Representative Bell has introduced House Bill No. 1306 [Click here to view House Bill No. 1306] that would require construction claims for projects located in Mississippi be litigated or arbitrated in Mississippi. This requirement would apply regardless of whether or not the contract had a provision that required the claims to be resolved in another jurisdiction. This is an important bill for Mississippi contractors since many foreign contractors frequently include a venue provision forcing Mississippi contractors to litigate or arbitrate their claims in the foreign contractor’s home state. Without this legislation, the cost to pursue a claim against a foreign contractor could be cost prohibitive and potentially force Mississippi contractors to settle their claim for pennies on the dollar. Mississippi Contractors should keep their eye on this litigation and encourage its passage.
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.
The Legislature has completely rewritten the Mississippi lien law for commercial and residential projects. Senate Bill 2622 has now been sent to the Governor for his signature and provides lien rights to prime contractors, subcontractor and material suppliers. [Link to SB 2622] The new lien law will require those seeking to file a lien to comply carefully with strict notice and filing requirements. An error in complying with these requirements could lead to a “claim of lien” being ineffective or unenforceable.
Some of the key points in the new lien law are:
- There are no lien rights if a contractor has provided a payment bond. (Miss. Code Ann. §85-7-431)
- To have lien rights the party filing a "claim of lien" must be properly licensed by the Mississippi State Board of Contractors. However, it should be noted that there are counties and municipalities that also have licensing requirements. (Miss. Code Ann. §85-7-403)
There are numerous ways that a contractor and/or subcontractor or materialman can lose its "claim of lien", including:
- If the contractor fails to provide a list of subcontractors to the owner within a reasonable period of time after requested or if the subcontractor fails to furnish a list of its subcontractors to the contractor within a reasonable period of time after requested (Miss. Code Ann. §85-7-407).
- If lien claimant fails to file its "claim of lien" within ninety (90) days following the last labor, services or materials provided (Miss. Code. Ann. §85-7-405(1)(b)).
- If a subcontractor not in privity with the contractor fails to send written notice to the contractor, or, if there is no contractor, to the owner, within thirty (30) days after the first delivery of labor, services or materials to the property. (Miss. Code. Ann. §85-7-407(2))
- If the owner has made payment to the contractor in reliance upon a lien waiver issued by the lien claimant (Miss. Code Ann. §85-7-413(1)(a)).
- If a "payment action" is not commenced within one hundred eighty (180) days after the "claim of lien" is filed, the "claim of lien" is unenforceable (Miss. Code Ann. §85-7-421(1)).
The basic requirements for filing a "claim of lien" are set forth in Miss. Code Ann. §85-7-405. If a party fails to comply with any of the requirements the "claim of lien" shall not be effective or enforceable. The filing of a "claim of lien" is not intended to prejudice a party’s right to arbitration.
- The right to claim a lien cannot be waived in advance of furnishing labor, service or materials (Miss. Code Ann. §85-7-419).
- The "special lien" granted by the statue to contractors, subcontractors and materialmen is limited to the amount due and owning under the terms of the express or oral contract, subcontract or purchase order (Miss. Code Ann. §85-7-403(3)). The "special lien" also includes interest (Miss. Code Ann. §85-7-403(4)).
- A judgment secured in a "payment action" to enforce a "claim of lien" is limited to a judgment in rem against the property and does not impose any personal liability upon the owner (Miss. Code Ann. §85-7-405(1)(d)(ii)).
- If payment is made by the owner in reliance of a lien waiver or statements of the contractor, the aggregate lien amount of the subcontractors and materialmen not in privity with the contractor shall not exceed the unpaid balance of the contract price between the owner and the contractor at the time the first notice of lien is filed (Miss. Code Ann.§85-7-405(5)(a)).
- Party seeking to assert a "claim of lien" must be in "substantial compliance" with the contract, subcontract or purchase order (Miss. Code Ann. §85-7-405(1)(a)).
- "Claim of lien" must be filed in the chancery court of the county by a contractor, subcontractor or materialman where the property is located and within ninety (90) days of the last labor, services or materials provided. It must also contain certain language notifying the owner of its right to contest the lien and be sent to the owner and contractor within two (2) days after it is filed (Miss. Code Ann. §85-7-405(1)(b)).
- A subcontractor or material supplier not in privity with the contractor, or, if there is no contractor, with the owner, must provide notice within (30) days following the first delivery of labor, services, or materials as a condition precedent to filing a "claim of lien" (Miss. Code Ann. §85-7-407(2)).
- The "claim of lien" can be amended at any time provided there is compliance with certain procedures (Miss. Code Ann. §85-7-405(1)(e)).
- All liens under Miss. Code Ann. §85-7-403 have equal priority. If the proceeds are insufficient to satisfy all liens, distribution is on a pro-rata basis (Miss. Code Ann. §85-7-403(3)(d)).
- A "payment action" (lawsuit) to enforce the "claim of lien" must be commenced within one hundred eighty (180) days from the date of the filing of the "claim of lien" (Miss. Code Ann. §85-7-405(1)(c)). This period can be shortened by the owner or contractor filing a "Notice of Contest of the Lien". (See, Miss. Code Ann. §85-7-423(1))
- A lis pendens notice must be filed with commencement of the "payment action" and furnished to the owner and contractor (Miss. Code Ann. §85-7-405(1)(d)(ii)).
- The court in its discretion may award reasonable costs, interest and attorney’s fees to the prevailing party in an action against the owner to enforce a lien against the property (Miss. Code Ann. §85-7-405(3)(c)).
- The statute provides a procedure for "bonding off" a lien. The amount of the bond is required to be one hundred ten percent (110%) of the amount of the "claim of lien" (Miss. Code Ann. §85-7-415).
There are also substantial penalties for not complying with certain aspects of the lien law and filing a false "claim of lien".
- The penalty for filing a knowingly false "claim of lien" is three (3) times the value of the "claim of lien" (Miss. Code Ann. 85-7-429).
- The penalty for not paying a subcontractor after securing a waiver and release of lien without good cause is three (3) times the amount claimed on the face of the waiver and release (Miss. Code Ann. §85-7-407(3)).
- There is a penalty of three (3) times the actual damages suffered by an owner, purchaser or lender if the contractor falsely and knowingly submits a statement that the agreed price or reasonable value of the labor, services or materials has been paid or waived in writing by the lien claimant. (Miss. Code Ann. §85-7-413(1)(b))
- There is a penalty for failing to cancel a "claim of lien" if not accomplished within fifteen (15) days after fully paid of not less than $500/day plus reasonable attorney’s fees and costs. (Miss. Code Ann. §85-7-421(3))
Residential projects require a slightly different process. Lien claimants on residential projects must give the residential owner a pre-lien notice at least ten (10) days notice before filing a "claim of lien". (Miss. Code Ann. §85-7-409(2))
This is just a taste of what the new Mississippi lien law contains and is neither intended to be a complete summary of the new lien law nor should it be solely relied upon in filing a "claim of lien". The new statues are filled with hoops to jump through and hazards for those who have not carefully read it. If you have any questions about this Mississippi’s new lien law you can contact Christopher Solop at firstname.lastname@example.org, Lynn Thompson at email@example.com or go to the website for Biggs, Ingram & Solop, PLLC at www.bislawyers.com.
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.
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.
The objective of a claim is to explain why the contractor is entitled to equitable adjustment in the contract price and time. This requires the contractor to establish (a) entitlement or the contractual/legal right to additional compensation or time and (b) quantum or the amount of additional compensation to which the contractor is entitled. The contractor provides this information in the form of a narrative statement including all relevant supporting documentation.
The general format for any request for equitable adjustment should include the following:
- Describe what the contract documents required, citing to the specific portions of the plans and specifications (copy and attach relevant portions of the contract document as part of the claim).
- Describe how the contractor interpreted the contract documents and relied upon this interpretation in preparing its bid and developing a plan for performance.
- Explain the contractor’s original plan for performance based upon the representations in the contract documents.
- Describe how the contractor’s plan for performance was changed or impacted. Include citations to correspondence and other documents to support the change and all notifications to architect/owner. (incorporate photographs if available)
- Set forth the calculations for quantum and include all supporting data (invoices, payroll documents, green book/corps of engineer pages supporting equipment rates, time sheets and/or daily reports etc.)
In these difficult economic times it is essential that a contractor provides a comprehensive and complete document as the first step in the claim process. If the initial claim is thorough and properly supported, it conveys the message that the contractor knows what he is doing and has legitimate grounds for an equitable adjustment. Conversely, a loosely prepared, unsupported claim sends the message that the contractor is just looking for more money and cannot backup the claim. It takes time to prepare a detailed claim, but it is time well spent.
Do you want an attorney that defends personal injury claims or a construction lawyer representing you where there has been an allegation of defective construction associated with the work of a subcontractor? Obviously, you want an attorney whose practice is concentrated in the area of construction law.
As a preliminary matter, claims asserted by an owner against its general contractor for alleged defective construction are typically complex and costly. Even "simple" payment disputes between an owner and general contractor can and frequently do evolve into allegations of defective construction by the owner against the general contractor to justify withholding payment.
If an allegation of defective construction is made against the general contractor due to work performed by its subcontractors, the general contractor should consider submitting such a claim under its Commercial General Liability ("CGL") Policy and notify the subcontractor whose work has been called into question and its insurance carrier. As a general contractor, you should already have a copy of your subcontractor’s certificate of insurance identifying you as an additional insured under the policy before allowing the subcontractor to commence work.
If your insurer denies coverage for the alleged defective construction but agrees to provide you with a defense under reservation of right, you have the right to select a "construction attorney" to defend you against the defective construction claim and your insurance carrier must pay for that defense. Do not let your insurance adjuster "assign" you to an attorney. This is a construction defect case and not personal injury or a car wreck case. There will likely be issues concerning the interpretation of plans and specifications, scheduling and coordination of the work, the standard of care required to be exercised by various parties involved in the dispute, construction industry standards and construction and design experts. Make the right choice; retain a lawyer with construction litigation experience to defend you against allegations of defective construction not a personal injury defense attorney.