Should You Make Meetings of CEOs a Condition to Arbitration?

This is Part 3 in a 20-part series of articles dealing with issues of arbitration, mediation and alternate dispute resolution in the construction industry.

Over the last decade, a requirement has slipped into the dispute resolution clauses of many construction contracts requiring the CEOs of the various parties to meet as a condition precedent to any arbitration. If something is a “condition precedent” and the contract uses those specific terms, then the meeting must occur before a party can either demand arbitration or file litigation.

Since the parties negotiate their contract, the question becomes whether this is a prudent requirement to place in the contract. The answer is, in most instances, yes. Often times, the parties’ representatives who are involved in the dispute are not the CEOs of the companies. The CEOs, generally speaking, have cooler heads when it comes to resolving heated disputes. They may be one step removed. Forcing the CEOs to meet and discuss the claim has a general influence on either resolving the disputes or substantially narrowing them.

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Contractor Stung By Liquidated Damages

The recent case of Abhe & Svboda Inc. v MDOT (Court of Appeals, August 2017), underscores the difficulty in challenging Liquidated Damages, particularly where a contractor does not comply with delay claim provisions.

This case arose from the late completion by Abhe & Svboda, Inc (ASI) of a contract with the Michigan Department of Transportation (MDOT) to clean and paint part of the Mackinac Bridge. The contract specified Liquidated Damages (LDs) of $3,000 a day for each day of late completion. The contract also gave ASI the right to seek a time extension for bad weather, provided that ASI asserted the request within the time period required by the contract. ASI did not timely complete the project and the State assessed LDs of about $1.9 million for being 644 days late.

ASI sued the State challenging the LDs assessment for a number of reasons. For instance, ASI argued that the LDs should not apply to 362 days of the planned winter shutdown during which it was impossible for MDOT to suffer any losses and that the LD clause was void for failing to be a good-faith effort to estimate losses. ASI also argued that MDOT’s dilatory behavior in approving ASI’s scaffolding plan caused 56 days of delay. ASI argued that 459 days of work were caused by environmental circumstances beyond its control. The trial court rejected all of ASI’s arguments and granted summary disposition to the State. ASI appealed.

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Construction Contract Clauses, Part 7 – Indemnification and Insured Contract Coverage

Indemnification provisions frequently appear in construction and commercial contracts. They operate to shift risk from the party being provided indemnification to the party providing indemnification. The principle behind such risk shifting is to shift potential risks onto the party or parties that are best able to prevent, mitigate, or insure those risks. In that respect, indemnity provisions do not necessarily need to be a source of disagreement during contract negotiation.

Consider, for example, indemnification provisions that require one party to indemnify and defend other parties from the risks relating to personal injury and property damage. At first blush, the party who is to provide such indemnity may feel that they should not assume those risks. However, agreeing to a well-drafted provision requiring indemnification for personal injury or property damage can be a benefit to all of the parties—including the party providing the indemnity. Here is how that can occur.

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Do I Really Need to Create Corporate Minutes?

From time to time I get asked this question from small business owners. My response is typically a question along these lines, “How attached are you to your boat?”

This might sound like a strange response, and it certainly does not apply in all circumstances, but the point is that the failure to follow corporate formalities could result in losing the corporate shield of liability – resulting in personal liability for a claim – and thus a sudden decrease in ownership of personal toys, or worse.

Generally speaking, shareholders are not liable for corporate obligations. MCL 450.1317(4). Over time the phrase “piercing the corporate veil” has evolved to mean that this corporate shield from liability can be erased.

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