- Forum Selection Clauses
- New Lean Contract Tool
- Contractor’s Reporting Requirements
- Differing Site Conditions
- Chair of ConsensusDocs Content Advisory Council Elected
Forum selection clauses—like arbitration agreements—have appeared in commercial construction contracts for decades. Yet, when arbitration is not mandatory and litigation arises, owners and general contractors alike often find themselves first battling downstream contractors over whether the forum selection clause at issue is enforceable, and consequently, where and by whom the dispute will be decided. And let’s face it: this initial battle for a subcontractor—even if a long shot—may be well worth the resources to potentially have its disputes decided on its home turf by a familiar jury rather than a federal court in a foreign state. Whichever role your company plays in the project, this article outlines a few issues that may affect the enforceability of your contract’s forum selection clause.
Recent U.S. courts have considered three issues when deciding the enforceability of a particular forum selection clause. The two threshold issues are whether the clause is (1) mandatory and
(2) valid and enforceable. If these two conditions are satisfied, the third issue is whether the plaintiff can demonstrate that certain “public interest factors” warrant keeping the lawsuit in the plaintiff’s selected forum. Each of these questions is addressed below.
Is your forum selection clause “mandatory” or “permissive”?
Forum selection clauses can either be mandatory or permissive. As the term suggests, a mandatory forum selection clause contains precise language indicating that jurisdiction and venue are proper exclusively in the designated forum. An example of a mandatory clause is:
Any dispute arising under, relating to, or in connection with the agreement or related to any matter which is the subject of or incidental to the agreement (whether or not such claim is based upon breach of contract or tort) shall be subject to the exclusive jurisdiction and venue of the state court located in Broward County Florida. This provision is intended to be a “mandatory” forum selection clause and governed by and interpreted consistent with Florida law.
Conversely, a permissive forum selection clause merely authorizes jurisdiction and venue in a designated forum but does not prohibit litigation elsewhere. An example of a permissive clause is:
This Agreement and the performance thereof shall be governed, interpreted, construed and regulated by the laws of the State of Louisiana and the parties hereto submit to the jurisdiction of the 24th Judicial District Court for the Parish of Jefferson, State of Louisiana. The parties hereby waive any and all plea[s] of lack of jurisdiction or improper venue.
Note that the language of this clause permits jurisdiction in a particular state court but does not exclude venue in other courts if other courts also satisfy any requirements for jurisdiction and venue.
If the clause is exclusive as in the first example, a court is more likely to transfer or dismiss a case if not filed in the designated forum. Courts however are unlikely to dismiss or transfer a case if the forum selection clause permits—but does not expressly designate—a particular forum. Depending on the desired outcome, parties should consider whether to include a mandatory or permissive forum selection clause.
Is your forum selection clause “valid and enforceable?”
Another threshold issue when considering a forum selection clause is whether the clause is “valid and enforceable” within the meaning of applicable law. The question of what law to apply is critical where federal courts and state courts vary widely as to whether forum selection clauses are presumptively enforceable or unenforceable as against public policy.
Federal courts apply federal law in determining whether a forum selection clause is enforceable. And under federal law, forum selection clauses are presumptively valid and enforceable unless the party attacking its validity can demonstrate one of four factors: (1) the clause was the product of fraud; (2) the party will be deprived of its day in court because of the selected forum; (3) the chosen law will deprive the party of a remedy; or (4) enforcement of the clause would contravene a strong public policy of the forum state. Generally, a plaintiff faces a steep uphill battle in federal court when challenging whether a forum selection clause is valid and enforceable.
State courts consider this question very differently. State courts apply the parties’ chosen state law in determining whether a forum selection clause is enforceable. And here, state law significantly varies as to whether forum selection clauses are presumptively valid or invalid as against public policy.
The key is to determine whether a particular state has enacted a statute sometimes referred to as an anti-forum selection statute. Many states have such statutes. Many do not. When applicable, these statutes can be viewed as the reverse of federal law and create a presumption that forum selection clauses are unenforceable, and thus, the court applying these statutes will not dismiss or transfer a case to the designated forum. Take Louisiana’s anti-forum selection statute, which provides in relevant part:
The legislature finds that, with respect to construction contracts, subcontracts, and purchase orders for public and private works projects, when one of the parties is domiciled in Louisiana, and the work to be done and the equipment and materials to be supplied involve construction projects in this state, provisions in such agreements requiring disputes arising thereunder to be resolved in a forum outside of this state or requiring their interpretation to be governed by the laws of another jurisdiction are inequitable and against the public policy of this state.
So in Louisiana at least, a prime contractor is unlikely to convince a Louisiana state court to transfer or dismiss a lawsuit in favor of the designated forum when any of the parties—the subcontractor for example—is a Louisiana company working on a project in the state. Therefore, even if your contract contains a mandatory forum selection clause, a party may be able to avoid the designated forum if the circumstances meet the elements of an applicable anti-forum selection statute.
Can the plaintiff demonstrate that certain “public interest factors” warrant keeping the lawsuit in the plaintiff’s selected forum?
If the forum selection is mandatory and if an anti-forum selection statute does not apply, the last question is whether the plaintiff can demonstrate that specified public interest factors under the doctrine of forum non conveniens justify maintaining the case in the plaintiff’s selected forum. Forum non conveniens—Latin for “forum not agreeing”—is a longstanding legal doctrine that permits a court to dismiss a case where there is a more appropriate forum available to the parties. Outside the presence of a forum selection clause, the doctrine requires courts to balance both private- and public-interest factors in considering whether the case should be dismissed or transferred in favor of a more appropriate forum. And without an applicable forum selection clause, the defendant—not the plaintiff—often faces long odds to overcome the deference given to the plaintiff’s decision of where to bring suit. In 2013 however, the U.S. Supreme Court issued a decision clearly shifting the burden to the plaintiff who tries to circumvent enforcement of a forum selection clause.
In a case titled Atlantic Marine Construction Co. v. United States District Court, the Supreme Court held that a plaintiff seeking to avoid enforcement of a forum selection clause must demonstrate that transfer to the designated forum would violate one of four “public interest” factors: (1) the clause was the product of fraud; (2) the party will be deprived of its day in court because of the selected forum; (3) the chosen law will deprive the party of a remedy; or (4) enforcement of the clause would contravene a strong public policy of the forum state. Importantly, since the decision in Atlantic Marine, several courts have held that a plaintiff can rarely demonstrate these factors, which means that the practical result is that forum selection clauses will control except in rare cases. Overall, the Supreme Court’s decision in Atlantic Marine and subsequent cases applying the decision indicate a fairly significant swing of the pendulum in favor of forum selection clauses.
In sum, there are a few things a party can do to increase the odds that a forum selection clause will be enforced requiring the plaintiff to file suit in the forum designated in the contract. First, ensure the clause contains language that is mandatory and not merely permissive. Second, make efforts to get the case into federal court such that federal law applies or, if possible, look out for states that have enacted anti-forum selection statutes. Lastly, recall the Supreme Court’s fairly recent decision in Atlantic Marine, which, absent rare circumstances, compels a plaintiff to file suit in the forum designated in the contract.
Jones Walker LLP has grown over the past several decades in size and scope to become one of the largest law firms in the United States. They serve local, regional, national, and international business interests in a wide range of markets and industries. Today, they have approximately 355 attorneys in Alabama, Arizona, the District of Columbia, Florida, Georgia, Louisiana, Mississippi, New York, and Texas. For more information about Jones Walker LLP please visit http://www.joneswalker.com/.
As the awareness and embrace of Lean Construction continues to expand in the construction industry, ever-increasing numbers of projects grapple with the question of how to address Lean Construction principles and methods in their design and construction contracts. Project owners have taken primarily three approaches on this:
- Seeking the highest level of Lean performance, owners have used Integrated Project Delivery (IPD) agreements, such as the ConsensusDocs 300, sometimes called integrated forms of agreement (IFOAs).
- When they or their team are not willing or able to use an IPD agreement, other owners have used legal counsel to custom-draft design and construction contracts under more conventional project delivery models such as CM-at-Risk, to address Lean design and construction methodologies.
- Other owners will seek to promote Lean behaviors among the project team independent of what is in the design and construction contracts.
Now, project teams have a new option for contracting for a Lean project when they cannot implement an IPD Agreement. In 2018, ConsensusDocs published the ConsensusDocs 305 Lean Construction Addendum (CD305). For the first time, we have a non-IPD contract document available to the whole industry that provides for a wide spectrum of Lean design and construction practices. With the CD305, an Owner can use either an industry standard form front-end contract or its own standard contract and add to it a Lean Construction Addendum that reflects the best thinking in the industry around Lean design and construction.
What is the CD305?
Let’s be clear right up front. The CD305 is not a complete contract. It has no compensation terms, no schedule, no project scope. Instead, the CD305 is a document you add to a project contract to provide for selected Lean project features.
In the graphic above, the bi-directional arrows show the contracts for the project. There are separate contracts between the owner and each of the design professional and general contractor and also separate lower-tier subcontracts or design contracts. The CD305 gets added to each of those contracts as an addendum. Note, however, that the CD305 is not intended for use on design-build projects (a future ConsensusDocs document on Lean Construction is under development for design-build projects).
The CD305 does not change the compensation or liability of the parties under the contracts it gets attached. Its exclusive focus is providing clear terms for the parties to agree on how they will incorporate Lean design and construction methods into their project.
Using the CD305
Because the CD305 is attached to both the design professional (architect or engineer) and constructor (general contractor or construction manager) agreements with the owner, it requires a joint negotiation between the owner, design professional and constructor and ideally their key design consultants and trades. Once the CD305 is finalized among the parties, then it gets separately attached and incorporated into each party’s contract, binding everyone to the same set of Lean Construction provisions. Also, the CD305 provides that it governs over any contrary provisions in the front-end agreement, so that project teams can be assured that their implementation of the Lean methods in the Addendum will not trigger a breach of their main contracts.
ConsensusDocs recommends finalizing the CD305 as early in the project as the owner can accommodate. Certain Lean project features are for the conceptualization and design phases, so a team loses the benefit of those features by waiting until later in the project. However, there is still value in implementing Lean only during the construction phase, so if that is your project’s situation, you can still use the CD305.
The CD305 was designed to be flexible so that it can be adapted to a variety of project contexts and Lean deployments. It uses a check-the-box approach to allow project teams to select the Lean features that will apply to their project. The CD305 allows teams to selectively address one or more of the following Lean practices during the design and pre-construction phases simply by checking the applicable boxes:
- Joint Worksite Investigation: the project team evaluates what site information is needed, comes up with options for different levels of site investigations, aligns on the appropriate level of investigation and reports the investigation’s findings and recommendations.
- Evaluation of the Owner’s Program
- Validation Study: the project team validates whether the owner’s program for the project can be designed and constructed within the owner’s maximum budget. A conceptual (or schematic) level of design and cost estimating is done to give an early check on whether the owner’s business case for the project is viable.
- Construction Team Cost Modeling
- Target Value Design: Section 6.5 describes an integrated design process featuring Target Value Design (TVD). TVD is one of the key Lean design and construction methods for achieving greater project value. It requires intense collaboration of the designers and constructors and a disciplined approach to value determinations and decision-making.
- Risk Identification & Management Planning: the project team conducts a risk workshop to identify and evaluate risks, then prepares a risk register to describe key risks and who is responsible for monitoring and leading team efforts at managing that risk. A risk management plan is developed to put in place contingency plans for addressing specific risks.
General Lean Principles & Methods
The CD305 also has standard provisions that apply to any Lean Construction project. Article 3 of the CD305 starts by laying out the major objectives of Lean Project Delivery:
- collaborating throughout the Project with all members of the design and construction team;
- planning and managing the Project as a network of commitments;
- optimizing the Project as a whole, rather than optimizing particular pieces; and
- tightly coupling learning with action, which promotes continuous improvement throughout the life of the Project.
Article 3 also describes the principle of making reliable commitments and keeping them, which is fundamental to reliable workflow and the process of planning and managing the Project as a network of commitments.
The CD305 provides for a collaborative leadership structure by forming a Core Group. Article 4 describes the Core Group’s role and operations. Each of the owner, design professional and constructor appoint a Core Group representative empowered to direct and coordinate its company’s work. The Core Group together manages the work using Lean methods for the best interest of the project. They are responsible for the project’s key decisions, and they make consensus decisions. They are also responsible for regular team performance evaluations to foster continuous improvement.
If the Core Group cannot come to a unanimous decision, the owner may issue directions it believes to be in the best interest of the project, but that will be subject to any further dispute resolution provisions of the contract to which the Addendum is attached.
Article 5 of the CD305 requires the Project team to use a pull scheduling approach to planning and scheduling the work. The CD305 describes features of the planning system that the team must incorporate, all of which would be satisfied by a full implementation of the Last Planner System® promulgated by the Lean Construction Institute (LCI).
Construction Phase Lean Methods
The last article of the Lean Construction Addendum provides for construction phase Lean methods.
Section 7.1 provides for a Lean approach to quality. To avoid addressing quality through re-work, it provides for the team to develop and implement a “Built-In Quality Plan” that addresses standardized work, agreed levels of quality, good hand-offs of work between trades, and continuous improvement.
Section 7.1 also provides for the construction team to develop an operations quality plan using the Lean principles of “5S”: sort, set in order, shine, standardize and sustain.
Under Section 7.2, the constructor develops a materials logistics plan that promotes just-in-time delivery of material to the worksite consistent with the current pull-planning work plans.
In Sections 7.3 and 7.4, the CD305 provides for a Lean approach to submittals and requests for information. The basic idea is that the team member needing information directly contacts the team member who can provide the information, figuring out the resolution together, and then documenting the resolution for the benefit of the entire project team.
Finally, Section 7.5 requires the team to develop a phase plan specific to closing out the project so that everyone is aligned as to what needs to be done to satisfy the project stakeholders without needing a long process of inspections and re-inspections for reaching substantial completion.
ConsensusDocs has provided a great resource to the construction industry with its recent publication of the CD305 Lean Construction Addendum. For the many projects that are not able or ready to utilize an IPD Agreement, now there is an industry standard form that can be added to a project’s design and construction contracts to provide for a wide range of Lean design and construction practices without triggering violation of the front-end contract’s provisions. For helpful resources visit: https://www.consensusdocs.org/lean_webinar and the ConsensusDocs Lean Addendum Guidebook.
To download a sample of the CD305 Lean Construction Addendum click here.
About the Author: Joel W. Darrington is the Contracting Counsel at DPR Construction and a member of the Lean Construction Institute. He has published and presented widely on Integrated Project Delivery, Lean Construction and contract incentives for improved project outcomes.
Majerus Elected Chair of the ConsensusDocs Content Advisory Council
Bob Majerus, Vice President and General Counsel of Hensel Phelps, has been elected as the Chairman of the ConsensusDocs Content Advisory Council (CCAC) for 2019-2021. Majerus has been a long-term member of the CCAC and helped produce comprehensive updates to the most used ConsensusDocs contract documents in 2016/17. More recently, he oversaw the development of a working group that drafted the AGC commentary (download the commentary here) on the new American Institute of Architects (AIA) A201 General Conditions Document.
Each organization participating in the ConsensusDocs Coalition possesses an equal vote in approving industry standard contract documents. The CCAC Chair helps facilitate each organization’s voice to be heard in creating fair documents that benefit the A/E/C industry as whole rather than a segment of the industry. ConsensusDocs Executive Director, Brian Perlberg commented, “Bob has a wonderful ability to facilitate consensus within the Content Council. His deep knowledge and insightful comments were instrumental in making some of the most significant changes in the recent comprehensive updates that were made to ConsensusDocs contracts in 2016 and 2017.”
The views expressed in this newsletter are not necessarily those of AGC of America. Readers should not take or refrain from taking any action based on any information contained in this newsletter without first seeking legal advice.