Nuts & Bolts | Construction Law Blog

Many construction participants know arbitration provides a fair, efficient and expeditious process well-suited to resolving construction disputes. One key to maximizing the efficiencies of arbitration is to avoid disputes over the threshold issue of whether an arbitration agreement is enforceable. This blog examines a recent Missouri case highlighting one potential pitfall to avoid so that an agreement to arbitrate is enforceable under Missouri law.

The post was updated on December 7, 2021, to note litigation pending in federal court that is blocking enforcement of the federal contractor vaccine mandate nationwide.

In furtherance of his “Path Out of the Pandemic: COVID-19 Action Plan,” President Biden issued Executive Order 14042, which imposes COVID-19 vaccination and workplace safety requirements on federal contractors. Contractors who do business with the federal government should be aware of this federal mandate because it is likely to impose significant obligations with respect to requiring that employees be vaccinated for COVID-19 and implementing certain COVID-19 safety measures in the contractor’s workplace.

Becoming certified as an MBE (Minority Business Enterprise), WBE (Woman Business Enterprise), and/or DBE (Disadvantaged Business Enterprise) may offer greater opportunities to those minority-owned, woman-owned, and socially or economically disadvantaged contractors and suppliers seeking to bid on publicly funded contracts. Because construction or procurement contracts awarded by federal, state, or local government entities often require that a certain percentage of the work be contracted to MBEs, WBEs, and/or DBEs, a contractor or supplier holding that certification may increase their likelihood of being selected for those projects. However, there are some legal considerations that contractors and suppliers should be aware of surrounding the MBE, WBE, and DBE certification process.

Missouri Senate Bill 51, commonly referred to as the COVID-19 Liability Protection Bill, seeks to limit potential COVID-19-related liability of Missouri health care providers, product manufacturers and suppliers, and any individuals or entities engaged in businesses, services, activities, or accommodations. If passed, it is likely that this legislation will apply to construction-related activities at construction project sites and home offices and may offer legal protection in certain circumstances to construction material suppliers.

A recent Missouri Court of Appeals case illustrates the importance of contractors, subcontractors, and design professionals ensuring that the work they are performing is pursuant to an original contract, or that the work is captured by an additional agreement, such as an executed change order or supplemental agreement, to protect their mechanic’s lien rights.

The COVID-19 pandemic has had significant impacts on the U.S. state and federal court systems and has delayed the progression of cases awaiting trial. While many courts have remained “open,” they have considerably modified operations and procedures to ensure the safety of court personnel, attorneys, and jurors.

Due to coronavirus concerns, owners and higher-tier contracting parties may be considering pausing work on a project until the impacts of the virus are better known and under control. Suspension clauses typically confer upon one party a unilateral right to suspend contract performance (usually for a certain period of time) without materially breaching the contract.

Before issuing such a suspension directive, however, a party should take care to read and understand its contractual rights and obligations under the contractual suspension clause. Specifically, the party ordering the suspension should understand what additional amounts may be owed under the contract if that party chooses to suspend performance of the work and should be aware of at what point, if any, the other party would be legally justified in terminating the contract. Some suspension of work clauses allow termination of the contract after a prescribed period of suspension of the work. Note also that if the contract does not contain a suspension clause, the owner that suspends work on the project may be putting itself in material breach of contract.

Force majeure law in the context of pandemics and epidemics is largely uncharted territory. While some sources predict an uptick in disputes, claims, and litigation because of the novel coronavirus and its reverberating effects (which could, unfortunately, be felt for some time), it is hard to know now exactly how a court or arbitrator would decide the issue of responsibility for project delays or disruption due to labor shortages, unavailability of or delay in obtaining materials, or the significant increase in cost of materials, caused by or resulting from a spreading virus. In many cases, the unavailability, delay, or increased expense may be out of the contractor’s control. For example, local governments, health organizations, and employers are recommending, and in some cases, mandating restrictions on traveling or assembling in groups, and quarantines.

Rule 9 of the Construction Industry Arbitration Rules published by the American Arbitration Association (AAA) empowers the arbitrator to decide issues regarding the “existence, scope, or validity of the arbitration agreement” and “the existence or validity of a contract of which an arbitration clause forms a part.” This is referred to as a delegation clause. Delegation provisions can be found in various standard rules provided by the AAA and other arbitration administration organizations.

Construction companies with union employees often must make contributions to a defined benefit pension plan sponsored by the union. These plans are called “multiemployer” pension plans.

As a general rule, multiemployer plans are not well-funded. In 2015, for example, a federal study showed that 98.3 percent of multiemployer plans were underfunded. Collectively, that underfunding surpassed $560 billion. And nearly 40 percent of multiemployer plans are in the construction industry.