Construction Law Blog
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Another court in Washington was asked to apply the Mike M. Johnson[i] decision to a contractor’s claim for extra work. This time it was the Division III Court of Appeals in Washington. The Division III Court of Appeals, which covers all of Eastern Washington, had a hand in the original Mike M. Johnson case. That court is the intermediary court that ruled in favor of the contractor in Mike M. Johnson. It held that there were issues of fact as to whether Spokane County, in the Mike M. Johnson case, had actual notice of the changed conditions and, thus, waived the notice and claim procedures that the County was attempting to rely upon. The Division III Court of Appeals was later overruled by the Washington State Supreme Court, which held as a matter of law that the County of Spokane had not waived the notice and claim procedures. This time around, the Division III Court of Appeals, for the most part, ruled in favor of the public entity and followed the Mike M. Johnson decision.
Generally, contractors choose arbitration because it is a cost-effective method of dispute resolution, and primarily because an award issued in arbitration is final. Vacating an arbitration award is only permitted on very narrow grounds. A party must demonstrate that the award was procured by corruption, fraud, or undue means, or that an arbitrator exceeded his/her power (very high burdens). Arbitration rules in other states are similar to the Washington statute. Stated simply, it is very difficult to reverse an arbitration award—or is it? These two cases do not indicate a trend but do remind us that an arbitrator’s power is limited to that power granted to him/her by contract.
For government contractors, an unfavorable performance rating review posted to the Contractor Performance Assessment Reporting System (“CPARS”) can be extremely costly. Many of the government-negotiated solicitations include past performance as an important, and sometimes even primary, evaluation factor for contract award. An unfavorable CPARS review on a past contract can cause the contractor to incur substantial extra costs in addressing the unfavorable review with contracting officers on future solicitations, and, in some instances, the contractor saddled with an unfair or inaccurate CPARS may have to challenge the review and recover some of these costs.
Blog: Congress Strikes a Blow to President Obama’s “Fair Pay and Safe Workplaces” Executive Order 13673
On October 25, 2016, the Federal Acquisition Regulatory Council (FAR Council) and the U.S. Department of Labor implemented former President Obama’s Executive Order 13673: “Fair Pay and Safe Workplaces” rules. The rules became effective on October 25, 2016 and fundamentally altered the way federal contractors and subcontractors will need to handle and resolve employment and labor claims, as well as compliance issues involving their entire workforce. The final rules can also result in otherwise-capable companies being “blacklisted” and effectively barred from federal contracts and subcontracts based on labor and employment law violations related or unrelated to prior or current federal contract performance. The centerpiece of the new regulatory scheme was the new disclosure and responsibility requirements. Contractors and subcontractors needed to disclose all “labor law decisions” that they had during the three years (prior to bid submission) as part of the process of applying for a new federal contract or subcontract. If a contractor or subcontractor has too many “labor law decisions” to report or the few it has are too severe, pervasive, repeated, or willful in the eyes of the government “experts,” the company could be deemed “non-responsible” and denied a contract.
Many construction contracts contain a termination clause that allows a contractor to be terminated either for convenience or for cause. Termination for convenience and termination for cause clauses have been discussed previously on the blog here, here, and here. The distinction between a termination for convenience or for cause is an important one.
If a contractor is terminated for convenience, the rights of the party who has terminated the contractor for convenience could be limited in the future. This is specifically true as to any defects in the terminated contractor’s work that are discovered after the termination for convenience.
Section 8(a) of Small Business Act Favoring Small, Disadvantaged Businesses Upheld Under Equal Protection Clause
The Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution requires that public bodies and institutions treat similarly-situated individuals in a similar manner. The government, therefore, cannot apply a law dissimilarly to people who are similarly situated. For example, in the mid-1970s, the Medical School of the University of California Davis (a public university) reserved 16 of 100 spaces in its class for “disadvantaged” students.[i] In the seminal case of Regents of Univ. of California v. Bakke, the U.S. Supreme Court ruled that racial preference was unconstitutional under the Equal Protection Clause because an applicant’s race was an explicit factor in determining disadvantage. In other contexts, however, the U.S. Supreme Court has found that “mere awareness of race in attempting to solve the problems facing [minority groups] does not doom that endeavor at the outset.”[ii]
Implied warranties are warranties created by law, legislation, or courts. In the construction industry, one of the most prominent implied warranties is that owners who provide plans and specifications to their contractors impliedly warrant the adequacy of their plans and specifications.[i] That implied warranty had its beginning in the 1918 US Supreme Court decision of U.S. v. Spearin[ii] and is, therefore, popularly known as the Spearin Doctrine. Under the Spearin Doctrine, if the contractor completes the work in accordance with the owner’s plans and specifications, but there is a deficiency or failure, the owner, not the contractor, is responsible. When the owner breaches its implied warranty, in most instances, the contractor is entitled to additional compensation for extra work performed, delays experienced, and other additional expense or loss occasioned by the warranty breach. A recent case demonstrates that this implied warranty is not “immunity.” The contractor must still act reasonably and diligently, particularly when the contract provisions so require.
Indemnity Clauses That Conflict with Oregon Indemnity Statute Can Remain Partially Valid and Enforceable
When the indemnity provision of a contract conflicts with ORS 30.140, it is voided to the extent that it conflicts with the statute, but no more. Such provisions can remain partially valid and enforceable.[i] In Montara Owner Assn., the owner brought claims against the contractor for construction defects and damage relating to the construction of 35 townhouses. Contractor then brought third-party claims against more than 20 subcontractors for breach of contract and indemnity. Before trial, contractor settled with all but one subcontractor. The subcontract contained an indemnity provision requiring subcontractor to indemnify contractor for losses arising out of subcontractor’s work, including losses caused in part by contractor’s own negligence.
Rotech Healthcare, Inc., a healthcare contractor, recently successfully protested the award of a home oxygen and durable medical equipment contract by the Department of Veterans Affairs to Lincare, Inc. based on an unsupported past performance evaluation and allegations of an unequal discussion. See GAO Protest File Number: File: B-413024 (August 17, 2016). The Request for Proposals (“RFP”) provided that award would be made on a “best value” basis to the offeror whose proposal was most favorable to the government based on the following evaluation factors with the following possible ratings:
- Joint Commission Accreditation (Acceptable or Unacceptable)
- Region of Service (Acceptable or Unacceptable)
- Past Performance (Excellent, Good, Satisfactory, Unsatisfactory, or Neutral)
- Technical Capability (Excellent, Good, Satisfactory, Unsatisfactory)
In a public works dispute in Massachusetts, a Massachusetts Court judge ruled that a general contractor could not recover any of its over $14 million claim against a public owner because it had violated its contract with the Owner by certifying that it had paid its subcontractors in full and on time when in fact it had not.[i] The case involves a contract dispute arising from a state and federally-funded project to design and construct a fiber optic network in western Massachusetts. The Owner was a state development agency established and organized to receive both state and federal funding to build a 1,200–mile fiber optic network known as MassBroadband123 in Western Massachusetts (the Project). Of that amount, $45.4 million was awarded pursuant to the American Recovery and Reinvestment Act of 2009 (ARRA). One of the stated goals of ARRA was (as its title suggests) to create jobs in the wake of the 2008 recession and to provide a direct financial boost to those impacted by the economic crisis. In the context of the instant case, that meant that, if there were to be subcontractors on the job providing labor and materials, they needed to be paid on a timely basis in keeping with the statutory purpose of stimulating the economy.