defective construction associated with the work of a subcontractor?  Obviously, you want an attorney whose practice is concentrated in the area of construction law.

As a preliminary matter, claims asserted by an owner against its general contractor for alleged defective construction are typically complex and costly.  Even "simple" payment disputes between an owner and general contractor can and frequently do evolve into allegations of defective construction by the owner against the general contractor to justify withholding payment.

If an allegation of defective construction is made against the general contractor due to work performed by its subcontractors, the general contractor should consider submitting such a claim under its Commercial General Liability ("CGL") Policy and notify the subcontractor whose work has been called into question and its insurance carrier.  As a general contractor, you should already have a copy of your subcontractor’s certificate of insurance identifying you as an additional insured under the policy before allowing the subcontractor to commence work.

If your insurer denies coverage for the alleged defective construction but agrees to provide you with a defense under reservation of right, you have the right to select a "construction attorney" to defend you against the defective construction claim and your insurance carrier must pay for that defense.  Do not let your insurance adjuster "assign" you to an attorney.  This is a construction defect case and not personal injury or a car wreck case.  There will likely be issues concerning the interpretation of plans and specifications, scheduling and coordination of the work, the standard of care required to be exercised by various parties involved in the dispute, construction industry standards and construction and design experts.  Make the right choice; retain a lawyer with construction litigation experience to defend you against allegations of defective construction not a personal injury defense attorney.

• Email This
• Print
• Comments
• Trackbacks

On March 17, 2010, the Governor signed into law Senate Bill No. 2370 which amends what is know as the "preference statute". Miss. Code Ann. § 31-3-21(3). The statute requires that "[w]hen a nonresident contractor submits a bid for a public project, he shall attach thereto a copy of his resident state’s current law pertaining to such state’s treatment of nonresident contractors." (Emphasis added.) The Mississippi Attorney General has opined that the failure of a nonresident contractor to include "his resident state’s current law" was not sufficient to justify rejecting the nonresident contractor’s bid as nonresponsive. This has resulted in numerous public projects being awarded to nonresident contractors that did not comply with the statute’s mandatory requirement.

Senate Bill No. 2370 clarifies the ambiguity created by the Mississippi Attorney General’s office as to the mandatory requirement of the "preference statute" and which now unequivocally states:

Any bid submitted by a nonresident contractor which does not include the nonresident contractor’s current state law shall be rejected and not considered for award.

The AGC of Mississippi was instrumental in promoting this language for the benefit of the construction industry. The amendment will be effective on public projects bid from and after July 1, 2010.

• Email This
• Print
• Comments
• Trackbacks

In Mission Critical Solutions v. United States, COFC No. 09-864 C (March 2, 2010), the Court of Federal Claims has determined that the HUBZone program takes priority over the 8(a) program.

Mission Critical Solutions ("MCS") was certified as both an 8(a) and HUBZone small business. In 2008, the Department of the Army awarded MCS a one-year sole-source 8(a) contract for just under $3.5 million to provide information technology ("IT") services. For the follow-on requirement, which was valued (including options) at approximately $10.5 million (in excess of the applicable $3.5 million ceiling on sole-source contracts), the Army determined it could not make award to MCS. However, the Army decided it could make a sole-source 8(a) award to Copper River Information Technology, LLC ("Copper River"), an Alaska Native Corporation, if the SBA would approve Copper River as the IT provider for the requirement. SBA accepted the requirement on behalf of Copper River under its 8(a) program and the Army made the award.

MCS protested the sole-source 8(a) award to Copper River to the GAO. MCS argued that the Army was required to compete the requirement as a HUBZone business set-aside. The GAO sustained MCS’s protest. However, the Office of Management and Budget ordered that executive agencies disregard the GAO’s ruling until the Office of Legal Counsel of the United States Justice Department ("OLC") reviewed the matter. After the OLC declared its disagreement with GAO, the Army took the position that it had no authority to take any action inconsistent with the OLC’s position. Thus, MCS’s request for protest costs and a second protest against the award were denied by GAO as "academic", because the Army had stated its position that GAO recommendations could not be followed in the matter. MCS took its protest to the Court of Federal Claims.

Chief Judge Emily Hewitt sided with MCS and declared the Army’s award to Copper River under the 8(a) program not in accordance with law. The Army’s argument that there is parity between the 8(a) and HUBZone requirements was rejected. Judge Hewitt found that the HUBZone statute mandates set-asides for competition among HUBZone concerns whenever there is a reasonable expectation that at least 2 qualified HUBZone firms will submit offers and award can be made at a reasonable price. The plain language of the HUBZone statute at 15 USC § 657a(b)(2) requires such set-asides "[n]otwithstanding any other provision of law". Moreover, whereas contracting officers "may" decide to award contracts under the 8(a) program when the HUBZone statutory set-aside criteria are not met, there is no such discretion for contracting officers when the HUBZone statutory are met. Judge Hewitt enjoined the Army from awarding the IT support services contract without first determining whether the "rule of two" is met "such that the contract opportunity at issue in this case must be awarded on the basis of competition among qualified HUBZone small business concerns."

• Email This
• Print
• Comments
• Trackbacks

Less than one week after placing readers on alert about the pending decision of Architex Association, Inc. v. Scottsdale Insurance Company, the Mississippi Supreme Court has issued its decision in that case addressing the following narrow issue with regard to a Commercial General Liability ("CGL") policy:

Whether the intentional act of hiring subcontractors by an insured general contractor precludes the possibility of coverage?

The Court found "that under Scottsdale’s CGL policy, the term ‘occurrence’ cannot be construed in such a manner as to preclude coverage for unexpected or unintended ‘property damage’ resulting from negligent acts or conduct of a subcontractor unless, otherwise excluded or the insured breaches its duties after loss." Slip Op. at page 27. Thus, "[f]aulty workmanship, defective work, et al., may be accidental, intentional, or neither." Slip Op. at page 23.

The United States Court of Appeals for the Fifth Circuit in ACS Construction Company v. CGU, 332 F.3d 885 (5^th Cir. 2003) had previously concluded that since hiring a subcontractor is a deliberate and intentional decision by a general contractor, any subsequent act by the subcontractor must be intentional and not covered under the definition of an "occurrence". The insurance industry has used ACS to deny coverage for defective work by subcontractors, even though many general contractors purchased policies and paid premiums with the understanding that their CGL policy would provide coverage.

The Mississippi Supreme Court’s decision in Architex brings clarity to the issue stating that "[w]hile the alleged ‘property damage’ may have been ‘set in motion’ by Architex’s [the general contractor] hiring of the subcontractor, the ‘chain of events’ may not have ‘followed a course consciously devised and controlled by [Architex], without the unexpected intervention of any third person or extrinsic force.’" In other words, hiring a subcontractor will not preclude coverage under a CGL policy.

Even if the insurer does not unequivocally agree that there is coverage under the CGL policy, the insurer may agree to defend the general contractor under reservation of rights. This means the insurer will pay the general contractor for the cost associated with defending the claim of defective workmanship. This does not mean the insurer gets to select the attorney to defend the claim, it means the insurer must pay for the attorney the general contractor selects to defend the claim. Therefore, it would be wise for the general contractor to select a construction lawyer to defend the claim rather than the insurer’s preferred attorney who is likely to have experience in defending slip and fall cases and car wrecks and not complex construction defect cases.

The Architex decision is good news for general contractors. However, the decision also admonishes general contractors that there are other reasons for denial of coverage such as failure to give timely notice of a potential claim. Slip Op. at page 12, fn. 11. This means that general contractors should place their insurance carrier/agent on written notice of any potential claim for which the CGL policy might arguably provide coverage. Otherwise, coverage may ultimately be denied.

• Email This
• Print
• Comments
• Trackbacks

The Mississippi Supreme Court has decided to retain the case styled Architex Association, Inc. v. Scottsdale Insurance Company; Case No. 2008-CA-01353. The construction industry is hopeful that the Mississippi Supreme Court will provide some clarity in the area of insurance coverage for defective construction under CGL policies. Several years ago, the United States Court of Appeals for the Fifth Circuit in ACS Construction Company v. CGU, 332 F.3d 885 (5^th Cir. 2003) muddied the waters when it held:

Under Mississippi law, Moulton [Allstate Ins. Co. v. Moulton, 464 So.2d 507 (Miss. 1985)] and Omnibank [United States Fidelity & Guaranty Co. v. Omnibank, 812 So.2d 196 (Miss. 1996)]make clear that in a CGL insurance policy which defines an "occurrence" as an "accident," coverage is triggered if the underlying act was intentional and deliberate. These cases also make clear that an "occurrence" defined as an "accident" in a CGL insurance policy does not refer to the unintended consequences of the act. Thus, the district court did not err when it applied Moulton and Ominbank and concluded that ACS’s intent to subcontract with Chamberlin/Southern and its intent to install the waterproofing membrane to the bunker roofs did not constitute an "occurrence" under its CGL insurance policy with CGU to trigger coverage. For the foregoing reasons we AFFIRM the judgment of the district court.

After ACS, the insurance industry became strident in its position that there was no coverage under the CGL policy for defective work by a subcontractor because such defective work did not constitute an "occurrence" thereby triggering coverage under the CGL policy. There are a number of jurisdictions that have confronted the issue with differing outcomes. However, there is currently no definitive Mississippi decision which specifically addresses this issue.

The issues which the Mississippi Supreme Court have been asked to address by the construction industry in Architex are as follows:

Whether unexpected, unforeseen and unintended defects in a subcontractor’s work, resulting in unexpected, unforeseen and unintended property damage, is an "occurrence" as defined in a CGL policy?

Whether a CGL policy written on the 1986 standard form that includes an exception from exclusion for property damage arising out of the work of a subcontractor provides completed operations coverage if that subcontractor’s work proves to be defective and causes property damage?

Amicus briefs have been filed by the Associated General Contractors of America; the Associated General Contractors of Mississippi, Inc.; Associated Builders and Contractors, Inc. Mississippi Associated Builders and Contractors, Inc.; the Mississippi Asphalt Pavement Association, Inc. and the American Subcontractors Association, Inc. and the American Subcontractors Association of Mississippi, Inc. Pursuant to Miss. Code Ann. §9-4-3, the Mississippi Supreme Court is required to render decisions on appeal within 270 calendar days after final briefs are filed, which was June 17, 2009. Accordingly, a decision from the Court should be issued sometime in April 2010. Stay tuned.

• Email This
• Print
• Comments
• Trackbacks

The Mississippi Supreme Court recently made it unmistakably clear that a contractual indemnity provision cannot exceed the limitations set in Miss. Code Ann. § 31-4-41 which provides:

With respect to all public or private contracts or agreements, for construction, alteration, repair or maintenance of buildings, structures, highway bridges, viaducts, water, sewer or gas distribution systems, or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise and/or agreement contained therein to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.

This section does not apply to construction bonds or insurance contracts or agreements.

(Emphasis added.)

In this recent decision, the Court considered an indemnity provision in a Shipyard Agreement. The Court found the statute unambiguous and concluded that to the extent that the indemnity provision sought to indemnify one party for its own negligence the provision was void. The Court further held that this defense can be preserved by setting forth the defense that plaintiff failed to state a claim upon which relief can be granted pursuant to Miss. R. Civ. P. 12(b)(6).

Remember to read your contract and carefully consider the language of any indemnity provision when you sign the contract and again if you become involved in litigation. Depending upon the particular circumstances, you might even consider purchasing additional insurance coverage of your own for adequate protection.

• Email This
• Print
• Comments
• Trackbacks

The Mississippi Court of Appeals has reaffirmed that a subcontractor must file a "Stop Payment Notice" prior to an owner making full payment to the general contractor. Otherwise, the subcontractor loses any hope of payment from the owner based upon that notice and the exclusive remedy for payment is against its general contractor.

In the recently published decision of Summerall Electric Co., Inc., et al. v. Church of God at Southaven, the Church of God at Southaven ("the Church") entered into a contract with an unlicensed general contractor for the construction of a new church. The general contractor engaged a number of subcontractors who performed work on the church but were not paid by the general contractor. The subcontractors filed "construction liens" against the church’s property. However, the subcontractors did not take this action until after the owner had already paid the entire contract amount to the general contractor.

The subcontractors advanced a number of arguments seeking to recover their money directly from the Church.

• The first argument was that the filing of the "construction liens" gave the subcontractors the right to recover against the Church. The Court disagreed because the Church had already paid the general contractor in full when the subcontractor’s notices were filed. For that reason, the subcontractors were mere creditors of the general contractor with no right to recover from the Church.  

• The next argument was that because the Church entered into a contract with an unlicensed general contractor the Church should be liable. Under Mississippi law, a construction contract is null and void if a license is required for that contract. The subcontractors apparently argued that because the general contractor was unlicensed the prime contract was null and void and the Church therefore owed payment directly to the licensed subcontractors. The Court disagreed again, finding if the prime contract was null and void, then nothing would be owed to the general contractor and therefore the subcontractors would have no remedy either.

• Finally, the subcontractors argued that there was an "agency relationship" between the prime contractor and the Church which bound the Church directly to the subcontractors. The Court rejected that argument too on the basis of insufficient evidence.

In the end, the subcontractors were left "holding the bag." The real lesson here is for both subcontractors and general contractors. Know when you are required to be paid and, if payment is late, exercise your remedies under the contract document and the appropriate payment statutes. The saying: "He who hesitates is lost", is not just a cliché but a truism that cannot be ignored in these difficult economic times.

• Email This
• Print
• Comments
• Trackbacks