The American Arbitration Association (AAA) has revised its Commercial Arbitration Rules and Mediation Procedures, effective September 1, 2022. The goal of these revisions is to standardize longstanding AAA practices concerning confidentiality, consideration of consolidation/joinder motions, and civility. The amendments also further promote efficiency, reflect advances in technology, and include discussion on cybersecurity concerns.  The following is a summary of the revisions:

* On confidentiality, the amended Rules codify the longstanding practice that all matters related to an arbitration, including the final award, are kept confidential. The amended Rules have further empowered arbitrators to issue confidentiality orders as needed.

* On the topic of consolidation and joinder, the AAA has made significant changes. More specifically, parties can now request the consolidation of arbitrations or joinder of additional parties. Unless all parties are in agreement, the decision to allow consolidation or joinder is left to the discretion of the arbitrator. In determining whether a request to consolidate or join may be granted, an arbitrator must consider: (1) the terms and compatibility of the agreements to arbitrate; (2) applicable law; (3) the timeliness of the request to consolidate and the progress already made in the arbitrations; (4) whether the arbitrations raise common issues of law and/or fact; and (5) whether consolidation of the arbitrations would serve the interests of justice and efficiency.

* On civility, new rule R-2 (c) requires that parties and their representatives appearing for arbitration pursuant to the AAA must conduct themselves in accordance with the AAA’s Standards of Conduct for Parties and Representatives (Standards). If a party fails to act pursuant to the Standards, the AAA may decline to further administer a particular case or case load.

* On promoting greater efficiency, the amended Rules prohibit any motion practice absent showing good cause and arbitrator permission. Discovery, other than a basic exchange of exhibits, also is prohibited.

* Reflecting on the advances in technology, the amended Rules now permit video, audio, or other electronic conference methods, in addition to the traditional, in-person conference, for each hearing. This development is most likely a result of pandemic-era success for AAA conferences.

* Regarding cybersecurity, the amended Rules include cybersecurity privacy and data protection issues as part of the checklist of topics for discussion at the preliminary hearing. Specifically, the amended Rules ask that discussion regarding the appropriate level of security and compliance in connection with the proceeding pursuant to the AAA is had at the preliminary hearing.

* Lastly, the Rules include the adjustment in the amount-in-controversy requirements for several types of arbitrations. Specifically, claims of up to $100,000, rather than the previous $75,000, may now qualify for expedited arbitration, allowing for a greater number of cases to utilize the expedited arbitration process. The amount-in-controversy requirement for the large, complex case track has doubled to $1 million. For a large, complex case to qualify for a panel of three arbitrators, claims and counterclaims must equal or exceed $3 million, triple the previous requirement.

An often-overlooked part of contract negotiations is the language included in the performance bond.  While the owner or contractor (bond obligee) requires a performance bond and pays for it, negotiating efforts are typically spent on the main contract language itself rather than the bond.  A common go-to performance bond form used in the construction industry is the AIA A312-2010 (A312).  If the bond obligee fails to make a simple change to the A312 form language, it can end up costing the bond obligee far more later when it seeks to enforce the bond and the surety declines coverage.

The A312 includes several express conditions precedent that must be satisfied before a surety’s obligation to respond to a claim on the bond is triggered.  The conditions precedent are contained in Section 3 of the A312.  Section 3 requires the bond obligee to provide notice of its intention to declare a default, an opportunity to cure, the declaration of default, and actual termination of the subject contract.  Section 5 of the A312 identifies the surety’s response options after the bond obligee satisfies the conditions in Section 3.  Many courts have held that the failure to strictly comply with all of the A312 Section 3 requirements renders the bond null and void and completely discharges the surety from all obligations under the bond.  A general contractor in Massachusetts recently learned this the hard way.

In Arch Insurance Co. v. Graphic Builders, LLC, 36 F.4th 12 (1st Cir. 2022), the contractor (bond obligee) made a claim under an unmodified A312 performance bond against a window supplier and its surety to pay for the multi-million-dollar cost to correct defective windows and to get a window warranty.  The contractor declared a default, but did not terminate the window supplier’s contract on the legitimate belief that since the work was substantially complete, such an option would have been a wrongful termination under Massachusetts common law.  The Circuit Court of Appeals acknowledged the contractor’s dilemma, but enforced the termination requirement in Section 3 in the A312 and affirmed the district court’s entry of summary judgment discharging the surety from liability on the bond.  The Court simply enforced the language in the bond to which the contractor had agreed.  As a result of not modifying the A312, the contractor was stuck not only with the cost of the bond and the window repair costs, but also significant legal fees to arrive at this court decision.

It is not uncommon for a claim against a performance bond to be asserted at the end of a project, after a party to the contract learns something went wrong and needs to be fixed.  To avoid the fate of the contractor in Graphic Builders, a bond obligee should remove the termination requirement in section 3.2 of the A312 (and from any other performance bond containing similar language), while negotiating the overall contract, to limit the final condition precedent in the bond to the declaration of a contractor default.  The bond obligee should not have to terminate the contract before the surety’s obligations are triggered and deal with the other potential issues that might accompany such an action late in a project.  Notice to the surety and principal that the bond obligee is considering declaring a default, providing an opportunity to cure, and a declaration of default should be all that is necessary before the bond obligee is entitled to the benefits of the performance bond for which it has paid.    

The recent Connecticut Appellate Court decision in Electrical Contractors, Inc. v. 50 Morgan Hospitality Group, LLC, 211 Conn. App. 724 (2022), eliminated any remaining doubt regarding a subcontractor’s right to payment for work performed when the subcontract includes a “pay-if-paid” provision. A pay-if- paid provision that makes an owner’s payment to the general contractor (GC) a condition precedent to the GC’s payment to a subcontractor excuses the GC from paying its subcontractor until it actually receives payment from the owner. If the owner doesn’t ever pay the GC, the condition is not fulfilled, and the subcontractor’s right to payment, never arises.  

The payment provision in this subcontract was short and simple.  It provided: “[T]he [subcontractor] expressly agrees that payment by [owner] to [GC] is a condition precedent to [GC’s] obligation to make partial or final payment to [subcontractor]…”  The Appellate Court found this language to be clear and unambiguous and affirmed the lower court’s summary judgment order as a matter of law.  Whether such provision is fair or reasonable does not matter so long as both parties are sophisticated business entities and the contract is not voidable on grounds such as mistake, fraud, unconscionability, or violative of public policy, none of which applied here.  A court will generally enforce the contract as written and not introduce new terms to which the parties did not agree.

Prior to this decision, several lower superior court decisions generally interpreted a similar payment provision including the term “condition precedent” alone, without any additional express risk-shifting language, such as a “pay-when-paid” provision, which simply postponed the GC’s payment obligation for a “reasonable” time.  Payment was still due the subcontractor at some point, without regard to whether the owner ever paid the GC.  However, these lower court decisions are not binding on any other courts and the Appellate Court firmly shut the door on any such equitable interpretations.

Subcontractors usually have little bargaining power when negotiating the terms of a subcontract; GC’s typically include pay-if-paid language in their subcontracts.  Subcontractors are left to either accept the risk of non-payment by the owner, a party with whom it has no contractual relationship, or not take the job.  The only hope at this point for more equitable subcontracts in Connecticut will be through legislative action prohibiting the use of pay-if-paid provisions in construction contracts.     

The American Institute of Architects (AIA) Contract Documents program recently released a limited number of state-specific Sworn Construction Statements and Lien Waiver and Release forms for use on construction projects. At the same time, the AIA also released generic versions of the waiver and release forms for use in states without specific statutory requirements.

At present, twelve states in the United States (Arizona, California, Florida, Georgia, Massachusetts, Michigan, Mississippi, Missouri, Nevada, Texas, Utah, and Wyoming) regulate lien waiver and release forms on construction projects. These regulations vary in their requirements. While some state statutes only regulate the language to be used on the forms (i.e., Arizona), other state statutes seek to regulate the lien waiver and release forms down to the font size used (i.e., Georgia). Given the specificity of such regulations, lien waiver and release forms that do not conform with state regulations are routinely found invalid by courts, if challenged.

Because courts routinely demand strict adherence to the statutory requirements for lien waiver and release forms in states in which such forms are regulated, the AIA has carefully curated Sworn Construction Statements and Lien Waiver and Release forms for the 12 regulated states to conform with state statutes and has locked the ability to edit these forms, other than to permit the input of project specific details. The AIA has maintained the ability to edit the generic Sworn Construction Statements and Lien Waiver and Release forms, however, to fit the needs of a project in a state in which the forms are not strictly regulated.

Despite the care taken to craft and protect the Sworn Construction Statements and Lien Waiver and Release forms, the AIA nevertheless recommends that parties consult with their attorneys prior to using an AIA lien waiver and release form to ensure the form selected is valid and consistent with the parties’ needs for a particular project.  

Below is an excerpt of an article published in Construction Executive on August 9, 2022 authored by Megan R. Naughton, co-chair of Robinson+Cole’s Immigration Group

Although the visa options are limited, there are some that can be explored by construction companies in the United States, including the following.

H-1B

The H-1B visa category may be available for construction positions that require at least a bachelor’s degree in a specific field such as civil engineering, construction management or accounting. The timing can be challenging if an employer is looking to hire a recent graduate or someone outside of the United States for a role because of the H-1B lottery but can work well if the candidate is already in H-1B status and working for another company. These visas are site-specific, so they may need amending if a worker is moved from one site to another. Read the full article.

The purpose of a liquidated damages provision in a construction contract is to establish in advance a fair amount of compensation to the injured party for a breach of contract to avoid spending time and money fighting over uncertain actual damages after they occur.  Generally, to be enforceable, a liquidated damages provision must satisfy three criteria: (1) the damages resulting from a breach of contract must be uncertain when the parties enter the contract; (2) the parties must clearly express their intent to liquidate damages in advance; and (3) the amount stipulated for liquidated damages must be reasonable and commensurate with the actual damages it is meant to represent.  Failure to satisfy any of these criteria could render the provision unenforceable.

The recent Connecticut Appellate Court decision in New Milford v. Standard Demolition Services, Inc., 212 Conn. App. 30 (2022), indicates that courts might be reluctant to read a liquidated damages clause broadly, and raises concerns regarding the proper drafting of such a provision.  The Appellate Court held that when a liquidated damages provision in a construction contract is expressly limited to damages resulting from delay, it will not operate to prevent the recovery of actual and consequential damages caused by the non-breaching party for a reason other than delay.

The contract at issue in New Milford included a typical liquidated damages provision: “Failure of the Contractor to meet this established timeframe will result in in liquidated damages being assessed in the amount of $2,000/day for each and every calendar day beyond the contract time limit.”  The Court noted that the liquidated damages provision was clearly linked to a Contractor’s untimely performance and that the provision did not expressly state that liquidated damages are the exclusive remedy.  Moreover, other provisions in the contract expressly permitted the Town to recover “damages and losses,” arising from other types of breach by the Contractor, so the Court determined the liquidated damages provision did not preclude the Town from recovering additional actual and consequential damages caused by other breaches of the contract unrelated to delays.  To find otherwise would be to render the other remedial provisions superfluous, which courts avoid when interpreting contracts. 

A Court generally will not construe a contract to limit remedial rights unless there is a clear intention that the enumerated remedies are exclusive.  If a contracting party intends to make liquidated damages the exclusive remedy for all actual and consequential damages for a breach of contract, that intent should be expressly stated and there should be no references to other damages elsewhere in the contract.

Terminating a contract is a serious and sometimes risky decision. Whenever a client seeks advice regarding termination, a lawyer should stress the importance of strict compliance with the contractually specified termination provisions. One misstep by a terminating party who otherwise did nothing wrong could be a material breach of contract exposing the terminator to potentially large damages, even if the party being terminated first failed to perform under the contract. Is termination less risky with contracts that do not include any termination provisions? A Connecticut Supreme Court decision recently addressed this question and its ruling could have significant impacts.

The court ruled in Centerplan Construction Co. v. City of Hartford, 343 Conn. 368 (2022), that when a contract is silent as to termination notice and cure rights, a right to cure within a reasonable time is implied as a matter of law, unless that right is expressly waived. Notice and cure rights are thus implied in every contract and noncompliance with this unwritten requirement exposes a terminator to damages as if it had not followed the actual written provisions. This presumably applies not only to every proposal, purchase order, and short form contract, but also to oral agreements. Even if a party is in default and the project is delayed, Centerplan holds that it is entitled to notice and an opportunity to cure within a reasonable time before it may be terminated. The court provided no guidance on how long is “reasonable” to cure, so allowing an unreasonably short cure time before termination could conceivably expose the terminator to liability as well.

All may not be lost if a terminator doesn’t provide notice and the right to cure within a reasonable time, though it may involve a lawsuit. A terminator may have defenses against a claim for wrongful termination if, for example, a breach is truly incurable or the opportunity to cure is futile. The terminator would bear the burden of proving such defenses in court. The better approach would be to avoid this issue altogether by including language in every contract either incorporating notice and cure obligations (so they can be followed in the event of termination) or expressly waiving them.

Below is an excerpt of an article co-authored by Megan Baroni and Jon Schaefer and published in Construction Executive on June 28, 2022. Megan and Jon are partners in Robinson+Cole’s Environmental, Energy + Telecommunications Group.

Most contractors don’t know they can be cited for an OSHA violation even if their own employee is not exposed to a hazard. The construction industry is no stranger to jobsites with employees from multiple employers working on a common project. While such arrangements are necessary to competently and timely complete a project, the presence of multiple employers—and their employees—on the same jobsite can result in an increased risk of safety hazards and may expose employers to OSHA citations, even where their own employees are not exposed to a hazard. Read the full article.

On June 7, 2022, the Massachusetts Appeals Court issued an opinion of first impression regarding the Massachusetts Prompt Payment Act, G.L. c. 149 § 29E (the “Act”).  In Tocci Building Corp. v. IRIV Partners, LLC, Appeals Ct. Nos. 21-P-393, 21-P-733, the Appeals Court affirmed the decision of the Superior Court which held that when an owner objects to a contractor’s payment application, the owner must strictly follow the Act’s protocols in order to preserve its right to withhold payment.  The Act likewise applies to the contractor/subcontractor relationship.

The case concerned whether an owner had wrongfully withheld payment on seven of the contractor’s invoices because it failed to comply with the Act’s protocols, namely, that the rejection be timely, explain the factual and legal reasons for withholding payment, and expressly certify that the decision to withhold payment is made in good faith. The Appeals Court found that the Owner failed to timely respond to the seven applications at issue or, for those it did respond to timely, failed to include a certification of good faith. Accordingly, each pay requisition was “deemed approved by operation of law . . . and the defendants were not entitled to withhold payment as they did.”

A focal issue on appeal concerned whether the owner’s failure to reject the payment applications in accordance with the Act represented a waiver of both its right to withhold payment as well as its right to argue that the contractor’s work was defective.  The Appeals Court held that the owner’s noncompliance with the Act resulted only in a waiver of its right to withhold payment, not its right to later argue that the contractor breached an important contract obligation.  More specifically, the Court reasoned that while each of the contractor’s payment applications were, by operation of law, due and payable, the Owner’s right to assert claims for breach of contract are unaffected as “they may recoup any money they may be owed.” Joseph A. Barra, Esq., a construction attorney in Robinson+Cole’s Boston office submitted an amicus brief on behalf of the Associated Subcontractors of Massachusetts.

Below is an excerpt of an article published in Construction Executive on May 13, 2022 co-authored by Robinson+Cole Labor and Employment Group lawyers Abby M. Warren and  Kayla N. West .

After nearly two years of managing the workplace through the nationwide COVID-19 pandemic, employers are being impacted by another significant challenge: the “Great Resignation,” which is the recent trend of workers voluntarily resigning from their jobs en masse beginning in 2021 and continuing today. Employers across a number of industries, including construction, are facing the pressure of recruiting, hiring, onboarding, and integrating job candidates in record speed to fill vacancies and meet the operational needs of the business.

Employers have been forced to rethink their recruiting and hiring processes, including pre-employment screening processes that may impact the timing of offers of employment. At the same time, the laws across the country related to these processes have been changing dramatically over the last few years. In light of operational challenges and the shifting legal landscape, how should employers be evaluating their recruiting and hiring processes and what should they consider when doing so? Read the full article.