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.

In Wind v. McClure, 643 S.W.3d 691 (Mo. App. E.D. 2022), one of the parties, McClure, was found not to be entitled to compel arbitration of disputes regarding an Asset Purchase Agreement (“APA”) despite a binding arbitration clause contained in the APA. The APA covered the sale of a dentist practice and included a provision stating, in part, that “all disputes, claims and controversies between the parties *** shall be exclusively resolved *** through mediation and arbitration.” The process was for mediation to precede arbitration, and if mediation was unsuccessful, then disputes were to be submitted to “binding arbitration.”

Disputes arose over alleged violations of the APA, and the plaintiffs, Todd J. Wind and Todd J. Wind Enterprises, LLC (“Wind”), filed a lawsuit. In response, McClure filed a motion to compel arbitration of the disputes relying upon the binding arbitration provision in the APA. Wind opposed the motion to compel arbitration and argued, in part, that the binding arbitration provision was unenforceable because the APA failed to include mandatory notice language required by §435.460 of the Missouri Uniform Arbitration Act (“MUAA”). That statute requires a contract containing a binding arbitration provision to “include adjacent to, or above, the space provided for signatures a statement, in ten point capital letters, which read substantially as follows: ‘THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.’” (§435.460)

Admittedly, the APA did not contain the mandatory notice language required by §435.460 of the MUAA, but McClure argued that certain Missouri case law recognized an exception to the requirements of §435.460 if evidence showed the parties had “actual notice” of the arbitration provision. That is, McClure and the prior case law relied upon the proposition that actual notice by the parties of an arbitration provision contained in a contract essentially satisfies the purpose of the mandatory notice language required by §435.460 of the MUAA. However, the Missouri Court of Appeals, Eastern District, rejected this argument and expressly overruled the prior case law because the unambiguous statutory language of §435.460 does not allow for a judicially created actual notice exception.

A key point of the Wind case is that neither party argued that the Federal Arbitration Act (“FAA”) was applicable. Missouri’s Supreme Court has held that the FAA pre-empts the necessity of including the mandatory notice language required by §435.460 of the MUAA in a contract. (As addressed in a previous blog post, the U.S. Supreme Court has consistently found that the FAA pre-empts state laws that specifically disfavor arbitration agreements. See “Supreme Court reinforces Federal Arbitration Act’s pre-emption of state laws” discussing Kindred Nursing Centers, L.P. v. Clark, 137 S. Ct. 1421 (2017).) Most projects and construction contracts containing arbitration agreements are likely to be subject to the FAA, which generally requires a finding that “interstate commerce” is involved, such as the parties involved or the materials used in the project are from different states.

As noted above, among the benefits of using arbitration to resolve disputes is the efficiency and expediency of the process, which can be lost if the parties initially engage in litigation over whether an arbitration agreement is enforceable. A construction contract containing an arbitration provision can be drafted to maximize the efficiency and expediency of the arbitration process by, among other things, minimizing potential arguments over the enforceability of the arbitration agreement. One step is to include language that the Federal Arbitration Act is applicable. Another step is to also include the mandatory notice language in compliance with §435.460 of the MUAA in a construction contract governed by Missouri law. That way, there should be no valid argument to enforcement of the arbitration agreement based on the failure to comply with §435.460 of the MUAA regardless of whether the FAA is applicable.

Architect with blueprints

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.

Please note that the following information relates only to the Executive Order federal contractor mandate.  It does not summarize or relate to the U.S. Department of Labor’s Occupational Safety and Health Administration’s (“OSHA”) emergency temporary standard (“ETS”) issued on November 4, 2021, relating to employers with 100 or more employees. Due to ongoing litigation, OSHA has announced it is “suspend[ing] activities related to the implementation and enforcement of the ETS.” The stay of the OSHA ETS does not affect implementation of the federal contractor mandate.

On September 9, 2021, President Biden’s administration issued Executive Order 14042: “Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors.” Executive Order 14042 is intended to promote “economy and efficiency in Federal procurement by ensuring that the parties that contract with the Federal Government provide adequate COVID-19 safeguards to their workers performing on or in connection with a Federal Government contract or contract-like instrument.”

At the heart of Executive Order 14042 is the requirement that, effective October 15, 2021, all contracts and “contract-like instruments” with federal departments and agencies shall include language requiring that:

the contractor or subcontractor shall, for the duration of the contract, comply with all guidance for contractor or subcontractor workplace locations published by the Safer Federal Workforce Task Force …”

This contract language must be included in (a) all new federal contracts and solicitations issued on or after October 15, 2021, and (b) extensions or renewals of existing federal contracts and options on existing contracts exercised on or after October 15, 2021, where the contracts are: (i) procurement contracts for services and construction, (ii) contracts covered by the Service Contract Act, 41 U.S.C. 6701 et seq., (iii) contracts for concessions, including concessions contracts excluded by Department of Labor regulations at 29 C.F.R. 4.1333(b), or (iv) contracts with the federal government in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public. With respect to new federal contracts awarded on or after November 14, 2021, from solicitations issued before October 15, 2021, the federal agency may elect to require compliance with the Safer Federal Workforce Task Force Guidance (“Task Force Guidance”). Note that according to the express language of Executive Order 14042, if a contract is awarded before October 15, 2021, but is subsequently extended or renewed, the Task Force Guidance shall apply to that contract.

The mandated contract language must be incorporated into prime contracts and subcontracts of any tier, such that all contractors and subcontractors working on or in connection with a federal government contract are bound to comply with the Task Force Guidance. The Executive Order does not make inclusion of this contract language mandatory for: (i) grants, (ii) contracts or subcontracts entered into prior to October 15, 2021 (unless extended or renewed), (iii) contracts or subcontracts with a value equal to or less than the $250,000 Simplified Acquisition Threshold per section 2.101 of the Federal Acquisition Regulations (48 C.F.R. § 2.101), or (iv) subcontracts solely for the provision of products. Notwithstanding these exclusions, the Executive Order “strongly encourage[s]” federal agencies to ensure that the COVID-19 safety protocols called for by the Executive Order are applied to existing contracts and solicitations. In addition, the Task Force Guidance “strongly encourages” federal agencies to incorporate the Executive Order contract language into non-mandatory contracts, such as those under the FAR Simplified Acquisition Threshold or subcontracts solely for the provision of products.

The Task Force Guidance, as modified by the Biden administration’s November 4, 2021, announcement, mandates that all contractors and subcontractors with a federal contract subject to the Executive Order (“covered contract”) must:

  1. Require and ensure that all employees are fully vaccinated for COVID-19 by January 18, 2022, except in limited circumstances where the employee is entitled to an accommodation due to a disability/medical condition or sincerely held religious belief. All employees of a contractor with a covered contract must be fully vaccinated for COVID-19, unless an employee is legally entitled to an accommodation. In some cases, medical considerations may entitle an employee to an extension of vaccination deadlines. It is the contractor’s responsibility to determine whether an employee is legally entitled to an accommodation or an extension of the vaccination deadline, and it is the contractor’s responsibility to require proof of vaccination from its employees. Note that the Task Force Guidance does not provide the option for COVID-19 testing in lieu of vaccination. Furthermore, while contractors that are not currently a party to a covered contract need not require that all employees be fully vaccinated by January 18, 2022, should a contractor later become a party to a new, renewed, or extended covered contract, all contractor employees would be required to become fully vaccinated by the first day of the period of performance of the new, renewed, or extended contract.
  2. Require and ensure compliance by all employees and workplace visitors with the CDC’s guidance for masking and physical distancing. Contractors with a covered contract must require that in workplaces located in areas of “high or substantial community transmission,” fully vaccinated employees and visitors wear a mask indoors except where an exception applies. In areas of “low community transmission,” fully vaccinated individuals are not required to wear masks. There is never a physical distancing requirement for individuals who are fully vaccinated. Contractors are required to ensure that individuals who are not fully vaccinated, however, such as those who were granted a medical or religious accommodation, wear a mask indoors and in certain outdoor settings regardless of the level of community transmission in the area, and, to the extent practicable, maintain a physical distance of at least 6 feet from others. Contractors must monitor individuals in the workplace to ensure masks are worn when required, and masks are worn correctly and consistently. Like with the vaccination requirement, it is the contractor’s responsibility to determine whether an employee is legally entitled to an accommodation due to a medical condition or sincerely held religious belief. Furthermore, it is the contractor’s responsibility to monitor the level of community transmission in all areas where the contractor has a workplace and adjust its COVID-19 safety protocols accordingly.
  3. Designate a person or persons to coordinate COVID-19 workplace safety efforts at the workplace. Contractors with a covered contract shall designate one or more individuals responsible for implementing the Guidance and any additional COVID-19 workplace safety protocols required by any level of government. It shall be that individual’s responsibility to communicate and display required workplace safety protocols and policies to all individuals present at the workplace(s), as well as to require the showing or provision of proof of COVID-19 vaccination status.

Importantly, the Task Force Guidance protocols apply to all covered contractor and subcontractor employees, including office staff and those who are not themselves working on or in connection with the federal government contract. This includes part-time employees and employees who work remotely or primarily outdoors.  

Finally, as directed by the Executive Order, the Federal Acquisition Regulatory Council has developed a clause for inclusion in federal procurement solicitations and contracts. Consistent with the Executive Order, this clause directs that contractors and subcontractors working on or in connection with a federal government contract are bound to comply with the Task Force Guidance. The Federal Acquisition Regulatory Council has issued initial policy direction to acquisition offices for use of the clause.

UPDATE (December 1, 2021): On November 30, 2021 – after the initial publication of this blog post – the U.S. District Court for the Eastern District of Kentucky stayed the federal contractor vaccine mandate with respect to covered federal contracts in Kentucky, Ohio, and Tennessee. While the federal government is presently enjoined from enforcing the federal contractor vaccine mandate in only these three states, similar challenges are pending in other federal courts, and it is likely that there will be further legal developments with respect to the federal contractor mandate.

UPDATE (December 7, 2021): On December 7, 2021, the U.S. District Court for the Southern District of Georgia issued an injunction blocking enforcement of the federal contractor vaccine mandate nationwide. Therefore, as of the date of this update, the federal contractor vaccine mandate cannot  be enforced for covered federal contracts in any state, pending the resolution of this litigation.

The federal contractor mandate is complex, and this blog post provides only a brief summary of some of the highlights of the mandate. If you need assistance determining whether the federal contractor mandate requirements apply to your company, or need assistance in taking steps toward compliance, please contact an attorney in Greensfelder’s Construction Industry Group.

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.

MBE/WBE/DBE certification qualifications vary by location

First, a contractor or supplier seeking certification must be aware that qualifications for certification are not a “one size fits all” scenario. Federal, state, and local government entities may have different certification qualification requirements and are likely to require that the business be certified with that entity, specifically. While some local government entities might recognize certifications by the state or another entity, this is not always the case. Thus, a contractor or supplier who would like to bid on a variety of public projects – federal, state and local – will likely need to hold multiple certifications.

For example, the state of Missouri requires state certification as an MBE/WBE to bid as an MBE/WBE on state projects. The state’s certification program defines an MBE as “a business that is at least 51% owned and controlled by one or more minority persons” and defines a WBE as “a business that is at least 51% owned and controlled by a woman.” For both, the owner(s) controlling the business must also 1) “have the requisite expertise,” 2) “manage … daily operations,” and 3) “be a U.S. citizen or lawfully admitted permanent resident.” A business that meets these qualifications and is successfully certified as a Missouri MBE/WBE can bid as such on state-funded contracts.

However, should a state-certified MBE/WBE wish to bid on a project for an agency, department, or division of the city of St. Louis, for example, the business would need to be separately certified as an MBE/WBE per the city’s certification rules. The city of St. Louis’ certification rules define an MBE in somewhat more stringent terms: “A for-profit sole proprietorship, partnership, limited liability company, or corporation owned, operated and controlled by Minority Group Members who (a) have at least 51% ownership of the business entity; (b) maintain day-to-day operational and managerial control of the business entity; and (c) have interest in capital and earnings commensurate with the Minority Group Member(s)’ percentage of ownership. … [T]he MBE firm must be a Local Firm, certified as an MBE by the Program Review Committee.” The city rules define a WBE similarly. Note that because state and local entities adjudge MBE/WBE certification qualifications separately, it is possible a contractor or supplier could qualify for certification with one public entity and not another. Contractors and suppliers should ensure they hold the requisite certification for the project on which they wish to bid.

Understanding the certification process

Second, the contractor or supplier seeking certification as an MBE/WBE/DBE must apply for certification with the applicable public entity and as a part of the application process should expect an inquiry into the contractor or supplier’s day-to-day operations. The contractor or supplier seeking certification should not, however, assume that the certifying entity will unquestionably accept as true the information provided in a certification application. In fact, some government entities, such as the city of Chicago, may affirmatively put the burden of proof on the applicant to show that it meets the qualification requirements for certification. The certification process may also entail on-site visits and/or interviews with the applicant to visually and verbally confirm that they meet the MBE/WBE/DBE certification requirements. The certifying entity could also request and require additional documentation as part of the certification process.

As part of its inquiry, the certifying entity may look to ensure that the applicant is truly minority-owned, woman-owned, and/or socially or economically disadvantaged and is qualified for certification in its own right. In other words, the certifying entity may seek to ensure that the contractor or supplier seeking MBE/WBE/DBE certification is not merely a façade for a separate, non-minority-owned, non-woman-owned, or non-disadvantaged business seeking to use the contractor or supplier to gain access to contract work reserved for MBEs/WBEs/DBEs. To avoid the appearance of impropriety that could disqualify an applicant from MBE/WBE/DBE certification, the applicant should ensure that it keeps its business separate and distinct from the business of any other company. The applicant should not set up its business through another non-qualified company and should avoid using another company’s physical address, funds, bank accounts, website, email address, etc. To qualify for certification, the contractor or supplier seeking MBE/WBE/DBE certification should be a fully separate entity.

Third, a contractor or supplier seeking MBE/WBE/DBE certification should consider its affiliations and how those affiliations might be viewed by the certifying entity during the certification process. For example, does the owner of the DBE certification-seeking business come from a wealthy family, where the owner might therefore not be considered “disadvantaged” due to their apparent access to family money? Does the female owner of the WBE certification-seeking business have a male spouse who owns a similar business in the industry, or has she previously worked for the male spouse, either of which might create the appearance that the female owner is not the true owner in control of the business? Does the owner of the MBE/WBE/DBE-certification seeking business have a family member who, either individually or because of their employer, creates a conflict of interest with the certifying entity?

In the same vein, the certifying entity may investigate whether the owner of the MBE/WBE/DBE certification-seeking business actually exercises real control of the company. The certifying entity may seek to ensure that the owner really “knows” the business and exercises real control of the business by, for example, confirming that it is the owner who makes key decisions that impact the business and supervises and directs others in the business. The certifying agency might also try to confirm ownership by inquiring as to whether the owner of the MBE/WBE/DBE certification-seeking business put up its own capital to obtain ownership status. In sum, the applicant should be prepared for the possibility that the certifying entity will scrutinize all the details surrounding the applicant’s business, ownership structure, and even the owner’s personal background and personal relationships.

Moreover, it is possible that even after a contractor or supplier seeking MBE/WBE/DBE certification has fully completed the application process and complied with all interviews, inspections, and/or requests for information, its MBE/WBE/DBE certification application will be denied. It appears that most government entities provide for an appeals process that must be initiated within a certain number of days. If the denial is upheld on appeal, the certification-seeking business may be required to wait a period of days or months before re-applying.

Finally, a contractor or supplier seeking MBE/WBE/DBE certification should understand the importance of being truthful during the certification application process. Untruthfulness could result in decertification as well as other potentially serious legal and/or financial consequences, particularly if the MBE/WBE/DBE that was wrongfully certified is ultimately awarded contracts for which it would not otherwise have been qualified. MBE/WBE/DBE fraud is an issue that all levels of government are leery of; government entities at the federal, state, and local levels provide hotlines to the general public for the express purpose of reporting potential MBE/WBE/DBE fraud. In Missouri, third parties who believe that an MBE/WBE was wrongfully certified may also file a third-party challenge with the Office of Equal Opportunity.

There are potential civil and criminal implications for committing fraud in applying for MBE/WBE/DBE certification. A company that makes a false statement in connection with MBE/WBE/DBE certification can be sued for civil fraud in addition to being criminally charged with fraud or making a false statement to a government agency, which can result in jail time and heavy fines. As part of the criminal prosecution or as part of the plea bargain reached to avoid criminal penalties, the company may even be required to dissolve operations. Again, to avoid any appearance of impropriety and a possible investigation for wrongdoing, it is necessary that the MBE/WBE/DBE applicant be truthful in its application for certification.

Other items to keep in mind

Commercially Useful Function

An MBE/WBE/DBE’s autonomy remains important even post-certification in that the MBE/WBE/DBE must also be capable, in its own right, of performing a “commercially useful function” (CUF) on publicly funded projects. Prime contractors on publicly funded projects must generally strive to attain a certain level of MBE/WBE/DBE participation, and an MBE/WBE/DBE subcontractor’s participation only counts toward the prime contractor’s goal if the subcontractor performs a CUF. An MBE/WBE/DBE performs a CUF where it actually performs and controls a majority of that portion of the work for which it is contracted. The MBE/WBE/DBE generally should not subcontract out a greater share of the work than the MBE/WBE/DBE itself performs and/or supervises or than is typical in the industry. If it does, it is at risk of being identified as merely a “pass-through” participant, for which it could be removed from the project and, in the case of fraud, could be criminally prosecuted. The MBE/WBE/DBE awarded a contract on a publicly funded project must be performing a CUF in order for that MBE/WBE/DBE subcontract to count toward the prime contractor’s goal of MBE/WBE/DBE participation, and the government entity may periodically inspect the MBE/WBE/DBE’s performance of the work to ensure it is performing a CUF.

Mentor-Protégé Programs

Note also that even though the MBE/WBE/DBE should be kept separate and apart from other companies in the business sense, some government entities have established “mentor-protégé” programs wherein larger, successful non-MBE/WBE/DBE companies engage in a “mentor-protégé” relationship with MBEs/WBEs/DBEs. These informal relationships are intended to help the MBE/WBE/DBE benefit from the advice, knowledge, and experience of their mentor, generally a prime contractor who has already had success in the industry. These programs typically offer training to the MBE/WBE/DBE protégé and assistance in competing in the marketplace and help to establish mutually beneficial business connections and foster positive working relationships with other contractors in the industry. Note that these programs are limited in nature and may not be available in all jurisdictions and states.

If you would like to learn more about becoming certified as an MBE, WBE, and/or DBE, or would like assistance in completing the certification application process or appealing a denial of your MBE, WBE, and/or DBE certification application, please contact an attorney in Greensfelder’s Construction Practice Group.

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.

SB51 was recently passed in the Missouri Senate and has advanced to the Missouri House for further action. In its current perfected state, SB51 seeks to add six new statutory sections to chapter 537 of Missouri Revised Statutes: Sections 537.1000, 537.1005, 537.1010, 537.1015, 537.1020, and 537.1035. Though it may depend on how the courts apply and interpret the language of a final passed bill, the proposed statutes are likely applicable to construction-related businesses acting in both their service provider and employer capacities.

Proposed Section 537.1000

Proposed Section 537.1000 defines key terms for purposes of reading the other statutory sections. Among other terms, it defines “Businesses, services, activities, or accommodations,” “COVID-19 exposure action,” and “Individual or entity.”

“Businesses, services, activities, or accommodations” is defined broadly and includes “any act by an individual or entity, irrespective of whether the act is carried on for profit.” This definition likely encapsulates all construction activities.

“COVID-19 exposure action” is defined as a civil action brought by a person who suffered a personal injury against an individual or entity engaged in businesses, services, or accommodations, that alleges an actual, alleged, feared, or potential exposure to COVID-19 that caused the personal injury or risk of personal injury and that occurred in the course of the individual or entity’s businesses or services.

“Individual or entity” is defined broadly, too, and includes natural persons, employees, employers, corporations, companies, trades, businesses, firms, partnerships, labor organizations, nonprofits and charitable organizations, state and local governments, and more. Because of the breadth of the definition of “individual or entity,” the Act will provide widespread COVID-19 liability protection to many, if not all, types of Missouri businesses and employers.

Proposed Section 537.1005

Proposed Section 537.1005 is possibly the most important statute with respect to construction-related businesses in that it provides the greatest civil liability protection. Section 537.1005 provides that “no individual or entity engaged in businesses, services, activities or accommodations shall be liable in any COVID-19 exposure action unless the plaintiff can prove by clear and convincing evidence that: (1) The individual or entity engaged in recklessness or willful misconduct that caused an actual exposure to COVID-19; and (2) The actual exposure to COVID-19 caused the personal injury of the plaintiff.” Construction contractors and owners likely fit into Section 537.1000’s definitions of an “individual or entity” engaged in “businesses [or] services.”

Therefore, as it is written now, Section 537.1005 appears to protect construction contractors and owners, acting in both their employer and service provider capacities, from COVID-19 exposure lawsuits brought by employees and business associates or visitors where the plaintiff alleges that due to an actual or potential exposure to COVID-19 that occurred in the contractor or owner’s course of the business, the plaintiff sustained or was at risk of a personal injury. The contractor or owner must not have acted recklessly or with willful misconduct in causing the COVID-19 exposure, however. Although the statute does not expressly limit civil liability protection to only those individuals and entities that are in compliance with state and local health orders, it is possible a court could find that failure to follow local COVID-19 health and safety orders, such as wearing masks and social distancing, could be deemed reckless conduct, and subject the contractor or owner to civil liability.

Proposed Section 537.1005 further protects employers and business owners by creating a rebuttable presumption that the plaintiff assumed the risk of a COVID-19 exposure by entering an employer or business owner’s premises where the employer or business owner had provided a substantially similar warning notice as the warning notice provided in the statute. The notice must be “clearly visible” upon entering the location or must be provided in written form to those coming to the location. Thus, a contractor or owner could likely create a rebuttal presumption that it is not liable for workplace or project site COVID-19 exposure where it has clearly posted a warning notice in the workplace or on the project site or has provided an advanced written notice to all employees and tradespeople entering the workplace or project site.

This section does create the potential for a contractor or owner’s COVID-19 exposure action liability for a third party’s acts or omissions if the contractor or owner: (1) had an obligation under common law principles to control the actions of the third party, or (2) if the third party was acting as an agent of the contractor or owner. In any situation where the contractor or owner believes it has responsibility for the actions of a third party, or believes a third party is acting as its agent, it would be best practice to ensure that the third party is not acting recklessly in such a way that it may cause COVID-19 exposure to others.

Proposed Section 537.1015

Proposed Section 537.1015 provides, in pertinent part, that any manufacturer, seller, lessor, distributor, or donator of a “covered product” shall not be liable in a COVID-19 products liability action arising out of the manufacture, sale, lease, distribution, or donation of that product if that entity either:

  1. does not make the covered product in the ordinary course of business;
  2. does make the covered product in the ordinary course of business but the COVID-19 emergency requires modification of the manufacturing process; or
  3. does make the covered product in the ordinary course of business, and the use of the covered product is different than its recommended purpose and used in response to the COVID-19 emergency.

“Covered product” is defined in the Act as a “pandemic or epidemic product” or “device” “to combat COVID-19.” The statute only applies to “covered product[s] … administered or used for the treatment of or protection against COVID-19,” and therefore likely would not apply to products typically manufactured or distributed by construction material suppliers and distributors unless, of course, they meet this statutory description.

Proposed Section 537.1020

Proposed Section 537.1020 permits an award of punitive damages in any COVID-19 related action, though punitive damages may never exceed nine times the amount of compensatory damages awarded.

Proposed Section 537.1035

Proposed Section 537.1035 provides that all sections of the COVID-19 Liability Protection Bill will expire four years after the legislation is passed. It also provides that the causes of action for damages arising out of exposure to COVID-19, acts or omissions of health care providers in the course of providing COVID-19-related health care services, or the manufacture, sale, lease, distribution, or donation of a “covered product” created by these statutes replaces any other common law cause of action, and preempts and supersedes any preexisting standards for personal injury law. In essence, Section 537.1035 requires that any action related to COVID-19 be brought pursuant to these statutes. This section creates a two-year statute of limitations for COVID-19 exposure actions and products liability actions and creates a one-year statute of limitations for COVID-19 medical liability actions.

Proposed Section 537.1010

Finally, proposed Section 537.1010 gives civil liability protection to health care providers providing COVID-19-related health care services, requiring that the plaintiff in a COVID-19 medical liability action prove that the health care provider was reckless or engaged in willful misconduct that caused a personal injury. Section 537.1010 likely would not apply to construction-related businesses.

Looking Forward

As of the publication of this blog post, SB51 had passed in the Missouri Senate and advanced to the Missouri House for consideration. If passed in this regular session, it is likely that Gov. Mike Parson will sign this bill into law, as he has advocated for COVID-19 liability protections. The law would become effective on August 28, 2021, and would apply to civil actions filed on or after the effective date and to all claims as described in these sections based on acts or omissions that occurred during the COVID-19 pandemic.

Note also that this legislation may be amended before it is passed. If passed as it is written now, however, the likely implication is that construction-related businesses that constitute an “individual or entity engaged in businesses [or] services” per the statute may not be civilly liable if someone contracts COVID-19 or is exposed to COVID-19 at the office or project site, assuming the construction-related business was not acting recklessly or with willful misconduct to cause an actual COVID-19 exposure. To that end, it is best practice for construction-related businesses to enact COVID-19-related safety policies and ensure they are enforced. Furthermore, construction material suppliers that manufacture, sell, or distribute covered products during COVID-19 may gain products liability protection, as would construction-related businesses that provide covered products to others, during COVID-19.

If you have questions about Missouri Senate Bill 51 or ensuring that your business is in compliance with applicable COVID-19 protocols, please contact an attorney in Greensfelder’s Construction Practice Group.

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.

Although there may be avenues by which a contractor, subcontractor, or design professional may still recover payment for additional work on either a breach of contract or quantum meruit theory, it may not be able to recover payment by asserting its mechanic’s lien rights unless it ensures that all work performed on a Missouri project, if not a part of the original scope of work contracted for, is approved via executed change order, supplemental agreement, or other method provided for in the parties’ original contract. If the additional work performed is not part of the original scope of work covered by the contract and is not approved by the requisite change order or supplemental agreement, the contractor, subcontractor, or design professional may not have lien rights for the additional work. Furthermore, the case demonstrates why is it generally advisable that contractors, subcontractors, and design professionals have documentation to support their agreements for additional work for purposes of proving that the additional work was performed pursuant to the original contract, an executed change order, or a supplemental agreement.

The Case: Bates & Assocs., Inc. v. Providence Bank, 590 S.W.3d 348 (Mo. App. E.D. 2019)

In Bates & Assocs., Inc. v. Providence Bank, 590 S.W.3d 348 (Mo. App. E.D. 2019), reh’g and/or transfer denied (Oct. 21, 2019), transfer denied (Dec. 24, 2019), the architect providing architectural design and construction services on a senior care facility project appealed the trial court’s denial of the architect’s claim for enforcement of its mechanic’s lien. The trial court held that the architect’s mechanic’s lien could not be enforced because the lien was untimely. The appellate court affirmed the judgment.

The appellate court noted that Mo. Rev. Stat. § 429.015.1 provides that any architect who does any architectural work upon, or performs any architectural service directly connected with the erection or repair of any building or other improvement upon land “under or by virtue of any contract with the owner or lessee thereof,” shall have a lien upon the building or other improvements upon the land to secure payment for the architectural services. (Note that § 429.015 also applies to engineers and landscape architects, and § 429.010 contains a similar requirement for contractors and subcontractors). Furthermore, any person seeking a lien under Chapter 429 of the Missouri Revised Statutes must, within six months after “the indebtedness shall have accrued,” file with the circuit court a “just and true account” of the demand due that has given rise to the lien.  See § 429.080.  For purposes of this six-month lien filing deadline, the indebtedness is said to have “accrued” (and thus the clock begins to run) from the last day labor is performed under the agreement.  Bates & Assocs., Inc., 590 S.W.3d at 352 (citing  United Petroleum Serv., Inc. v. Piatchek, 218 S.W.3d 477, 481-82 (Mo. App. E.D. 2007)).

The architect argued that the additional work it performed on the project was pursuant to the original contract and so the indebtedness for all work performed on the project did not accrue – and thus the six-month lien deadline did not begin to run – until the last day this additional work was performed. The court, however, disagreed, because the original contract’s plain language created a distinction between services included in the original contract and services for which the owner’s “written authorization” was required.  The court held that the requirement of a separate written agreement for certain forms of additional work to be performed evidenced the parties’ intent that these additional services not fall within the purview of the original contract absent written authorization.  Thus, because these additional services were not a part of the original contract, the additional work did not extend the filing deadline for the work actually performed pursuant to the original contract, and the mechanic’s lien the architect sought to enforce was untimely.

Furthermore, because the additional work did not fall under the purview of the original contract, and the parties did not execute a supplementary contract to cover the additional work, the additional work was not lienable. The end result was that the architect lost lien rights to over $300,000 in performed work.

Key Takeaways: Mechanic’s Lien Rights

For purposes of preserving Missouri mechanic’s lien rights, Bates & Assocs., Inc. v. Providence Bank illustrates the importance of ensuring that all work performed on a project is covered by a valid contract, executed change order, or supplemental agreement in order to ensure that the work is lienable.  If the additional work does not fall within the purview of the original contract, then an executed change order, for example, will bring the additional work within the scope of the original contract and establish that the six-month deadline for filing a mechanic’s lien does not begin to run until after the contractor’s last day of work on the project which, because of the executed change order, will include the additional work.  

In some cases (as was the case in Bates & Assocs., Inc.) the contract may mandate that a separate written agreement be entered into before certain forms of additional work shall be performed. If the original contract states that a separate written agreement is required for certain forms of additional work, failing to execute said agreement before performing the additional work may deem the work un-lienable, as it will not governed by any agreement between the parties as required by §§ 429.010 and 429.015. To protect its lien rights, a contractor, subcontractor, or design professional should always take care to ensure it is obtaining the requisite change order or supplemental agreement and authorization before performing additional work not provided for in the original contract.

This case also demonstrates the importance of correctly ascertaining when the last day of work performed pursuant to a contract is for purposes of determining when the six-month lien filing deadline has begun to run so that the contractor does not unwittingly allow the filing deadline to expire. It is not correct to assume that simply tacking additional work on to the end of the project will extend the lien filing deadline. As stated above, Missouri mechanic’s lien law requires that the work be performed pursuant to the original contract or some other change order or supplemental agreement bringing the work within the scope of the contract.

An additional interesting issue in Missouri is whether a contractor can extend its lien filing deadline by performing warranty or repair work – i.e. correcting its own errors and mistakes – on the project.  Generally, if the work is performed and accepted as substantially complete, and then subsequent warranty or repair work is required, this subsequent work will not be lienable, and therefore does not extend a contractor’s lien filing deadline. However, if the contractor is not intending to simply extend its mechanic’s lien filing deadline but is performing work that is reasonably within the purview of the original contract, or is requested by the owner, and is necessary to completing the contract in a workmanlike manner, the indebtedness may be said to have accrued from the date of this work. As a contractor, subcontractor, or design professional, it is important to properly document work performed under the contract and never refer to this work as “warranty” work if it is in furtherance of performance of the contractual scope of work.

Key Takeaways: Right to Payment          

It is important to note that even if the original contract provides that additional work can only be performed if first approved in writing or by supplemental agreement, a contractor that does not obtain this written authorization for additional work, but instead obtains verbal authorization, such as an oral change order, to perform the additional work, might still retain its right to payment and its mechanic’s lien rights. Even where the original contract requires that additional work be approved by written change order or written supplemental agreement, Missouri courts have held that these contractual requirements may be waived if the party requiring the written change order has either (1) habitually accepted work completed upon oral change orders or (2) the parties agreed to an oral change order and the work was completed. While it is generally advisable to obtain written authorization before performing additional work for purposes of establishing that the work is pursuant to an agreement between the parties and to later support the lienor’s “just and true account,” failing to obtain written authorization does not necessarily nullify a contractor’s mechanic’s lien rights.

In conclusion, Bates & Assocs., Inc. v. Providence Bank reminds contractors, subcontractors, and design professionals who wish to protect their Missouri mechanic’s lien rights to ensure that any additional work performed on a construction project is pursuant to a contractual agreement. Additionally, parties to a construction contract performing additional work should be wary of the strict six-month lien filing deadline, and not assume that any and all additional work performed on the construction project extends their filing deadline.

If you are interested in learning more about the requirements of a particular mechanic’s lien law and how to best protect your right to assert a lien, please contact an attorney in Greensfelder’s Construction Industry Group.

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.

Perhaps the most obvious modification has been the cancelation of in-person hearings and jury trials. For example, Missouri courts responded to COVID-19 by initially canceling all civil jury trials, with limited exceptions. Jury trials remain canceled in many Missouri circuits through at least July, while some circuit courts have announced they do not plan to resume civil jury trials until September or later. Likewise, in the U.S. District Court for the Eastern District of Missouri, a recent order extended the limitation on in-person proceedings and jury trials through Sept. 7, 2020, and has even extended the court’s Speedy Trial Act waiver in the interest of protecting the health and safety of all parties, the court, and the public (who would be called upon to serve as jurors).

All jury trials that were slated to begin before the end of the year before the Cook County Circuit Court in Illinois have been canceled, and it is unknown when the court will resume jury trials in 2021. Assuming trials will be rescheduled on a “first-come, first-served” basis, it could be years before a new case is able to be tried before a jury.

Advantages of Arbitration

Arbitration, therefore, is perhaps a more appealing option for those who wish to have their construction dispute heard and resolved sooner. Arbitrations, such as those before the American Arbitration Association (AAA), are a form of private dispute resolution separate and apart from the courts, and thus do not wait on other cases to be tried before they can be heard. Arbitrations are typically heard by one to three arbitrators selected by the parties. They do not require the seating of a jury, and they can often be heard and resolved within a year or less from the date an arbitration demand is filed. The schedule and hearing dates for arbitrations are generally “set” by the parties, giving them greater certitude as to when they can expect the dispute to be heard, as opposed to a jury trial where the trial date is more amorphous and subject to change due to outside forces such as COVID-19. Although the arbitral process has also been affected by the pandemic, arbitration naturally allows for more flexibility. In many cases, providers of arbitration services like the AAA are able to proceed, and have been proceeding, with virtual hearings via videoconference or teleconference.

In sum, because parties are allotted a fair amount of control over the timing and process of arbitration, and because arbitration is inherently more versatile, it is highly likely that even post-COVID-19 disputes will be heard and resolved sooner by arbitration than by jury trial. Therefore, contractors, owners, and design professionals seeking a quicker resolution of a dispute – and wishing to avoid the wait lines at the courthouse – may want to consider including a mandatory arbitration provision in their contracts.

When Parties May Agree to Arbitration

Although it is common to include an arbitration provision at the time a contract is executed, a mandatory arbitration provision may be added to a contract at any time during the life of the contract. To amend an existing contract to include a mandatory arbitration provision, some re-negotiation may be required, as the other parties to the contract must assent to the revised and updated contract (i.e., the contract cannot be modified unilaterally).

It should be noted that a dispute does not need to exist for this to be an option. Parties to a contract can simply recognize that although no dispute currently exists, if a dispute were to arise, it could take years to resolve in today’s protracted trial setting, and thus arbitration would be a more tenable option for all those involved. To aim for a speedier resolution of any potential disputes, parties can therefore proactively amend their existing contracts to include arbitration provisions. Even if the existing contract is never revised to include a mandatory arbitration provision, a dispute can still be arbitrated so long as all the parties agree. Contractors, owners, or design professionals may also wish to consider including a mandatory arbitration provision in all future contracts, knowing that in today’s world litigating a dispute could be a lengthy process.

Important Considerations When Drafting the Contract in Light of COVID-19

It may be advisable for parties to proactively address certain COVID-19 related issues in their arbitration agreements now, as opposed to waiting until after arbitrators have been selected. Such issues include the parties’ agreeability (or their objection) to virtual or hybrid hearings (i.e., hearings where some case participants appear in-person and others appear remotely, either via videoconference or teleconference) as well as the location, means, and methods for safely and effectively conducting said hearings.

Parties should address in their arbitration agreement their agreeability to in-person, virtual, and/or hybrid hearings, and they should state the agreed-upon “location” of the arbitration – or means and methods of conducting the arbitration, as the case may be – for each circumstance. For parties that want all efforts to be made to have an in-person hearing, for example, the AAA has arranged for alternate hearing venues that meet COVID-19 safety protocols. The parties could therefore state in their contract that any in-person hearing shall be held at a physical location with the capability for participants to be socially distanced.

For parties that are agreeable to a hybrid hearing, they can use the AAA’s alternate hearing venues in addition to the AAA’s video and audio technology intended to support hybrid hearings. Of course, parties may state in their contracts their agreeability to or preference for a completely virtual hearing, in which case it is within the parties’ discretion which videoconference platform they will use. The parties may therefore wish to state in the contract which videoconference or teleconference platform (such as Zoom, for example) will be used in the case of a virtual hearing.

There are additional important considerations the parties can address pre-hearing, either in their contracts or in a pre-hearing order, regarding the particulars of conducting a hybrid or virtual hearing (or virtual depositions, if any). For example, parties may come to agreement regarding the use of a court reporter during their virtual hearing, whether the videoconference platform will record the audio and/or video of the hearing and serve as the official record of the hearing, how witnesses shall give their virtual testimony, how exhibits will be entered and utilized during the hearing, and more. A pre-hearing order can resolve the technical details, such as whether and how the parties should test the videoconference platform before the day of the hearing, and whether a technician will be present with the parties to assist with the videoconference platform during the hearing.

If you are interested in learning more about the benefits of arbitration or drafting or revising a contract to include an arbitration provision, please contact an attorney in our Construction Industry Group.

Link to COVID-19 Resources page

Hard hats hanging up on wallDue 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.

Beware, however, that on a private works construction project, a government-mandated work stoppage may not fall within the scope of the standard suspension of work clause. That is certainly the case with the standard form of AIA and ConsensusDocs. However, the standard form contracts do contain terms authorizing a party to consider termination of the contract after a specified period of a government-ordered work stoppage not caused by the party wishing to rely on that provision.

Suspension contract provisions

For ease of discussion, we will discuss suspension of work clauses in a prime contract. Suspension clauses will differ in terms of what is able to be recovered by the contractor in the event of an owner-imposed suspension and under what circumstances the contractor may be within its right to walk off the project. Some suspension clauses will allow the owner to suspend work on the project for a certain amount of time with no increase to the contract price. Contracts that use the AIA A201 (2017) General Conditions are likely to have a suspension clause, found at §§ 14.3.1 and 14.3.2, that allows for the owner to order the contractor to suspend, delay or interrupt the work “without cause” for such period as the owner determines. The AIA Document A201 suspension clause allows for an adjustment of the contract price for increases in cost and time as a result of an owner-imposed suspension, and the price adjustment shall include profit. Note that no double-recovery will be allowed, and the contractor may recover the costs of the delay and profit only under one contract provision. Section 14.1.2 permits the contractor to terminate the contract if repeated suspensions of the work by the owner constitute in the aggregate more than 100 percent of the total number of days scheduled for completion, or 120 or more days in any 365-day period, whichever is less.

Other contracts may use the Associated General Contractors of America (AGC) Document No. 200 (2014) (also known as ConsensusDocs No. 200), which also contains a suspension provision at § 11.1.1. The ConsensusDocs provision allows for the owner to suspend performance under the contract at any time, and for any amount of time, for the owner’s own “convenience.” Upon receiving the owner’s notice in writing, the contractor must immediately suspend performance of the work. Sections 6.3.1 and 6.3.2 provide that the contractor may be entitled to an equitable extension of time to perform the contract, as well as an equitable adjustment in the contract price, if the contractor incurs additional costs as a result of the suspension. Sections 11.5.1 through 11.5.3 of ConsensusDocs 200 also provide the contractor the right to terminate the contract if the contract has been stopped for a 30-day period through no fault of the contractor, including for the owner’s rightful suspension.

The standard federal suspension clause, found at 48 C.F.R. § 52.242-14, also allows for the owner (here, the government) to suspend performance of the contract for any reason and at the government’s “convenience.” However, unlike in most private construction contracts, the contractor is only able to recover the increase in cost of performance of the contract (excluding profits) for the period of suspension that is “unreasonable.” Thus, unless the contractor can show that the federal government’s suspension of work on the project was for an unreasonable period of time, the contractor can recover nothing. The “reasonableness” of the government’s delay or suspension is determined on a case-by-case basis. Whether a government suspension of work due to the coronavirus and government mandates makes the suspension or delay a reasonable or unreasonable one is an issue yet unanswered. The AIA and ConsensusDocs contracts do not require such a showing for the contractor to receive compensation.

Because suspension clauses can materially differ depending on the type of contract (public or private) and the form used (AIA vs. ConsensusDocs, for example), owners should determine the rights of the parties pursuant to the specific language of the contract’s suspension clause.

Other important considerations

A party considering suspending work on the project should also take care to abide by any relevant notice provisions. Most contracts specify that the party must give formal written notice to the other party of the exercise of its right to suspend work on the project. Upon receipt of proper notice, the receiving party may then be obligated to immediately cease work on the project pursuant to the suspension orders. The contractual suspension clause may provide that the receiving party is also obligated to mitigate costs and damages for the duration of the suspension.

Even if a contract does not contain a suspension clause or set out one’s rights to suspend a project, a party desiring to suspend or delay work on the project in light of coronavirus developments may wish to consider extending the offer to open negotiations with the other party to determine the terms of a project suspension. In so doing, the party desiring to suspend the work can be more certain of who bears the risk from a suspension of contract performance, stave off litigation, and ensure that good relations are maintained with the other parties on the project who also undoubtedly have questions and concerns during this uncertain time.


While each party’s rights and obligations in light of a suspension of work on the project will likely differ depending on the specific contract language, a party considering suspending work on the project due to COVID-19 may consider the following recommendations:

First, it is always prudent to well-document the events leading up to the decision to suspend or delay the project. Particularly in the case of a government contract, if the suspension clause at issue provides that the government’s suspension must not be unreasonable, the contractor will want to consider a suspension of work claim and take steps to document its basis for additional time and costs.

In addition, a party desiring to suspend the work should consider whether its contract contains a notice requirement to the other party and should strictly abide by those notice requirements. The party suspending the work should keep in mind that a suspension will likely come with additional costs as well as extending the project duration.

Finally, depending on the form of contract used (example, AIA vs. ConsensusDocs), the party issuing a suspension order should keep in mind that the other party, after a period prescribed in the contract documents, may be within its rights to terminate the contract.

Should you have any further questions or concerns about your individual project, please contact an attorney in our Construction Industry Group for more specific advice and recommendations.

Link to COVID-19 Resources page

Construction contractForce 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.

With government-imposed implementation of preventative measures to avoid exposure to the coronavirus and/or other measures in cases of actual infections, it is not out of the question that domestic contractors could see a significant effect on productivity, costs, and their ability to meet completion deadlines.

Contractors and subcontractors facing these issues may look to force majeure law or relevant contract provisions to provide some guideposts to aid parties in evaluating their potential claims and grounds for relief.

As an initial matter, it is important to note that force majeure law varies by jurisdiction. Similarly, the right to time or cost relief will vary on the controlling contract terms. Thus, contractors and subcontractors with projects in multiple states should evaluate each contract and force majeure provision in light of the specific contractual text and that jurisdiction’s force majeure precedent.

Force majeure contract provisions

For construction contracts containing a force majeure provision (such as a time extension clause), the language of the force majeure provision must be evaluated regarding specific occurrences identified as qualifying force majeure events.

While some jurisdictions are willing to read force majeure provisions broadly, other jurisdictions have case law narrowly enforcing force majeure provisions and may not grant relief unless the force majeure clause specifically references the cause of the delay or nonperformance. As a general matter, contractors are likely to be in a better position to argue that a force majeure event has occurred if their contract language specifically denotes a “pandemic,” “epidemic,” “outbreak,” or “quarantine,” as a qualifying force majeure event, than a contract with only general force majeure language. Whether the coronavirus would fall under a more general provision such as “acts of God” or “any other emergency,” “any other unforeseen event,” or “any other cause beyond the contractor’s/ subcontractor’s control” may depend on whether courts in that jurisdiction read force majeure clauses broadly or narrowly. Some courts have limited “acts of God” to natural disasters.

Contractors and subcontractors should also consider whether their contract provides for the level of interference, or extent of the harm, that the party must feel before it may invoke force majeure and seek relief.

Defining “impossible”

Does the contract provide that the occurrence of the force majeure event must make performance of the contract impossible (such as government-imposed quarantine or import restrictions), or does the contract language allow for commercial impracticability or non-profitability to serve as grounds for force majeure?

Some courts have been less willing to find that a change in economic or market conditions affecting the profitability of a contract constitutes a force majeure event if the cause of the change is not among those force majeure events listed.

The claimed force majeure event must be the actual cause of the party’s nonperformance. If, for example, it was unlikely that the party could have timely performed even if the outbreak had not occurred, the party’s force majeure argument is weaker – although this may nevertheless be considered a concurrent delay.

Additionally, reasonable efforts should be taken to mitigate the effect of the force majeure event. For example, in the case where a contractor is short-staffed due to its workers self-quarantining, does the contractor or subcontractor have a contractual obligation to cover by attempting to find healthy temp laborers? Furthermore, a party desiring to invoke force majeure should also take care to abide by any notice provisions in the contract, and should document the time and costs incurred resulting from the force majeure event.

Other legal doctrines similar to force majeure such as doctrines of impracticability

Where no specific force majeure clause is included in the contract, a party may be able to seek relief from contractual performance via the common law doctrines of impracticability (frustration of purpose) or commercial impracticability.

Under these doctrines, a court may relieve a party from performance under the contract if changed social, economic, or market conditions have made performance under the contract impossible or extremely burdensome and unreasonable.

However, the doctrines of impossibility and impracticability are generally construed narrowly by courts. Absent favorable contract terms, courts have been generally unwilling to provide relief based on claims of impossibility or impracticability.

What can we learn from cases stemming from the 1918 flu epidemic?

Cases born from the 1918 influenza epidemic and World War II give some insight into how a court might construe force majeure clauses, or claims of impossibility, in light of government directives.

In one World War II case, governmental restrictions and priority regulations were held to create an excusable delay because it was impossible for the project owner or contractor to commence construction.

In another World War II case, a contractual obligation to ship certain materials was excused where the United States Maritime Commission ordered that the goods contracted for be replaced with a different type of good. Because of the nature of the “governmental crisis,” the contract obligation was discharged.

In breach of contract cases tried in aftermath of the 1918 influenza epidemic, courts were split. Some courts held that where a contract became impossible to perform because of school closings mandated by public health officials, the contract was unenforceable and there could be no recovery for the time period during which the contract was unenforceable. In contrast, other courts held that the possibility of a school closure due to a health epidemic was not unforeseeable at the time of contracting, and that if a school wished to escape contractual liability for such an occurrence it should have inserted a provision to that effect in its contracts.

Key takeaways and recommendations

In the case of both force majeure and impracticability, the event must have been unforeseeable to the parties at the time of contracting. The argument could be made that the coronavirus was unforeseeable to the parties at the time of contracting. Whether failure to meet contract obligations because of the coronavirus is an excusable force majeure event will ultimately depend on the specific government-imposed requirements and how courts in that particular jurisdiction or an arbitrator construe the relevant contract terms and force majeure legal principles.

Below are some recommendations for taking proactive steps to minimize impacts from the coronavirus on existing contracts:

  • If you suspect that the coronavirus may impact your team and/or your progress on the project and ability to meet project completion dates, begin documenting those impacts, immediately.
  • A detailed log showing how and when the project was impacted due to the coronavirus outbreak will be important should you wish to make a force majeure or impossibility/impracticability claim.
  • Consider whether your contract contains a notice requirement to the other party in the event of a possible force majeure claim.
  • In the event that you do encounter project impacts related to the virus, you may be required to send formal notice pursuant to the requirements of the applicable contract.

To proactively take steps to minimize impacts on future contracts, we recommend:

  • Parties negotiating contracts now and in the future would be prudent to ensure that their force majeure provisions expressly address the subject of pandemics, epidemics, the risk of government-mandated quarantines, and the like.

Our Construction Industry Group is continuing to monitor these developments and is available to answer your questions related to matters affected by COVID-19.

Link to COVID-19 Resources page

Arbitrator examines the conflict situation between peopleRule 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.

In Rent-A-Ctr. W., Inc. v. Jackson, 561 U.S. 63 (2010), the U.S. Supreme Court held that a clear and unmistakable delegation provision is an additional arbitration agreement — separate from the underlying agreement calling for arbitration — which is enforceable under the Federal Arbitration Act, or FAA (assuming the arbitration provision is contained in a contract subject to the FAA such a contract evidencing interstate commerce).

Two recent Missouri court decisions have enforced delegation clauses.

The Missouri Supreme Court in State ex rel. Jesse Newberry v. The Honorable Steve Jackson, — S.W.3d — , 2019 WL 2181859 (May 21, 2019) considered an employment agreement that incorporated by reference AAA’s Employment Arbitration Rules, including the rule stating that arbitrators “shall have the power to rule on [their] own jurisdiction, including any objection with respect to the existence, scope or validity of the arbitration agreement.” The employment contract, however, contained terms superseding the rule insofar as the “scope or enforceability” of the arbitration agreement.

The employer in the Newberry case filed a motion to compel arbitration. The two employees filed an opposition on the basis that the employment agreement purportedly lacked consideration, and therefore they should not be required to arbitrate. The court ruled that the lack of consideration contention is a validity or formation issue and not a scope or enforceability issue. Moreover, since the employees only contested the arbitration provision itself and did not pose any specific attack on the delegation clause, the court concluded that whether the arbitration agreement was a valid one must be decided by the arbitrator.

In Hughes v., 2019 WL 2260666 (May 28, 2019), and the customer agreed to arbitrate disputes, except for certain claims not involved in the case. The parties’ arbitration agreement adopted by reference AAA’s Consumer Arbitration Rules, including Rule R-14(a), which provides that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”

The customer in Hughes contended that the arbitration agreement lacked consideration and is unconscionable. The court ruled the delegation clause was clear and unmistakable, a necessary prerequisite for a delegation clause. The court then enforced the delegation clause, reasoning that (1) such a clause must be enforced unless a specific challenge is raised to that clause itself, and (2) no specific challenge was raised before the trial judge vis-à-vis the delegation clause. As such, the arbitrator was empowered to determine whether the arbitration agreement lacked consideration or was unconscionable.

Interestingly, while the Newberry and Hughes courts adopted very similar reasoning, Hughes, decided only one week after Newberry, did not cite Newberry.

The above cases involve circumstances where both parties agreed to terms in writing that included a delegation clause and an arbitration provision. It would appear that where one of the parties never evidenced acceptance to a written document containing an arbitration clause, a court would likely be the proper forum to decide arbitrability.

However, the lessons from the two recent Missouri decisions are clear: Unless the delegation clause lacks sufficient clarity or one can muster a valid, specific challenge to the delegation provision itself, Missouri courts will as a general rule enforce such a provision and therefore permit the arbitrator(s) to ascertain the arbitrability issue.

Image showing a wave of money with dollar bills and coinsConstruction 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.

Under the Employee Retirement Income Security Act of 1974 (ERISA), when a construction employer exits an underfunded multiemployer plan, the employer must pay “withdrawal liability.” The withdrawal liability is based on the employer’s share of the plan’s underfunded liabilities, which can be calculated in different ways, but generally, the more a company has contributed over time, the more it will owe.

For small and mid-sized companies, this looming liability can be enormous, sometimes greater than the value of the company itself. This creates a significant problem that must be addressed.

Fortunately, there is an exemption that construction companies can take advantage of under ERISA. Specifically, employers in the “building and construction industry” can get out of withdrawal liability provided several requirements are met. I discussed those rules in more detail here, but most importantly: (1) the employer has to cease its obligation to make contributions under the collective bargaining agreement (CBA); and (2) the employer must not perform covered work under the CBA for at least five years thereafter.

Following are several options for how a construction company can address its withdrawal liability, including:

  • Do nothing
  • Pay it
  • Use subcontractors
  • A stock sale of the company
  • An asset sale of the company
  • Negotiate with the plan
  • Terminate your obligations under the CBA

Do nothing

One option is to maintain the union work going forward and keep making required contributions to the multiemployer pension plan. It is possible the amount of withdrawal liability your company faces will go down over time, either as a result of your union work decreasing or the plan becoming better funded. It may be more likely, however, that the funding status of these plans will continue to deteriorate, resulting in your company’s potential withdrawal liability going up, not down. That, in turn, may narrow your company’s options going forward.

Pay the withdrawal liability

If the amount of the withdrawal liability is not prohibitive, it may make financial sense to just pay it while continuing to perform the same covered work with non-union employees. To make this determination, your company will need to request a withdrawal liability estimate from the multiemployer pension plan at issue. That will allow you or your attorney to determine (or estimate) the total amount of liability and the amount of annual installment payments you will have to pay. If it makes sense to pay withdrawal liability now, your company must first terminate its obligation to make contributions to the multiemployer pension plan (see below). The pension plan will then have to make a final assessment of withdrawal liability before it can be paid.

Use subcontractors

It may be possible to discontinue using employees to perform covered work under the CBA and instead use subcontractors to perform the same work. Whether or not this will work depends entirely on the CBA. If the CBA requires any subcontractors to also have an obligation to make pension contributions, then, practically speaking, it may be difficult to find a suitable subcontractor. And if the CBA is written in a way that your company could be held liable for a subcontractor’s delinquent contributions, then your company has not stopped performing covered work, and the five-year window on the building and construction industry exemption may not begin to run.

If you are considering this option, have an experienced attorney review your CBA and determine what your options are.

Stock sale of the company

This is an easy solution from the seller’s perspective, as the withdrawal liability just becomes the new buyer’s responsibility. However, the prospect of withdrawal liability may significantly drive down the value of the company in any sale, and if the seller remains part of the same controlled group — see here — the seller is still on the hook for the withdrawal liability if it gets triggered. So, depending on the circumstances, this may or may not be a feasible option.

Asset sale of the company

This is a good option for someone looking to retire. In an asset sale, the withdrawal liability stays with the seller, who can then dissolve. After five years of not performing any covered work, the building and construction industry exemption will eliminate the withdrawal liability.

One major pitfall of this option, however, is successor liability, in which the withdrawal liability travels from the seller to the buyer. This will occur if the buyer is “substantially continuing” the seller’s business. This might happen, for example, if a single buyer purchases and continues to use the seller’s name, building, phone numbers, employees, and management. Courts will look at all relevant factors to determine if a buyer has become the seller’s successor.

One issue the courts have not cleared up is whether the seller and its controlled group remain on the hook for withdrawal liability if there is a successor. For example, suppose the seller was part of a large controlled group of businesses. Even though the seller dissolves, the pension plan may go after the remaining members of the seller’s controlled group to pay any withdrawal liability.

As a result, the seller may continue to face a risk of liability within the five-year window for the building and construction industry exemption. To account for this, the terms of your sales agreement(s) must be carefully drafted to avoid inadvertently creating successor liability, and to deal with the fallout should a successor be created. For example, indemnity provisions could be drafted so the buyer would have to reimburse the seller and its controlled group for any assessment of withdrawal liability against them.

Negotiate with the plan

It might be an option, at some point, to negotiate with the plan over withdrawal liability, such as the total amount of liability and the amount of installment payments. A case-by-case analysis of whether it makes sense to approach the plan before any assessment of withdrawal liability should be done. But plans can be pragmatic. If it makes sense for each side to give a little in order to reduce their overall risks, a plan may be willing to negotiate.

Terminate your obligations

Whether you want to start the clock running on the building and construction industry exemption or just pay withdrawal liability, your company’s obligation to make contributions to a plan under all applicable CBAs must first be terminated. There are basically two options.

The first is to terminate or modify the CBA. Typically, CBAs are in effect for several years and can only be modified or terminated by providing notice to the union within a short window (e.g., 60 to 90 days) before the end of the CBA. If you fail to provide any required notice, the CBA will likely continue in effect for one-year periods until otherwise modified or terminated. This process is governed by federal labor laws, and an experienced labor attorney should be consulted on applicable requirements.

If there are multiple CBAs, your company will have to determine the feasibility and potential sequence of terminating the different CBAs. It is possible, for example, that if different CBAs must terminated at different times, partial withdrawal liability could be assessed against your company, if your company’s pension contributions are substantially reduced without being completely terminated.

The second option is to permanently discontinue all work covered by the CBA. This could take the form of terminating the entire business, or just the department that holds the union employees. If your company terminates a department, however, the same covered work cannot be transferred to a different department or a different member of the same controlled group; it must cease altogether.

One option that will not work is to just stop paying required contributions while a CBA is still in effect. That would not result in a withdrawal but would result in delinquent contributions. A union would likely sue to enforce the company’s obligation to make contributions, along with any applicable penalties and late charges.

Be careful

No matter what route your company decides to take with withdrawal liability, it is important to remember that this is a complex area of law. There are many other ways to potentially reduce or eliminate withdrawal liability, just as there are many other potential pitfalls. For example, Section 4212 of ERISA (29 U.S.C. § 1392) gives plans the right to ignore any transaction your company engages in if a “principal purpose” of the transaction is to “evade or avoid [withdrawal] liability.” And courts typically defer to a plan’s reasonable determination that an employer has engaged in such a transaction.

Play it safe and have an experienced attorney help guide your construction business through withdrawal liability.