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Where a subcontract required subcontractor to commence arbitration proceedings no later than 30 days following receipt of an adverse decision by the contractor, the failure of the subcontractor to contest a decision within 30 days was fatal to later seeking arbitration.

Holt, a drywall subcontractor, entered into a contract with Choate, the general contractor, to perform drywall installation on a new high-rise building.  In the event Holt failed to meet its obligations under the schedule, the contractor was entitled to issue written decisions terminating its employment or supplementing its work with labor and materials the cost of which would be deducted from payment to Holt.  The contract further provided that the subcontractor would be conclusively bound by and abide by contractor’s decision unless the subcontractor timely commenced arbitration within 30 days following receipt of notice of a contractor decision, “otherwise, contractor’s decision becomes final and binding .”

On March 20 and again on April 12, the contractor notified the subcontractor that it was in default and must immediately remedy its defective performance or the contractor would hire additional or replacement contractors at the subcontractor’s expense.  On May 29 the contractor sent the sub a certified letter informing it of its decision to supplement the sub’s work forces.  The contractor thereafter employed additional workers and sent the sub change orders setting forth the amounts to be back-charged to the sub for this work.

It was not until November 5, after the contractor had closed out its prime contract with the project owner, that the sub filed a demand for arbitration.  The contractor promptly filed suit in court to stay or stop the arbitration.   The trial court agreed with the contractor and granted a stay to the arbitration.  In affirming that decision on appeal, the appellate court explained that it found the plain language of the contract places the burden on the subcontractor to timely arbitrate any decision made by the contractor or be bound by it.  The court was not impressed with the subcontractor’s argument that the various notices and certified letter did not constitute a “decision” within the meaning of the contract. According to the court, the certified letter was a decision within the plain language of the contract.

The court was equally blunt in finding no merit to the subcontractor’s assertion that the 30-day period to file an arbitration claim was impermissibly short.  Relying upon applicable state law, and quoting case precedent, the court stated that parties to a contract  may fix upon a shorter period for filing claims than that which is set by the state statute of limitations.  Setting a shorter period violates no principle of public policy, said the court, “provided the period fixed not be so unreasonable as to show imposition or undue advantage in some way.”   For these reasons, the court held that because the subcontractor failed to avail itself of arbitration within 30 days, it was bound by the adverse contractor decision. Holt & Holt, Inc. v. Choate Construction Company, (2004 Ga. App. LEXIS 1602).

Comment: This case once again demonstrates the importance of knowing and abiding by the time requirements set forth in contracts.  When commercial entities agree to contract terms and conditions setting forth various restrictions and limitations on submitting change orders requests, claims, and arbitration demands, the parties must be careful to abide by them.   As seen by the decision in this case, unless there is a clear conflict with public policy, courts will not void the contract or re-write its terms.

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. 7, No. 4 (Jul/Aug 2005).

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