Parties to a construction subcontract disagreed over whether their dispute fit within the scope of the arbitration provision in the subcontract.  Trial court denied a motion to compel arbitration.  Appellate court reversed, holding that the arbitration provision in the Prime Contract flowed down to the dispute under the subcontract even though the project owner was not directly involved in the dispute.  Because the Owner could have to pay more for the change orders in dispute on the subcontract level, the court found the dispute had to be arbitrated. SR Construction, Inc. v Peek Brothers Construction, Inc., 510 P.3d 794 (Nevada 2022).

The MSA includes an arbitration provision:

(a) Contractor and Subcontractor shall not be obligated to resolve disputes arising under this Subcontract by arbitration, unless:

(i) the prime contract has an arbitration requirement; and
(ii) a particular dispute between Contractor and Subcontractor involves issues of fact or law which the Contractor is required to arbitrate under the terms of the prime contract.

The prime contract also includes an arbitration provision, which states as follows:

Arbitration shall be utilized as the method for binding dispute resolution in the Agreement[.] [A]ny Claim subject to, but not resolved by, mediation shall be subject to arbitration which, unless the parties mutually agree otherwise, shall be administered by the American Arbitration Association in accordance with its Construction Industry Arbitration Rules in effect on the date of the Agreement.

The court goes on to state that “A ‘claim’ under the contract is “a demand or assertion by one of the parties seeking, as a matter of right, payment of money, a change in the Contract Time, or other relief with respect to the terms of the Contract… [and] other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract.” (emphasis added)”

The prime contract further permits PRIME to include subcontractors in arbitration of a claim:

Arbitration, at the Contractor’s election, may include Subcontractors to Contractor that Contractor deems relevant to the matter in dispute and upon Contractor’s request, the Arbitrator shall decide all or a particular portion of a dispute between the Contractor and a Subcontractor and, as Contractor may request, the Arbitrator shall speak to the extent to which the Arbitrators decisions regarding a dispute between Contractor and Owner and the dispute between Contractor and Subcontractor are inter-related.

The underlying contract dispute concerns whether the subcontractor deviated from the means and methods its used to bid the project in elevating the building pad. Changes made by the subcontractor allegedly added $140,000 to the subcontractor’s costs, and it sought to recover those costs through change orders submitted to the Prime Contractor.  The Prime forwarded the change orders to the project owner, but the Owner denied them because it concluded they were not necessary. Owner directed the Prime to initiate dispute resolution with the Sub.  But before that happened, the Sub sued the Prime in court.  The Prime then filed an arbitration demand in which it named the Subcontractor and the Project Owner as defendants.

On appeal, Prime argues that Sub’s dispute involves issues of fact and law about the reasonableness of its additional costs that Prime must arbitrate with Owner under the prime contract, so this dispute is therefore arbitrable as between Prime and Sub under the MSA provision. Prime further argues that the district court ignored the presumption of arbitrability when it denied the motion to compel and that Sub cannot artfully plead its way out of arbitration by omitting OWNER as a defendant. Sub argues that this dispute does not involve OWNER because PRIME is solely responsible for its additional costs, and the district court therefore correctly concluded that this dispute is not arbitrable under the MSA provision because the prime contract only mandates arbitration of disputes between OWNER and PRIME.

“Even matters tangential to the subject agreement will be arbitrable under a broad provision. 1Oehmke, supra, § 6:10 (Supp. 2021) (“[W]hen the language of the arbitration provision is broad, a claim will proceed to arbitration if the underlying allegations simply touch upon any matters covered by the provision.”).

“Given that a strong presumption of arbitrability applies if the MSA provision is deemed broad, Sub argues it is narrow—a plausible position at first blush—because the clause states that a disputeis not arbitrable “unless” two prerequisites are satisfied….. But unlike other narrowly phrased arbitration agreements, the MSA provision does not limit arbitration to specific issues, subjectmatter, or dollar amounts. Instead, it incorporates the prime contract’s terms by looking to (1)whether the prime contract includes an arbitration requirement, and (2) whether the dispute“involves issues of fact or law which [PRIME] is required to arbitrate under the terms of the primecontract.”

“Accordingly, where a prime contract includes a broad arbitration provision, the MSA provision’s purported limits are nearly illusory. The prime contract applicable here includes an expansivearbitration provision that covers all disputes between PRIME and OWNER, including “matters in question … arising out of or relating to the contract….” The MSA provision is therefore likewisebroad because it requires PRIME and Sub to arbitrate a “dispute … involve[ing] issues of fact or law [that PRIME] is required to arbitrate under the terms of the prime contract,” which in turnincludes any dispute or “matter[ ] in question” arising under the agreement. Further, because the MSA provision does not limit its application to disputes involving issues of fact or law that both the contractor and subcontractor must arbitrate under the prime contract, it is irrelevant to determiningthe MSA provision’s scope that OWNER is not a defendant to the underlying action and that Sub is not a party to the prime contract’s arbitration agreement. Rather, under the MSA provision’s plain language, if PRIME would have to arbitrate an issue of fact or law under the prime contract with OWNER, then in turn, PRIME and Sub must arbitrate that same issue”

In this situation the court found that the subcontract provision is broad and an attendant presumption of arbitrability applied. Meanwhile, Sub provided no evidence to rebut this presumption and show that the parties intended to exclude this dispute from arbitration.   For these reasons, the court enforced arbitration as the appropriate means for resolving this contract dispute between the parties.


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 ConstructionRisk 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 Report and may be reached at or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 24, No. 9 (November 2022).

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