Public agencies may use past performance to award a contract to the lowest and best bidder or reject a bid. Occasionally, construction companies may dissolve or form new companies. The reasons for a change in a company’s corporate structure may vary. However, the good and/or the bad may follow the newly formed company. This issue was addressed a number of years ago by the Mississippi Attorney General and the position explained as follows:

[I]f a bidder presenting a valid COR number is a company with which DFA/BOB has no past experience or past performance history, DFA/BOB may consider past experience with or past performance of the company from which the bidder originated, the bidder’s parent company, or the company with which the bidder merged, partnered, or changed names.

The Attorney General went on to state that a public agency can also reject an apparent low bidder "who submits a bid under the same COR number as its predecessor, predecessor in name, parent company, or merger/partner" where the public agency considers a poor past performer. [Link to AG Opinion No. 2003-649].

The important point to understand is that good and/or poor past performance follows the COR number which is held by the qualifying party.

On September 14, 2015, the Small Business Administration published its final rule implementing new regulations for awards to Women-Owned Small Business (WOSB) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSB). Now, as with other "special status" concerns such as 8(a) and Service Disabled Veteran Owned businesses, women-owned businesses will have access to set-aside and sole-source contracting opportunities. The legal basis for this final rule is §825 of the National Defense Authorization Act for Fiscal Year 2015.

 

Under the current WOSB program, SBA reports that WOSBs received approximately $15 billion in contract actions according to FY 2013 small-business goaling reports. The new sole-source authority for awards to EDWOSBs and WOSBs can only be used where a contracting officer’s market research cannot identify two or more WOSBs or EDWOSBs that can perform at a fair and reasonable price but identifies one that can perform. WOSB and EDWOSB competitive set-asides and sole-source contracts can only be awarded in those industries for which WOSB and EDWOSB opportunities are authorized.

 

The final rule announced in the Federal Register is attached here and becomes effective October 14, 2015.

Many subcontracts expressly condition payment to the subcontractor on receipt of payment from the owner by the prime contractor. Such a provision is typically labeled as a "pay-when-paid" clause. This clause postpones the time for payment to the subcontractor until payment is made by the owner or for a reasonable period of time. Thus, "pay-when-paid" clauses simply require a reasonable time to pass before payment is due and owing to the subcontractor, regardless of payment by the owner. Whereas, a "pay-if-paid" clause is intended to shift the risk of non-payment of the owner to the subcontractor and makes payment by the owner an express and absolute condition precedent to the prime contractor’s payment to the subcontractor.

These clauses have been enforced by some courts where the language in the clause makes payment by the owner to the prime contractor an express condition precedent to payment of the subcontractor. Nonetheless, subcontractors may have the ability to recover payment from the prime contractor’s surety where a payment bond has been furnished. As explained by one federal court:

The Miller Act is ‘highly remedial in nature,’ and so ‘entitled to a liberal construction and application in order to properly effectuate the Congressional intent to protect those whose labor and materials go into public projects.’ ‘[C]ommon sense dictates that it would defeat the policy underlying the Miller Act to read a pay-when-paid clause as precluding a subcontractor from bringing suit until its contractor receives payment.’ To enforce a pay-when-paid clause in this context would delay many claims beyond the Act’s one-year statute of limitations, and would thus render the clause an implicit waiver of the subcontractor’s Miller Act rights.

(Citations omitted.) This same rationale could also be applied where there is a "pay-if-paid" clause in the subcontract and under Mississippi’s payment bond statute.

Even if a payment bond has not been furnished on a project, a subcontractor on a private project may be able to file a lien and action to enforce the lien to avoid non-payment by the owner to the prime contractor. See generally, Miss. Code Ann. §§ 85-7-401, et al.

Just because you have included an arbitration provision in your contract does not mean that any dispute arising out of or related to the contract will be arbitrated. The Mississippi Supreme Court found in Sanderson Farms, Inc. v. Gatlin, that the refusal to pay the required share of the American Arbitration Association ("AAA") fee resulted in Sanderson Farms, Inc. ("Sanderson") waiving its right to arbitration. In that case, the arbitration clause provided in pertinent part as follows:

The cost of such arbitration will be divided equally among the parties to the arbitration. Each party will bear the costs of their own expenses and attorney’s fees. Failure to arbitrate all such claims or controversies arising under or related to this Agreement shall be deemed a breach of the Agreement.

Gatlin paid its share of the arbitration fees but Sanderson failed to pay its share. Gatlin filed suit in circuit court against Sanderson who filed a motion to dismiss arguing that the dispute was subject to arbitration. The circuit court denied Sanderson’s motion to dismiss. On appeal the Supreme Court held:

Sanderson farms waived its right to arbitrate by refusing to pay its one-half of the cost associated with the filing and administrative fees and/or the additional charges presented for payment one month before the scheduled arbitration hearing. This refusal amounts to an act inconsistent with the right to arbitrate. By waiving its right to arbitrate, Sanderson Farms has relinquished the right to seek the protections of the arbitration provision in the boiler contract.

It should also be noted that Rule 54 of the AAA Commercial Rules and Rule 56 of the AAA Construction Industry Arbitration Rules provide for procedures where a party has not paid its share of the arbitrator compensation or administrative charges.

The bottom line is a party may waive its right to arbitration if it does not comply with the requirements set forth in the arbitration clause and find itself in court rather than in arbitration.

If you are a contractor and submitted an application for a progress payment on a private construction project the owner should make timely payment under the terms of the contract.  However, all too frequently the owner does not make that timely payment.  If this occurs, contractors should look to Miss. Code Ann. §87-7-3 for relief.  It provides, with regard to progress payments as follows:

…If they [partial, progress or interim payments] are not paid within thirty (30) calendar days from the day they were due and payable, then they shall bear interest from the due date at the rate of one percent (1%) per month until fully paid.

Miss. Code Ann. §87-7-3(a).

This statute also provides the same relief where final payment is requested by the contractor and payment is not made within thirty (30) calendar days from the first occurrence of either (1) substantial completion under the terms of the contract, (2) beneficial use and occupancy by the owner, or when the project is certified as complete by the architect or engineer. Miss. Code Ann. §87-7-3(b).

Unfortunately, this interest is not automatic unless the amount requested is liquidated.  This was made clear by the Mississippi Supreme Court in a recent decision.  There was a dispute between the owner and the contractor concerning the amount due and owing under the contract.  The contractor demanded pre-judgment interest under Miss. Code Ann. §75-17-1 Ann. and late payment interest under Miss. Code Ann. §87-7-3.  In denying both of these requests the Court concluded:

Neither Section 75-17-1 nor Section 87-7-3 mentions whether monies owed contractors must be liquidated in order for the respective statute’s grant of prejudgment interest to apply.  However, the same considerations which preclude a recovery of prejudgment interest for unliquidated amounts owed under Section 75-17-1 apply to Section 87-7-3.  Therefore, Stubbs [the contractor] must show that his claims against the Falkners [the owner] were liquidated prior to the judgment in order to recover prejudgment interest under either statute.

Falkner v. John E. Stubbs d/b/a Mississippi Polysteel, 121 So.3d 899, 903 (Miss. 2013).  Damages are considered unliquidated if they are not set forth in the contract or cannot be established by a fixed formula. Id.

The bottom line is that contractors need to make sure that the payment provisions of the contract are clear and that any schedule of values is sufficiently detailed to identify the item of work and the value which the parties have agreed to assign to this item.  Of course, any change order work should also be priced and agreed to avoid creating a disputed and unliquidated amount.

 

 

 

 

Contractors frequently encounter circumstances where they are entitled to an extension of the contract time and request the extension, but, in some instances, the owner and/or architect refuses to timely act on the request by either granting or denying the request. When a contractor encounters such a circumstance, it must decide whether to accelerate its performance to avoid missing the contract completion date and being assessed damages by the owner or maintain its schedule based upon the assumption the contractor will receive the extension and risk a potential termination for default by the owner for not making adequate progress toward the completion date. This is the very reason why the Mississippi Supreme Court suggested that the "refusal to grant extensions on a timely basis can reasonably be interpreted as active interference or bad faith" and could justify the award of damages to a contractor.

Contractors should therefore not just request an extension of time with supporting documentation but also demand a timely response. If no response is forthcoming, the contractor should then advise the owner and/or architect of the consequences of a further delay in a decision.

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.

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.

On May 13, 2009, I published a blog titled "Who can be a "Qualifying Party" for a Contractor’s Certificate of Responsibility". [Click to view blog post] The blog article states that the requirement for a contractor’s Certificate of Responsibility for a public contract is $50,000 and a private contract is $100,000. Since the writing of that blog article, the statute has been amended and effective July 1, 2010, a Certificate of Responsibility is required on all contracts, both public and private, in excess of $50,000.

It can be unclear when a contractor bidding on a public construction project actually has a binding contract with a public entity. This question appears to have been addressed by the Mississippi district court in Northeast Mississippi Community College District v. Vanderheyden Construction Company. In that case, the community college had issued an advertisement for bids from qualified contractors for the construction of a new science and math building. The advertisement reserved the right to reject any and all bids. After bids were opened, Vanderheyden was declared the low bid. The Board of Trustees ("the Board") voted to award the contract to Vanderheyden but after the board meeting the second low bidder challenged the award alleging a number of deficiencies in Vanderheyden’s bid. Rather than risk a lawsuit by the second low bidder, the Board decided to rescind the award and readvertise. At the second bid opening the protester on the original procurement was the low bidder and Vanderheyden was the second low bidder.

The issue presented to the district court was whether the Board could properly rescind its prior award to Vanderheyden and readvertise the project. The district court concluded that "a public entity cannot reject all bids and readvertise the project after it has already accepted the lowest responsible bidder." In analyzing the actions of the Board, the district court when on to state:

[T]he court is of the opinion that once the board chose to accept Vanderheyden’s bid, the reserved right to reject any and all bids had not been exercised and it was no longer operative. To hold otherwise would be contrary to well-established principles of contract law and would permit the possibility of favoritism in public bidding, the very evil which the bidding process statutes were enacted to prevent.

Therefore, once a public entity has officially accepted a bid, there is a binding contract between the parties unless the public entity has expressly conditioned the award upon certain requirements.