Court Cannot Invalidate Arbitration Venue Clause

A federal court in Kentucky has confirmed that it is without authority to tinker with the venue clause in an arbitration agreement. The plaintiff subcontractor is from Kentucky, and the joint venture prime contractor partners from Massachusetts and Pennsylvania; the project is in Kentucky. The subcontractor filed suit in Kentucky, and the JV prime moved to compel arbitration in Boston, per the subcontract arbitration clause. The sub argued that the venue clause was “unfair and unreasonable.” The court did not even consider that argument. Quoting from an Ohio federal court decision, the Kentucky court noted that “enforcement of a forum-selection clause . . . in an arbitration agreement may be inconvenient and burdensome to the parties in some instances.” However, and more critically, the court “does not have the authority to invalidate a term of an arbitration agreement simply on the forum non conveniens argument that it is unfair, unreasonable, or inconvenient to one of the parties.” (emphasis added)

As the arbitration clause is enforceable, the Kentucky sub will have to arbitrate its claims in Boston. The case is Weddle Enterprises, Inc. v. Treviicos Soletanche, J.V., 2014 U.S. Dist. LEXIS 146812 (W.D. KY, Oct. 15, 2014), available here (subscription required). This decision continues the tradition of the courts deferring to the arbitration forum on procedural issues, which would include venue.

Follow the Rules, or Don’t Lose the Money?

What’s more important: following public procurement rules, or making sure that federal funding won’t disappear? That’s the question being debated in Sacramento, where a bid dispute has put $6.9 million in federal funding at risk; see the article in ENR. There may be a relatively non-controversial resolution, but the bigger question remains – how much should a public authority be able to exercise discretion and/or bend the rules? This is a very slippery slope.

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When the “Discovery Rule” is Irrelevant

Can the statute of limitations for a claim expire even before a project owner knows that it has a claim? This is a very real possibility if one is not careful in drafting contracts. Courts generally recognize that sophisticated business entities should be permitted to forfeit rights in contracts, so long as the terms do not violate public policy. Parties to a contract can limit the time period for bringing a claim or define when the limitations period begins.

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Further Confirmation Of The P3 “Tipping Point”

A Pennsylvania program announced yesterday provides support for the “tipping point” comment by Tony Sanacory and Will Fagan only two weeks ago, in a Duane Morris blog entry. PennDOT plans to award a contract to a P3 entity to repair or replace 558 bridges, and operate those bridges over the next 25 years, per an ENR article. The combination of increasing demand to upgrade infrastructure, coupled with inadequate public funds, is leading states to adopt the P3 funding alternative.

This will mean more roads and bridges with tolls, as P3 operators seek revenue sources to recoup the capital outlays. And those competing for P3 projects should heed the warnings that come from a few of the Australian toll road projects, where inflated traffic projections on some of the projects led to overbidding and ultimately operating company failures, and from the Indiana toll road operator bankruptcy just announced, where debt service combined with long term locked-in toll rates may have been a lethal combination. More opportunities, and more risks.

U.S. Department of Labor Proposes Pay Transparency Rule for Employees of Federal Contractors

On September 17, 2014, the U.S. Department of Labor Office of Federal Contract Compliance Programs (OFCCP) published a Notice of Proposed Rulemaking in the Federal Register to implement Executive Order 13665, which was signed by President Obama on April 8, 2014. Generally, the proposed rule would prohibit federal contractors from maintaining pay secrecy policies and would amend the equal opportunity clauses in Executive Order 11246 to provide protections to workers who talk about pay. The rule would apply to federal contractors with a federal contract worth more than $10,000 and entered into or modified on or after the effective date of the final rule, as well as to federal subcontractors working under such a covered federal contract.

To read the full Duane Morris Alert, please click here.

Has P3 Reached a Tipping Point in the United States?

Malcom Gladwell’s 2000 best-seller The Tipping Point: How Little Things Can Make a Big Difference posits that most social shifts (or epidemics, as Gladwell refers to them in his book) share common characteristics, including what he refers to as (1) the law of the few, (2) the stickiness factor, and (3) the power of context. Gladwell asserts that a few influential innovators, whether purposefully or unintentionally, influence society to change, that the changing force has an “it” factor that captures our imaginations and that societal context can speed up change in a way that seems epidemic. These three factors come together and form a phenomenon Gladwell refers to as a Tipping Point, where an idea can go from small to big in a real hurry.

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Construction Contract Forms – A New Battleground?

The American Institute of Architects issued a press release this week touting a custom set of contract documents it has worked out with the Kentucky Department of Education. Ten AIA contract forms have been customized for the state department. This could become a new battleground in the document wars between the AIA and ConsensusDocs, another major construction industry document group representing a coalition of more than 40 industry associations.

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Reminder: False Claims Act Lessons Are Expensive

A contractor filing false prevailing wage certifications was reminded just how costly it can be to run afoul of a False Claims Act charge. After a trial on damages, the federal court judge found that the contractor was paid $254,298.18 for the electrical portion of the project (the part involving the false wage certifications). The government’s damages under the False Claims Act (FCA) are treble that amount, or $762,894.54. There is no credit for value of work put in place, and no consideration of value to the government. The damages are three times the amount paid by the government for the pertinent portion of the work, regardless of whether that amount was purely cost to the contractor, or included any profit.

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Liens with Intentionally Incorrect Information May Still Be Enforceable

Generally, lien waivers that contain fraudulent information are not enforceable. However, not all intentionally misleading statements are fraudulent. The crux of the issue is whether a lien waiver simply states that the subcontractor has been paid a specific amount or whether the subcontractor claims that the work completed is worth the amount stated in the waiver.

The Illinois Appellate Court addressed this issue briefly in Casablanca Lofts, LLC v. Blauvise (2014 Ill. App. Unpub. Lexis 1377 (1st Dist. June 26, 2014)). In arbitration, prior to litigation, the developer/owner of a condominium project, Casablanca Loft, discovered that the electrical subcontractor had submitted three lien waivers totaling $135,000 and had been paid $135,000. Id. at ¶6. Continue reading

Massachusetts Passes Law Governing Retainage On Private Contracts

Massachusetts has just passed a law that governs the retainage process on private construction contracts. It applies to projects of $3 million or more, entered into after November 8, 2014. Essential elements are:

  • Retainage is capped at 5%.
  • The contractor must submit a notice of substantial completion within 14 days of the date substantial completion has been achieved.
  • The owner has 14 days to respond to the notice, and the project will be deemed substantially complete if the owner fails to object within that timeframe.
  • The owner is to submit a punchlist within 14 days after accepting – whether expressly or by implication – the substantial completion date. The contractor is to pass that list along to the pertinent subs within 7 additional days.
  • The punchlist amount may not be greater than 150% of the value of incomplete or defective work, and for deliverables the punchlist is capped at 2.5% of contract value.
  • The owner may not hold retainage for a sub whose work has been accepted, unless the prime contractor has defaulted.
  • The terms of the new law may not be modified by contract, and any such agreed modifications “shall be void and unenforceable.”

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