Where a contractor failed to comply with arbitration notice and filing requirements, the architect’s decision became final and binding, and the contractor had no further recourse to arbitrate or litigate its dispute with a homeowner.
The AIA form contract that was at issue in the case of Martel v. Bulotti, 65 P.3d 192 (2003), provided in relevant that in the event of a dispute, the parties were to submit the dispute to the architect for decision; either party could demand arbitration after the architect submitted a written decision; written notice was required to be filed by the party seeking arbitration with the other party to the Agreement, the American Arbitration Association [AAA], and the architect. The contract stated that failure to demand arbitration within thirty days would render the “Architect’s decision … final and binding.”
In this case, a dispute arose concerning the contractor’s performance. The parties submitted the dispute to the architect for decision, and the architect issued a written decision in favor of the homeowner against the contractor. The decision stated that it was final but subject to arbitration. The contractor submitted a notice and demand for arbitration to the architect in the time permitted by the contract but failed to file it with the homeowner and the AAA as required by the contract. The homeowner then took the architect’s award to court and applied for confirmation of that award and moved for summary judgment. In response, the contractor argued that he had substantially complied with the requirements for demanding arbitration and that the architect’s decision was , therefore not final and binding.
The court found that the contractor failed to substantially comply with the terms of the contract because “substantial compliance” means that one party receives the important and essential benefits of the contract clause in question despite the deviation or omission by the other party. In this case, the court found that notice to the architect, (or even to the architect and the homeowner) would not trigger the arbitration process since it was not filed with the AAA. This denied the homeowner of an essential benefit of the contract, that being that disputes would be settled expeditiously and efficiently through arbitration with the AAA. This caused the architect’s decision to become final and binding.
Risk Management Note: This case demonstrates the seriousness with which parties to a construction contract must take the terms and conditions addressing notice and filing requirements. In this particular case the contractor lost its right to contest an architect’s decision because it failed to mail copies of the arbitration request to the homeowner and AAA when it faxed it to the architect. Numerous other decisions have been reported by courts in which a contractor is denied a change order because it failed to submit its request for a change within the period of time (e.g. 10 days) that is specified by the contract. Other cases have denied relief to contractors that submitted change order requests to individual other than the individual that was specifically named in the contract as having authority to grant change orders. And this has been true even where there was no evidence that the project owner was harmed by the contractor’s notice to the wrong individual.
There are also numerous cases holding that where a contractor proceeds to do changed work resulting from a differing site condition without giving prior notice to the architect (or in some cases the owner) as required by the contract, the contractor waives its right to recover its additional costs related to the changed work. Even where the parties have gotten into the habit, during the course of construction, of ignoring the niceties of notice and filing requirements, once a dispute ends up in court and attorneys get involved, the course of fair dealing and reasonableness between the parties often comes to a quick end as the attorneys read the contract documents and seek to strictly apply them to win their client’s case.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 5, No. 6 (Jul 2003).
Copyright 2003, ConstructionRIsk.com, LLC