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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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There is an emerging trend in public bids to include a requirement for a mandatory pre-bid meeting. The requirement to attend the pre-bid meeting is typically set forth in the Instructions to Bidders ("ITB") and provides that a contractor’s failure to attend will result in its bid being rejected as non-responsive.  

As a preliminary matter, there is no Mississippi statute or regulation which requires a public agency to conduct a pre-bid meeting or for a contractor to attend a pre-bid meeting to qualify it to submit a bid.  This is a "requirement" typically included in the Instructions to Bidders by the Owner/Architect.  One reason it may be included is to give "local" contractors an advantage over "foreign" contractors. "Foreign" contractors are forced to expend additional time and effort to attend the pre-bid meeting, and cannot simply throw a bid together and submit it to the public agency. Another reason the requirement is included may be to give the opportunity for the Owner/Architect to give final, pre-bid information on the project requirements and, sometimes, even to serve as an alternative (though not a good one) to an amendment to the ITB.

A contractor that does not attend the pre-bid meeting risks the potential for having its bid rejected as non-responsive.  If the Owner/Architect truly intends to enforce this requirement, at bid opening the Owner/Architect should examine each bid to determine the identity of the bidder and compare it to the list of attendees at the pre-bid meeting.  If the bidder did not attend the pre-bid meeting, the Owner/Architect should return the bid unopened.

In most instances, the Owner/Architect will open the bids and address the issue only if the apparent low bidder has not attended the pre-bid meeting.  The bigger the spread between the apparent low bidder and the second low bidder, the more likely it is that failure to attend the mandatory pre-bid meeting will be waived. The Mississippi Attorney General has opined that "a bidding irregularity may be waived if: (1) the irregularity does not destroy the competitive character of the bid by affecting the amount of the bid thereby giving the bidder an advantage or benefit over other bidders and (2) the irregularity does not involve noncompliance with a statutory or regulatory requirement."  Because the requirement to attend a pre-bid meeting is not a statutory or regulatory requirement, Owners/Architects frequently waive the pre-bid meeting requirement without a challenge.  

If, however, the Owner/Architect does not agree to voluntarily waive the irregularity, an argument can be made that by opening the contractor’s bid that did not attend the pre-bid meeting; the Owner/Architect has already waived the requirement.   

There is another alternative. A contractor that is concerned about the requirement for a mandatory pre-bid meeting can file a pre-bid protest with the public agency challenging this requirement as unduly restrictive on competition and not in the best interests of the public.   

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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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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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