Cases of the Month
Significant Cases and Decisions Affecting the Construction Industry
By: Craig F. Martin
Lamson, Dugan & Murray, LLP
1. Forum Selection Clauses are enforceable in federal court unless compelling public-interests are found. KNL Construction, Inc. v. Killian Construction, Inc., 2014 U.S. Dist. Lexis 58269 (M.D. Pa. Apr. 28, 2014).
* What the Court Considered: This case arises from a construction contract between the general contractor, Killian Construction (Killian),and a subcontractor KNL Construction (KNL) for the construction of a hotel in Pennsylvania. The contract between Killian and KNL contained a forum selection clause requiring any dispute arising under the contract to be litigated in Missouri. KNL was not paid and filed a lawsuit in Pennsylvania. Killian removed the case to the United States District Court for the Middle District of Pennsylvania and filed a motion to dismiss based on the forum selection clause. KNL argued that the forum selection clause is unenforceable because of the Contractor and Subcontractor Payment Act (CASPA) of Pennsylvania which makes forum selection clauses outside of Pennsylvania invalid.
* What the Court Said: The court determined that an action may be dismissed when a forum selection clause designates another venue, unless there is compelling public-interest to void the venue clause. Compelling public-interests include administrative difficulties that come from court congestion, local interest in deciding the case at home, and the interest of having the trial of a diversity case with local law. This burden of proof is on the plaintiffs, and in this case the court found that the public policies under CASPA are not a compelling public-interest to render the forum selection clause void.
* What the Opinion Means: Forum selection clauses will be enforced by federal courts unless there are compelling public-interests that outweigh the forum selection clause.
2. A subcontractor’s failure to provide timely notice under the Miller Act may be excused by ‘Extreme Circumstances’. AMEC Environment & Infrastructure, Inc. v. Structural Assoc., Inc., 2014 U.S. Dist. Lexis 49281 (E.D. N.C. April 8, 2014).
* What the Court Considered: This case involved a construction project for the Marine Corps Air Station in Jacksonville, North Carolina to replace a fiberglass reinforced pipeline. The general contractor, AMEC Environment & Infrastructure (AMEC) contracted with the subcontractor Structural Associates (Structural) who hired Talon Industries (Talon) to perform excavation work. During the course of performance the existing pipeline cracked and 9,000 gallons of jet fuel was spilled. AMEC brought a lawsuit against Structural and Talon for environmental remediation expenses. In turn Structural and Talon sued AMEC under the Miller Act claiming that AMEC and their surety withheld $100,000 from Structural. The bonding company moved to dismiss Structural and Talon’s claims because Talon’s pre-suit notice was untimely and was not filed within the 90-day period required by the Miller Act. Talon argued that it did not receive notice from Structural that payment of $100,000 was to be withheld from its October 2011 invoice until February 2012 when Talon wrote Structural demanding payment. Talon claimed that equity should toll the 90-day period.
* What the Court Said: The court found that Talon’s failure to provide timely notice was excused because the notice from Structural withholding $100,000 was an “extreme circumstance” and Talon should gain the benefit of the February 2012 date when it learned the $100,000 was to be withheld verse the October 2011 date when the project was completed. Therefore Talon’s notice to the bonding company in March of 2012 was within the time requirement.
* What the Opinion Means: In “extreme circumstances” a subcontractor may not be bound by the time limits of the Miller Act.
3. Low Bid Price is not Improper or Unbalanced, It is the Bidders Responsibility. Matter of: JCMCS, 2014 U.S. Comp. Gen. Lexis 92 (April 8, 2014).
* What the Court Considered: This case involved a company’s challenge that the low bidder’s bid was unrealistically low. M & F Concrete (M & F) was awarded the contract with the low bid of $20.5 million. The next lowest bid was $35.4 million. The lowest bidder argued that the low bid was unrealistically low and it was unbalanced because it bid $10,000 for the contract line item for engineering, surveying and permitting compared to the second lowest bidder for the same line item of $1,000. The second lowest bidder also argued that the Department of the Army failed to comply with the price analysis techniques set out in the Federal Acquisition Regulations (FAR) part 15. In addition, the second lowest bidder asserted that because the price was so low the lowest bidder would not be able to comply with pay labor rates under the Davis Bacon Act.
* What the Court Said:. The Comptroller General stated that it is the bidder’s responsibility to its ability to perform a contract at below-cost prices. The Comptroller General also determined that a charge of unbalanced bidding requires more than just low prices and the Comptroller deemed the value of the one line item as de minimus because of the lowest bidder’s $15 million price advantage. The Comptroller General also found that the Department of Army did not fail to comply with the FAR part 15 because those requirements apply to negotiated procurements rather than those conducted with sealed-bidding. The Comptroller pointed out that FAR part 14 deals with sealed-bidding and advises, but does not require, that price analyses techniques be used as guidelines. Lastly, the Comptroller General held that again it is the bidder’s responsibility to comply with labor rates under the Davis Bacon Act. The Comptroller General denied the bid protest.
* What the Opinion Means: For federal contracts if the bid awarded is exceedingly low in comparison to all other bids it is the bidder’s responsibility to comply with federal regulations and laws. Just because the lowest bid is extremely low in comparison to other bids does not mean that the bid is subject to challenge.
Craig Martin is a partner in the firm of Lamson, Dugan & Murray, LLP, in Omaha, Nebraska; and is a member of the firm’s Litigation Department. For more information, or if you have any questions, please contact us at firstname.lastname@example.org.