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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."

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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.

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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.

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The Mississippi Supreme Court handed down a decision this month upholding the proposition that an arbitration agreement can be enforced against someone who did not sign the agreement. However, the facts of the case were unusual in that the individual (Donna Stuckey) against whom arbitration was ordered presented evidence that at least some of the documents involved in the transactions contained forged signatures.

In this case, the defendants had pledged certain property to the bank as collateral for loans made to their cattle business. Mrs. Stuckey’s name appeared approximately fifty-five times on documents containing arbitration provisions. However, Mrs. Stuckey claimed the only document she actually signed was one deed of trust which did not include an arbitration provision. Mrs. Stuckey admitted she was one of the owners of the cattle business. She asserted numerous claims, including forgery, against the bank and one of its employees who was also an owner of the cattle business. She further claimed she suffered damages when the bank employee took profits from the sale of cattle without her knowledge or permission. Because the only document which Mrs. Stuckey admitted had been signed by her did not include an arbitration provision, she disputed the matter was subject to arbitration.

The Supreme Court disagreed, concluding that it did not matter whether Mrs. Stuckey’s signature was forged and it did not matter that the deed of trust had no arbitration clause. The Court held since Mrs. Stuckey was a co-owner in the cattle business she was a third-party beneficiary to the loan agreements which included arbitration provisions. The Court also concluded that Mrs. Stuckey was equitably estopped from claiming she was not subject to arbitration on the basis that she could not claim breaches of duties associated with the loan documents and at the same time claim that she was not bound by the provisions in those documents.

This decision serves as a reminder of two principles: (1) You can’t have your cake and eat it too. The Mississippi Supreme Court recognizes and disfavors simultaneous attempts to claim the benefits of a contract and to disclaim application of certain contract provisions. (2) Arbitration continues to be favored by courts.

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Every contractor generally requires proof of insurance from its subcontractors, especially with respect to worker’s compensation insurance. In satisfaction of this contractual requirement, subcontractors commonly provide a certificate of insurance to the prime contractor. Is the certificate of insurance sufficient? It may not be.

Many certificates of insurance contain a disclaimer that the certificate is for informational purposes only and does not extend the policy. The disclaimer is a warning that you must look at the policy itself for specific coverage.

In Complete Roofing Services, et al. v. Doherty Duggan & Rouse Insurors, 5^th Circuit Court of Appeals (5^th Cir. 2009), a certificate of insurance was issued to a general contractor, but the worker’s compensation coverage denoted in the certificate was limited to occurrences only in Georgia. The subcontractor’s employee was injured in Mississippi. The court determined that the "Georgia only" policy did not provide coverage for the injured employee. As a result, the general contractor’s worker’s compensation was required to cover the claim. In this case, it was a catastrophic claim costing the worker’s compensation carrier over $1,000,000.

The best business "policy" is to always obtain and read the actual insurance policy itself. In reviewing the policy, take into consideration the circumstances related to each particular project. For example, consider the following factors: Is the subcontractor from another state? If so, are the subcontractor’s employees from another state or local? Is the subcontractor’s insurance policy state specific? If so, does it cover the state where the project is located? Will any leased employees be used for the project? If so, does the insurance policy cover leased employees or is other insurance required? Are there any warnings or disclaimers in the policy? If so, take heed and consider whether other additional insurance is necessary.

Although the Complete Roofing Services case dealt with a contractor/subcontractor relationship, these basic rules apply to any situation where one party contractually requires insurance from another party. The bottom line is this: get the full policy and read it. This applies to your own insurance policy as well!

(D. Drew Malone is a member of Robinson, Biggs, Ingram, Solop & Farris, PLLC who practices in the area of insurance defense. Drew personally handled this case and contributed to drafting this blog.)

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On July 21, 2009, the Mississippi Court of Appeals made it clear that any contract entered into by a party with an unlicensed contractor is null and void. United Plumbing & Heating Company v. AmSouth Bank (Ct. App. No. 2007-CA-01194). This is the first reported decision that addresses the interpretation of Miss. Code Ann. § 31-3-15. This statute provides in pertinent part as follows:

No contract for public or private projects shall be issued or awarded to any contractor who did not have a current certificate of responsibility issued by said board [of contractors] at the time of submission of the bid…Any contract issued or awarded in violation of this section shall be null and void.

In United, the general contractor [United] entered into a contract with an owner [Wee Care] for the construction of a building. The contractor and its subcontractors were not paid for their work. The owner filed bankruptcy and the contractor filed suit against the lender [AmSouth] to recover its contract balance. AmSouth filed a motion for summary judgment arguing that because United did not have a valid certificate of responsibility, the contract was null and void. United argued that it did hold a certificate of responsibility, even though the certificate was issued in a classification different from the type of work being performed for Wee Care. The trial court granted summary judgment in favor of AmSouth. United appealed the decision but the Mississippi Court of Appeals affirmed the trial court’s ruling finding:

[T]he contract entered into between United and Wee Care was null and void because United failed to possess the appropriate certificate of responsibility for the type of work it undertook to perform. Having found that United’s contract with Wee Care was void, it follows that any contractual obligations AmSouth [the lender] may have owed [United or] the subcontractors are also void.

(emphasis added). If a contractor or subcontractor does not have a current certificate of responsibility, it may find itself in the position of having furnished labor and material on a project and not being paid. This could result in a financial disaster for one party and a windfall for the other party.

United makes it abundantly clear that owners, contractors and subcontractors should always check Mississippi State Board of Contractors to determine if the contractor or subcontractor holds a license for the work to be performed. It is also prudent for a party to confirm with the licensed entity that the qualifying party is currently an "owner, or a responsible managing employee, or a responsible managing officer, or a member of the executive staff…" See, Who Can be a "Qualifying Party" for a Contractor’s Certificate of Responsibility? Posted on this blog site by Christopher Solop, May 13, 2009.  (The State Board of Contractors has recently proposed an amendment to Rule L shortening the period to replace a qualifying party after the individual holding the certificate of responsibility leaves the employment of the company from 180 days to 90 days. This change will take effect on October 8, 2009.)

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The Mississippi Court of Appeals just released yet another decision in its recent review of arbitration provisions. This time the case dealt with multiple documents, one of which did not include an arbitration provision.

The case involved a couple who had borrowed money from a bank. As is typical with loan transactions, numerous documents were signed as a part of the transaction. The loan-related documents contained an arbitration provision which included in part that "any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator". However, the deed of trust contained no arbitration provision.

The borrowers contended that their house and three acres were not included in the property that had been pledged under the deed of trust for the loan; the bank disagreed. The borrowers filed suit and the bank demanded arbitration. The borrowers claimed the deed of trust was not subject to arbitration.

On appeal, the Mississippi Court of Appeals ruled that the arbitration provisions in the loan documents "should be considered incorporated into the deed of trust" because "separate agreements executed contemporaneously by the same parties, for the same purposes, and as part of the same transaction, are to be construed together." Accordingly, the Mississippi Court of Appeals overturned the trial court and ordered arbitration of the matter.

The lesson of the decision is that some statements bear repeating. In this case, the Court concluded that the parties had agreed to arbitration, even though the deed of trust did not specifically so state. However, the result may not be the same in other situations. Although it may seem repetitious, the safest course of action is to include an arbitration provision in every document related to a transaction. Otherwise, you may find yourself fighting to enforce the agreement to arbitrate as the bank did in this case.

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Contractors are occasionally confronted with a subcontractor that just cannot seem to get the job accomplished in a timely or satisfactory manner. Despite repeated warnings, the subcontractor’s performance may not improve. Because termination is an extreme remedy, contractors are generally hesitant to terminate a subcontractor. But when is enough, enough? The Court of Appeals for Mississippi provided some guidance on this issue in Byrd Brothers, LLC v. Herring, 861 So.2d 1070 (Miss. Ct. App. 2003).

In Byrd, the contractor retained a subcontractor to perform plumbing work on a condominium complex. Shortly after the plumbing work commenced there was a dispute concerning the scope of work to be performed by the plumbing subcontractor. There were also issues with the quality of the work performed by the plumbing subcontractor. The contractor repeatedly requested the plumbing subcontractor remedy the deficiencies. However, the plumbing subcontractor failed to adequately address the concerns complaining the contractor was "being too picky". When the contractor discovered billing irregularities, the plumbing subcontractor was asked to leave the project site. The contractor later requested the plumbing subcontractor meet to discuss his performance issues and completion of the project but the plumbing subcontractor refused unless the contractor immediately paid him some money. When this did not occur, the plumbing subcontractor refused to meet and did not to return to the project. The contractor retained another plumbing subcontractor to complete the work.

The original plumbing subcontractor sued the contractor for the subcontract balance and the contractor asserted a counterclaim against the plumbing subcontractor for the cost to complete the plumbing work. The trial court found in favor of the subcontractor. In reversing the trial court judgment and ordering a new trial, the Mississippi Court of Appeals articulated the following legal principle:

A party who has breached or failed to properly perform a contract has a responsibility and a right to cure the breach. The non-breaching party must give him a reasonable opportunity to cure the breach. However, the right to cure is not unlimited.

Where the breach is a material one, the non-breaching party has a right to end the contract, but in doing so he is also obligated to minimize his damages. Likewise, when the conduct of the breaching party has been of such a nature as to cause a loss of confidence or "shaken faith," the offended party is entitled to end the contract, but he remains responsible for mitigating damages.

(Citations omitted.)

The Byrd decision highlights the importance of providing a breaching party the opportunity to cure its breach. One warning may not be enough. Contractors need to be vigilant in their efforts to document incomplete and deficient performance and afford adequate opportunities for the subcontractor to "do the right thing". If the subcontractor fails to timely and satisfactorily respond to the contractor’s demands to cure the incomplete and/or deficient work, the cumulative impact of the incomplete and/or deficient work and the lack of responsiveness on the part of the subcontractor may result in a lack of confidence, i.e. "shaken faith", sufficient to entitle the contractor to complete the work and mitigate its damages.

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Mississippi law requires that a party introduce the "best evidence" available to prove its alleged damages.  The Mississippi Supreme Court has stated the basic rule of proof of damages as follows:

It is absolutely incumbent upon the party seeking to prove damages to offer into evidence the best evidence available [for] each and every item of damage.  If he has records available, they must be produced.  While certainty is not required, a party must produce the best that is available to him.

See Eastland v. Gregory, 530 So.2d 172, 174 (Miss. 1988) (emphasis added).

In applying this rule, the Mississippi Supreme Court held that evidence was insufficient where a party claimed that a buyer had breached its contract to buy a house and the owner had to sell to someone else at a lower price.  The "best evidence" of the sale at the lower price was not introduced because "no records were produced of the sale and event he name of the purchaser was not mentioned."  Id. at 173.  The Court indicated the kind of evidence that would have been "best", observing "[t]here was no contract of sale with the second purchaser offered into evidence, no check for purchase price, no deed, no record whatever, simply the statements by Mr. and Mrs. Gregory [the owner] that the house sold for $175,000.00."  Id. at 175.  The owner also claimed interest paid on a construction loan he had to take out in the amount of "about $4,300.00."  Id. at 174.  Even though a copy of a note was introduced into evidence, the Court ruled that the testimony was in error, stating:

In the first place there was no showing that the Eastland's breach of the contract in any way necessitated Mr. Gregory borrowing $85,000 to build his new home...  There may have been some damage occasioned by the breach of contract in addition to having to sell the residence for a less sum of money, but no predicate whatever was laid for such assessment by the jury.  A bare conclusory statement by Mr. Gregory that because of the Eastlands' breach he had to borrow the money hardly suffices.

Id. at 174 (emphasis added).  See also Caver v. Brown, 818 So.2d 376 (Ct. App. Miss. 2002) (citing Eastland); City of New Albany v. Barkley, 510 So.2d 805, 807 (Miss. 1987) ("while the measure of damages need not be perfect, the most accurate and reliable evidence available should be required.")

The rule is very straightforward and has been summed up precisely:

...[T]he highest degree of proof of which a case is susceptible must be produced.  This is the Mississippi rule...  What we rule here is that if basic fact records exist, those records, not opinions as to what they could have been, should form the evidentiary basis for introducing their content into this cause.

See Harrison v. Prather, 435 F. 2d 1168, 1175 (5th Cir. 1971) (emphasis added).

In addition, the Rule 1002 of the Mississippi Rules of Evidence provides that "[t]o prove the content of a writing, recording, or photograph, the original writing, recording, or photograph is required, except as otherwise provided by law."  This rule reflects the "best evidence rule."

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To perform any public contract of at least $50,000 or private contract of at least $100,000, a contractor must hold a Certificate of Responsibility issued by the Mississippi State Board of Contractors.  It makes no difference whether the "contract" to be performed is a prime contract or subcontract at any tier.  Miss. Code Ann. 31-3-15.

Moverover, Mississippi law does not permit the "borrowing" of certificates of responsibility.  Only a responsible managing officer, employee, or member of the executive staff of the applicant for the certificate can serve as its qualifying party.  The statutes creating the State Board of Contractors, which governs the licensing of contractors, and that Board's regulations implementing those statutes are designed to prevent one person from serving as the qualifying party for entities in which he or she has not personal or managerial stake or responsibility.  To allow otherwise would dilute the requirements which are meant to ensure the integrity, financial capacity, and technical capability of all entities performing construction in Mississippi.

Miss. Code Ann. 31-3-1 defines a "certificate of responsibility" as a "certificate numbered held by a contractor issued by the board under the provisions of this chapter after the payment of the special privilege license tax..."

Miss. Code Ann. 31-3-13(a) defines who can be the "qualifying party" or an applicant of a certificate of responsibility, whether such application is for a new certificate or a renewal certificate.  Specifically, it states:

The board shall take applicants under consideration after having examined him or them and go thoroughly into the records and examinations, prior to granting any certificate of responsiblity.  If the applicant is an individual, examination may be taken by his personal appearance for examination or by the appearance for examination of one or more of his responsible managing employees; and if a co-partnership or corporation or any other combination or organization, by the examination of one or more of the responsible managing officers or memebers of the executive staff of the applicant's firm, according to its own designation.

The intent clearly is that a qualifying party be a responsible managing employee for or officer of the applicant, whether it's a sole proprietorship or corporation.  The true "responsibility" for which the certificate is issued cannot be determined otherwise.  In construing this requirement the State Board of Contractors promulgated the following regulation which, again, leaves no doubt that the "qualifying party" must be intimately involved in the management and/or ownership of the entity claiming him or her as their qualifying party.  Rule L states:

When the qualifying party terminates employement with the Certificate holder, the Mississippi State Board of Contractors must be notified in writing, by the qualifying party and the Certificate holder, within thirty (30) days of the disassociation and another party must qualify within one hundred eighty (180) days or Certificate holder will be subject to suspension or revocation of its Certificate of Responsibility.

(Emphasis added).

Thus, where a purposed "qualifying party" for Company A is neither a managerial employee nor an officer of that company but, in fact, owns or is the officer of another, unrelated Company B, but Company B routinely serves as a subcontractor to Company A, Company A and its purported "qualifying party" are in violation of MIssissippi law and the Rules and Regulations of the State Board of Contractors.  (This is typically done where owners of two companies do not want to commingle business assets, finances, or interests, but they do want to pursue and perform contracts together.)  Company A's Certificate of Responsibility is null and void as a matter of law.

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In these difficult economic times, an Owner and/or Contractor may be tempted not to make full and final payment after the work is complete and there is beneficial use and occupancy of the facility. The Owner and/or Contractor may justify this conduct even though there is not currently a problem with the work because there "may" be unanticipated future problems with that will need to be addressed. However, withholding payment for potential defects or warranty issues could turn out not to be a wise decision.

An Owner and/or Contractor’s "belief" that it may have warranty claims sometime in the future may be insufficient to justify withholding of final payment as explained by the Mississippi Supreme Court in Crawford Commercial Constructors, Inc. v. Marine Industrial Residential Insulation, Inc., 437 So.2d 15 (Miss. 1983). In that case, a subcontractor sued the general contractor for payment under a roofing contract. The general contractor had refused to pay the subcontractor on the basis that it "believed the roof was improperly installed, so that [the general contractor] will ultimately be required to repair it to satisfy the building’s owner." Id. The Court ruled that the general contractor’s "beliefs" were conjectural. Id. at 16. In affirming the trial court’s decision in favor of the subcontractor, the Mississippi Supreme Court stated:

Under our authorities there must be a present, existent actionable title or interest which must be completed at the time the cause of action is filed. (citations omitted). A mere inchoate right is not sufficient and neither is a prospective danger of injury. (citations omitted)…"It is certainly an undisputable and invariable rule of law that a right of action must be complete when an action therefore is commenced…."…"we consider it to be the well-settled, general rule, that the facts which constitute the ground of a suit must exist at the time the suit is instituted…"

Id. at 16.

In addition to this jurisprudence, Mississippi has enacted what are generally known as "Prompt Payment Statutes" for both public and private construction contracts. Both of these statutes require timely final payment once the contract has been determined to be substantially complete or there has been beneficial use and occupancy. There are also "Late Payment Interest Statutes" which apply when a contractor fails to make payment "without reasonable cause" to its lower tier subcontractors or suppliers within fifteen (15) days after receipt of payment.

There is no provision for recovery of attorneys’ fees in either the "Prompt Payment Statutes" or the "Late Payment Interest Statutes." Contractors therefore need to ensure the issue of attorneys’ fees associated with collection efforts are adequately addressed in their contract documents.

You can expect this case law and these statutes to be cited frequently in payment disputes during these difficult economic times.

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