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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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If you are bidding on projects awarded through the Mississippi Department of Finance and Administration, Bureau of Building, Grounds and Real Property Management ("the Bureau"), you might not be awarded the contract, even if you are the apparent low bidder.

The Bureau is very particular about with whom it does business. Effective May 18, 2009, the Bureau has expanded the grounds for disqualifying a bidder from competition. (Link to rules.) These recent changes are highlighted below.

1.04 DISQUALIFICATION OF BIDDER: A Bidder may be disqualified for any of the following reasons:

A.  Failure to comply with the bid requirements.  (This provision was in 600.53 but missing in 1.04 of the Instructions to Bidders.

B.  Bidder is in arrears on existing Contract with the Bureau or another state agency.

C.  Bidder is, or anticipates being, in litigation or arbitration with the Bureau or another state agency.

D.  Bidder has defaulted on a previous Contract.

 

BOB Manual, Instructions to Bidders, Section 00100, Part 1, General, Paragraph 1.04.

Mississippi’s Public Procurement Statute requires award to the "lowest and best bidder". However, the Mississippi Courts have recognized that the lowest bid may not necessarily be the best bid. Thus, state agencies have been afforded considerable deference when deciding which contractor has submitted the "lowest and best bid". One of the areas the Mississippi Supreme Court has recognized may be considered in the evaluation of bids is a contractor’s past performance record. However, in my opinion, the Bureau’s grounds for disqualification impermissibly expand the area of inquiry by seeking to penalize a contractor for exercising its contractual right to pursue a claim against the Bureau or another state agency with which the contractor has a contract.

The Bureau’s new grounds for disqualification gives it the authority to now reject a bid if the contractor "anticipates" being in litigation or arbitration. Hypothetically, this means that if a contractor has a contract with the Bureau or another state agency, writes a "claim" letter stating the contractor believes it has a right to an equitable adjustment in the contract price and/or time and subsequently submits a bid on another Bureau project, the contractor’s bid may be rejected because the letter could be construed as a sign the contractor "anticipates" being in litigation or arbitration with the Bureau. The Bureau may even require a certification as part of its bid requirements wherein the contractor must represent it does not anticipate being in litigation or arbitration with the Bureau or another state agency. The obvious intent of this provision is to discourage contractors from asserting claims against the Bureau or another state agency on construction projects. It appears the Bureau has made the decision that such draconian tactics are more effective then dealing with legitimate claims which the contractor has a right to assert under the Bureau’s contract documents.

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If you have ever been the apparent low bidder on a public construction project and had your bid rejected because of an irregularity in the bid documents, you are not alone.  What is even more frustrating, and will make you fighting mad, is when the public agency decides to waive the same irregularity of a competitor when you are the second low bidder.  Perhaps the best way to avoid this situation is to make sure that you have completed your bid in strict accordance with the instructions to bidders.  I know it is difficult to focus on all the particulars when less than an hour before the bid is to be submitted subcontractors and suppliers are sending in prices or changing the ones previously provided.  Here is a simple bid checklist that may help you avoid those last minute mistakes.

• Read the "Instruction to Bidders" when you obtain a copy of the solicitation to make sure that there are no unusual or different bid requirements. 
  • Pre-Bid Conference
  • Bid Bond
  • Site Visit
  • Listing of Subcontractors
• Prepare the bid envelope in advance, identifying (1) the project, (2) the person to whom the bid is to be submitted, (3) the location where the bid is to be submitted and (4) the date and time for the submission of the bid.  ALWAYS PLACE CERTIFICATE OF RESPONSIBILITY NUMBER ON THE OUTSIDE OF THE ENVELOPE.
• Complete the bid form and check to determine whether all the blank spaces for prices are completed with a dollar amount or a "---" or "-0-".
• Check your addition and multiplication for unit prices and total bid price.
• Acknowledge all Amendments/Addenda to the solicitation.
• List subcontractors, if required.
• Sign and date the bid documents.
• Check the bid bond, if required, to make sure that it is in the correct amount and proper form.
• Place bid documents and bid bond, if required, into envelope and submit.

In the event you are determined to be the apparent low bidder, and your bid is not more than ten percent (10%) above the amount of funds allocated for the project, it is likely that you will be awarded the contract.

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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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The Mississippi Department of Finance and Administration, Bureau of Building, Grounds and Real Property Management is currently updating its BOB Construction Manual.  This is your opportunity to participate in the process.  If you want to be heard, you should email Glenn Kornbrek, the Assistant Director for the Bureau of Building, Grounds and Real Property Management (KornbrG@dfa.state.ms.us).  Mr. Kornbrek’s telephone number is (601) 359-3894.

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The Mississippi  courts will enforce forum selection clauses when the intent is clear and unequivocal.  When confronted with challenges to the enforcability of a forum selection clause, the  first step in analysis is whether it is mandatory or permissive. Titan Indemnity Company v. Hood, 895 So.2d 138, 146-47 (Miss. 2005) (.pdf). The determination of what language is considered mandatory as opposed to permissive was carefully examined and discussed in Bently v. Mutual Benefits Corp., 237 F.Supp.2d 699 (S.D. Miss. 2002) (.pdf). In Bently, the district court was tasked with determining whether to enforce a forum selection clause with language strikingly similar to the language found in SCP’s terms and conditions. Its analysis followed the two-step inquiry articulated by the Fifth Circuit in Caldas & Sons, Inc. v. Willingham, 17 F.3d 123 (5^th Cir. 1994) (.pdf). As to whether the forum selection clause was mandatory or permissive, the district court reasoned that "a mandatory forum selection clause has express language limiting the action to the courts of a specific locale which is clear, unequivocal and mandatory." Bently, 237 F.Supp.2d at 702 (emphasis added). The district court when on to cite a number of decisions discussing the importance of limiting language in the forum selection clause to obviate any uncertainty with regard to the exclusivity of the chosen forum.

If the forum selection clause is considered mandatory, the second step in the legal analysis requires the court to consider (1) whether "Its incorporation into the contract was the result of fraud, undue influence or overweening bargaining power; (2) [t]he selected forum is so gravely difficult and inconvenient that the resisting party will for all practical purposes be deprived of its day in court; or (3) [t]he enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decisions." Titan Indemnity Company v. Hood, 895 So.2d 138,146-47 (Miss. 2005).

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