Waiver of Right to Assess Liquidated Damages

Contractors who have a liquidated damage provision in their contracts should be aware that their assessment can be waived by the conduct of the owner.  The Mississippi Supreme Court has found that an owner was estopped from asserting delay damages where it failed to timely assert that right.  Contractors faced with a liquidated damage provision may therefore be able to defend against assessment of these damages where the owner fails to affirmatively and timely assert the right to them.  This may occur when the owner waits until the end of the project, long after the completion date has passed, to claim its right to liquidated damages without deducting them as they accrue.

Oral contracts - be careful what you say.

There are plenty of different ways that a contractor can get in trouble with an owner or its subcontractors.  One is to talk too much and wind up entering into a separate enforceable oral contract.  The existence of an oral contract is a factual issue that will be decided by a jury or a judge in a trial without a jury, also known as a bench trial.  However, the formation of a contract requires three (3) simple elements: (1) an offer, (2) acceptance of the offer, and (3) consideration. If those elements are proven by one of the parties, an enforceable contract may have been formed and someone may have to pay.  There are some limited situations in which the law requires that a contract be in writing.  Nevertheless, the best course of action is to speak with caution so that there is no opportunity to argue that an oral contract was made.

And remember, the statute of limitations for an oral contract is three (3) years. Miss. Code Ann. §15-1-29. So, you may want to watch what you agree to do or you may lose sleep for quite some time until the statute of limitation expires.

The Duty to Proceed--Do I really have to do change order work without getting paid?

During the course of construction, contractors will sometimes find that the owner and/or architect are demanding more work than the contractor reasonably interprets the plans and specifications to require. The typical owner and/or architect solution to the dispute is simply to tell the contractor its interpretation is incorrect and direct the contractor to proceed with what the contractor considers additional work. Later, the owner may attempt to rely upon the lack of a written change order authorizing the performance to deny compensation and/or time for performance of additional work.

Does the contractor walk off the job or proceed with the additional work notwithstanding this dispute? Most contracts require contractors to proceed with the work notwithstanding the existence of a dispute; otherwise, the contractor might be subject to a default termination. However, such provisions also typically require the owner to continue payments under the contract for undisputed work. The idea is to keep the project moving forward—i.e., to prevent the contractor from bringing the project to a halt pending resolution of disputed items and to prevent the owner from holding the contractor’s funds hostage pending the resolution of the dispute.The contractor must therefore generally proceed with the performance of additional work without immediate compensation for that work.

However, it does not mean that the contractor is performing the work gratuitously. The refusal of the owner to issue a change order for the additional work may not insulate it from liability. "[U]nder Mississippi law, where the owner orders the contractor to perform extra work outside the contract, the contractor is entitled to compensation for that work, despite the fact that no change order was issued." See Sentinel Industrial Contracting Corp. v. Kimmins Industrial Service Corp. In Sentinel, the Mississippi Supreme Court recognized the inherent inequity in allowing the contractor to demand a subcontractor perform extra-contractual work without a change order and then deny compensation because a change order had not been issued.

This same rationale should apply to the situation where an owner directs the contractor to perform work without a change order. When this occurs, the contractors must place the owner and/or architect on written notice of its objection to the additional work and reserve its right to recover the costs and/or time associated with the change order work. Simply stated, the duty to proceed does not entitle the owner to avoid paying for legitimate change order work even in the absence of a written change order.

No Certificate of Responsibility = Null and Void Contract

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.)

 

Mandatory Pre-Bid Meetings - Do I really have to attend?

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.