In a recent Mississippi Supreme Court decision the Court considered language in a contract which contained an arbitration provision, which excluded aesthetic-effect claims from arbitration. Click here to see decision. The contract in question was the AIA Document A101-1997 Standard Form of Agreement Between Owner and Contractor and AIA Document A201-1997 General Conditions for the Contract for Construction. The Owner maintained that because the contract stated "[a]ny Claim arising out of or related to the Contract, except Claims relating to aesthetic effect and except those waived…shall, be subject to mediation as a condition precedent to arbitration or the institution of legal or equitable proceedings by either party" there had been no clear waiver of its right to a jury trial. The trial court disagreed and on appeal the Mississippi Supreme Court affirmed.

The Court found the language of the contract required arbitration of all claims with the exception of those relating to aesthetic effect. Opinion on whether there had to be an express waiver of the right to a jury trial, the Court stated:

No caselaw suggests that, to be valid, an arbitration agreement must include an express statement which waives the right to a jury trial.

[T]he Constitution does not ‘confer the right to a trial, but only the right to have a jury hear the case once it is determined that the litigation should proceed before a court. If the claims are properly before an arbitral forum pursuant to an arbitration agreement, the jury trial right vanishes.

McKenzie Check Advance of Miss., LLC v. Hardy, 866 So.2d 446, 455 (¶30)(Miss. 2004)(citations omitted). Section 11-15-103 requires only a written agreement to arbitration.

Thus, the Court makes it clear that where a contract includes an agreement to arbitrate disputes, there is no need to have an express waiver of the right to a jury trial.

Today the Small Business Administration published a proposed rule to increase the size standard for Land Subdivision and for Dredging and Surface Cleanup Activities, which are both in the Heavy and Civil Engineering Construction sector. SBA proposes to increase the size standard for Land Subdivision (NAICS 237210) from $7 million to $25 million in average annual receipts. Dredging and Surface Cleanup Activities is an "exception" sub-category of Other Heavy and Civil Engineering Construction. For Dredging and Surface Cleanup Activities, SBA proposes to increase the size standard from $20 million to $30 million in average annual receipts. Otherwise, the size standard for Other Heavy and Civil Engineering Construction (NAICS 237990) remains at $33.5 million.

If adopted as a final rule, these changes would allow contractors that have outgrown the previous size standards to become "small" again and prevent contractors that may be on the "other than small" bubble to remain "small". These changes also increase the pool of small businesses in these industry categories, allowing agencies to set more procurements aside for small-business concerns.

Interested parties must submit their comments not later than September 17, 2012, to SBA. The proposed rule is attached here.

In a case of first impression, the United States Civilian Board of Contract Appeals upheld a contracting officer’s final decision assessing damages against a prime contractor that failed to comply with the requirement to perform at least 50% of the on-site work. On a contract awarded by the Federal Highway Administration ("FHWA"), prime contractor, Singleton Enterprises ("Singleton") subcontracted the vast majority of its work to Talley Construction ("Talley"). Singleton’s only employees on-site were supervisors, which Singleton apparently borrowed from Talley but paid directly. It was unclear whether Singleton had paid for equipment used on the site, but the CBCA determined that whether or not Singleton had paid for equipment costs, it still performed substantially less than 50% of the value of on-site work.

The FHWA decided that if Singleton did not perform the on-site work, it was not entitled to the benefit of the unit prices it charged for that work. Talley was essentially acting as prime contractor so the FHWA decided it should only pay Singleton what Singleton was paying Talley. To calculate its damages, once the final quantities were determined, the FHWA multiplied Talley’s unit price to Singleton for the work, which was less than Singleton’s unit price to the FHWA for the work. Singleton had already been paid more than the FHWA would have paid based on Talley’s pricing. The appeal upheld not only the FHWA’s decision that it was entitled to recoup its "overpayment" damages from Singleton for not meeting the percentage of work requirement but also the reasonableness of the FHWA’s method of calculating its damages for that breach.

The decision notes that it has no precedential value. However, in similar circumstances, contractors should expect both the Department of Transportation and the Civilian Board of Contract Appeals to act as they did here. See Singleton Enterprises v. Department of Transportation, CBCA No. 2716, June 14, 2012.

On October 4, 2010, the U.S. Small Business Administration published a final rule in the Federal Register establishing a federal contracting programs for WOSBs.  See Press Release.  In a press release of the same date, the SBA says the new WOSB program will be used to help achieve a statutory goal that 5% of federal contracting dollars go to women-owned small businesses. [insert pdf] Under the program, contracts may be set-aside for competition among WOSBs when the anticipated contract price is not expected to exceed $3 million, except in the case of manufacturing contracts, is not expected to exceed $5 million.

The basic requirements to qualify as a WOSB are that the company be owned and controlled at least 51% by one or more women who are U.S. citizens and "small" according to its primary industry classification. According to the SBA, it will "pursue vigorously punitive action against ineligible firms which seek to take advantage of this program and in so doing deny its benefits to the intended legitimate WOSBs."

The Federal Times.com recently reported on proposed procurement "reforms" that will adversely impact business opportunities for small businesses. The term "procurement reform" suggests changes aimed at increasing contracting opportunities, improving fairness in the procurement system, or lowering the cost of goods and services. The Administration’s proposed changes do not aim to do any of these.

The Obama Administration is considering, among other things, converting services typically performed by small businesses from private performance to government performance. According to Federal Times.com, this change would impact service contractors that provide maintenance services, food services, and information technology services which are typically performed by small businesses. Contacting reforms anger small businesses

The Obama Administration is also looking at other changes that will burden small businesses. It is feared that "strategic sourcing", which combines government needs to achieve economy of scale, will limit those needs for goods or services that small businesses can meet. Stricter environmental requirements are likely to make it difficult for small businesses to compete effectively, too. 

Another change is the Administration’s "High Road" contracting policy which would favor the award of federal contacts to employers who pay higher salaries or provide better benefits. The Service Contract Act and Davis-Bacon Act already require service contractors to pay not less than prevailing, that is, market, wage rates. Why is an initiative that would increase costs to business and the government on the agenda?

Some critics claim the High Road initiative will inject more subjectivity into the procurement process while others say it is meant to reward union support for Obama. AFL-CIO union head opposes ‘High Road’ contracting policy. The FederalTimes.com points out that it is likely to damage small businesses. While small businesses do not have the financial resources to outpace the market for wages or benefits, larger companies aren’t likely to have them, either. Could it be that the High Road policy is not meant as a reform to reduce government contracting costs but meant to re-engineer American enterprise through government purchasing—at any cost?

On March 9, 2010, the Mississippi Court of Appeals denied a rehearing in the case of J. Criss Builder, Inc. v. White, but it is not clear the controversy has ended.  The Court has not yet released its opinion for publication which means the decision is still subject to revision or withdrawal.  Perhaps that is because the Court was clearly divided regarding the case as reflected in the four to three decision.

In this case, J. Criss Builder, Inc. ("JCB"), an unlicensed residential contractor, purchased land on which it built a house.  Janie Criss ("Criss"), the owner of JCB and an individually licensed residential contractor, oversaw the construction of the home.  On November 21, 1996, Criss purchased the home from JCB and occupied it as her homestead until February 17, 1997, when it was sold to the Whites.  Even though within one year of moving into the house the Whites noticed a hairline crack in the scored concrete floor which grew bigger over time, the Whites did not file suit for damages from foundation problems until February 12, 2003 – 6 years, 2 months and 22 days after the home had first been occupied by a resident.  On that date, the Whites sued both JCB and Criss, individually.

JCB and Criss sought to have the action dismissed on the basis that the Mississippi statute of repose barred the action.  Specifically, Miss. Code Ann. § 15-1-41 requires an action for damages arising out of construction to be brought "no more than six (6) years after the written acceptance or actual occupancy or use, whichever occurs first." There could be no disputing the fact that the first occupancy of the house occurred on November 21 1996, when Criss purchased the home from JCB for her homestead.  Thus, JCB and Criss contended suit had to be filed by November 21, 2002.  The Court also upheld liability against Criss, individually, even though the property was owned and constructed by JCB "[s]ince Criss was the licensed builder and JCB was legally prohibited from performing residential construction."

The Court majority relied upon a prior decision to conclude that the statute of repose did not apply to circumstances where the possessor and builder were the same and that the statute of repose would not begin to run until the "builder/owner, Criss, undisputably the builder, sold the home to the Whites."  Since suit was filed within 6 years of Criss selling the house to the Whites, the Court ruled the action was not barred.  The three dissenting justices would have barred the action.  They concluded that "Criss-even if considered the builder-purchased the completed home from JCB and actually occupied and used the home in her personal capacity."

The decision leaves more questions than answers.  Would the decision be the same if JCB had been properly licensed?  Residential builders commonly build a home which they occupy first and then sell to someone else.  Under this decision, could a licensed builder build a home, sell to its owner, live in the house ten years, thirty years, or more, and yet the statute of repose still not begin to run until the time the owner sells to a third party?  Clearly, more direction from the Court will be necessary.  Until that time, builders beware: "six years" under the statute of repose may not be six years.

Less than one week after placing readers on alert about the pending decision of Architex Association, Inc. v. Scottsdale Insurance Company, the Mississippi Supreme Court has issued its decision in that case addressing the following narrow issue with regard to a Commercial General Liability ("CGL") policy:

Whether the intentional act of hiring subcontractors by an insured general contractor precludes the possibility of coverage?

The Court found "that under Scottsdale’s CGL policy, the term ‘occurrence’ cannot be construed in such a manner as to preclude coverage for unexpected or unintended ‘property damage’ resulting from negligent acts or conduct of a subcontractor unless, otherwise excluded or the insured breaches its duties after loss." Slip Op. at page 27. Thus, "[f]aulty workmanship, defective work, et al., may be accidental, intentional, or neither." Slip Op. at page 23.

The United States Court of Appeals for the Fifth Circuit in ACS Construction Company v. CGU, 332 F.3d 885 (5th Cir. 2003) had previously concluded that since hiring a subcontractor is a deliberate and intentional decision by a general contractor, any subsequent act by the subcontractor must be intentional and not covered under the definition of an "occurrence". The insurance industry has used ACS to deny coverage for defective work by subcontractors, even though many general contractors purchased policies and paid premiums with the understanding that their CGL policy would provide coverage.

The Mississippi Supreme Court’s decision in Architex brings clarity to the issue stating that "[w]hile the alleged ‘property damage’ may have been ‘set in motion’ by Architex’s [the general contractor] hiring of the subcontractor, the ‘chain of events’ may not have ‘followed a course consciously devised and controlled by [Architex], without the unexpected intervention of any third person or extrinsic force.’" In other words, hiring a subcontractor will not preclude coverage under a CGL policy.

Even if the insurer does not unequivocally agree that there is coverage under the CGL policy, the insurer may agree to defend the general contractor under reservation of rights. This means the insurer will pay the general contractor for the cost associated with defending the claim of defective workmanship. This does not mean the insurer gets to select the attorney to defend the claim, it means the insurer must pay for the attorney the general contractor selects to defend the claim. Therefore, it would be wise for the general contractor to select a construction lawyer to defend the claim rather than the insurer’s preferred attorney who is likely to have experience in defending slip and fall cases and car wrecks and not complex construction defect cases.

The Architex decision is good news for general contractors. However, the decision also admonishes general contractors that there are other reasons for denial of coverage such as failure to give timely notice of a potential claim. Slip Op. at page 12, fn. 11. This means that general contractors should place their insurance carrier/agent on written notice of any potential claim for which the CGL policy might arguably provide coverage. Otherwise, coverage may ultimately be denied.

The Mississippi Court of Appeals just released a decision addressing the scope of arbitration clauses. Although the case dealt with an employment agreement, the decision is certainly a warning sign for arbitration clauses in any contract.

At issue in the case was whether tort claims for assault and battery were included within the arbitrable claims of the employment agreement. The agreement required arbitration of "all matters directly or indirectly related to your recruitment, potential employment, or possible termination of employment, including, but not limited to, claims involving and/or against the Company, employees, supervisors, officers, and/or director of [Company] or any affiliates, as well as any other common law claims for wrongful discharge or other similar claims." Even though the Court determined that the foregoing language was broad and that the claims stemmed from a supervisor’s alleged actions while on a business trip, the Court nevertheless ruled that the arbitration provision did not include claims for assault and battery.

One judge disagreed with the Court’s majority. In a separate opinion, the dissenting Justice noted that in a case decided four years prior an agreement that required "any dispute under this agreement" to be arbitrated included intentional tort claims.

The current decision does not overrule the older court decision, and distinguishing factual circumstances can be found between the two decisions. However, the current decision at least constitutes a warning signal that the Court will look more closely when considering whether intentional torts fall within the ambit of arbitration provisions. A delicate balancing act will be required to make arbitration provisions broad enough to capture as much as possible, yet specific enough to include what might be considered more remote claims. Everyone should revisit the language of its contractual arbitration provisions or risk being in court to settle disputes rather than arbitration.

The U.S. District Court for the Southern District of Ohio has ruled that the Freedom of Information Act ("FOIA") (5 USC § 552) does not require the Department of the Air Force to release a series of emails sent by one contractor about another contractor’s eligibility to participate in an Air Force contracts program. See Tybrin Corp. vs. United States Department of the Air Force, Case No. 3:08-cv-002 (So. Dist. Ohio)(pdf).

The Air Force’s Consolidated Acquisition of Professional Services ("CAPS") program is a five-year indefinite delivery/indefinite quantity contract under which multiple contract awards can be made. Actual work and services are awarded by the Air Force through subsequent competitions among the awardees. Both Tybrin Corporation and HMRTech2 were CAPS awardees.

In May 2007, Tybrin sent emails to the Air force concerning the eligibility of HMRTech2 to receive awards for work under the CAPS program. In July 2007, the Air Force disqualified HMRTech 2 from further participation in CAPS.

HMRTech2 sought release of the emails form the Air Force, and Air Force officials had determined to release them. Tybrin filed a "reverse FOIA" suit, claiming that the "(b)(4)" exemption under the FOIA prevented disclosure of its emails, and demanding that the Air Force be enjoined from releasing them. The (b)(4) exemption exempts "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 USC § 552(b)(4).

Tybrin’s position was that its emails were confidential and commercial. The District Court looked to the District of Columbia Circuit for guidance on whether the emails were subject to release under the FOIA. In 1992, the District of Columbia Circuit adopted the following test to determine whether information was "confidential" and therefore not subject to disclosure under FOIA:

financial or commercial information provided to the Government on a voluntary basis is "confidential" for the purpose of [the (b)(4)] exemption] if it is of a kind that would customarily not be released to the public by the person from whom it was obtained.

Critical Mass Energy Project v. Nuclear Regulatory Commission, 975 F.2d 871, 879 (D.C.Cir.1992)(en banc).

Thus, the Court considered whether Tybrin treated as confidential emails such as the ones sent to the Air Force concerning HMRTech2. The District Court determined that because Tybrin did not release them to the general public and controlled distribution of them even within Tybrin, the emails were treated by Tybrin as confidential.

Tybrin also argued that its emails were "commercial" because it had a "commercial interest" in them. Some courts have held that if the information submitted by an entity does not reveal anything about the nature, character, finances, revenues, or other business information the release of which would hurt the submitter, it is not "commercial" information protected from disclosure. However, again following a District of Columbia Circuit decision, the District Court in Ohio determined that Tybrin had a "commercial interest" in the emails concerning HMRTech 2’s eligibility to participate in CAPS. The Air Force was prohibited from releasing the emails it received from Tybrin.

 

The General Accountability Office ("GAO") considers protest against the solicitation and award of Federal contracts. Generally, under its "bid protest" function, it handles protests which contest the competitive nature of the terms of a solicitation and its compliance with procurement law and regulation and it handles protests against the propriety of the award of contracts.

Many contractors choose the GAO, as opposed to the Court of Federal Claims, because the laws and regulations permitting the right to protest Federal procurements to the GAO require the stay against a protested procurement action, provided the protest is timely filed. No other forum allows for this "automatic stay". Also, it is one of the least expensive and quickest fora for obtaining a decision. Decisions are generally issued within 120 days from the date of protest.

2008 was one of GAO’s busiest protest years. Over 1600 cases were filed, and the GAO closed over 1500 of them. Although the number of actions filed at the GAO was up 17% from the previous fiscal year, the percentage of sustained actions (actions in favor of the protester) fell from 29% to 21%.

The GAO was originally called the General Accounting Office. Although "Accounting" was changed to "Accountability" in 2004, it’s purpose remains the same: "investigate, at the seat of government or elsewhere, all matters relating to the receipt, disbursement, and application of public funds, and shall make to the President…and to Congress…reports (and) recommendations looking to greater economy or efficiency in public expenditures". It is an investigative arm of Congress.