Mandatory Arbitration Sometimes Clashes with Statutory Remedies

The binding arbitration of disputes on private construction projects has become commonplace in recent decades. While arbitration has its critics (and there are some valid criticisms), its popularity demonstrates its appeal as an expeditious means of resolving disputes. Statutes and case law leave little doubt regarding the enforceability of arbitration clauses and arbitration awards. But mandatory arbitration can present some interesting twists for the parties to those agreements.

In a recent case, a contractor arbitrated a claim against a project owner for unpaid retainage. The contractor prevailed and received an arbitration award. The contractor then went into court seeking attorney fees under a state prompt payment statute. The contractor said the fees were authorized by the statute, not the construction contract containing the arbitration clause, and were therefore not subject to arbitration. The owner argued – successfully – that the contractor was too late. The claim for fees should have been included in the arbitration demand. The contractor could not take a second bite at the apple.
In another recent case, a contractor liened a project to secure payment. The only way to foreclose the mechanic’s lien, under state statute, was to file suit. But the project owner argued that the mandatory arbitration clause in the construction contract precluded such a suit. The matter was resolved by a judicial stay of the foreclosure suit pending the outcome of the arbitration proceedings.

I welcome your comments on arbitration – both its efficacy as a dispute resolution mechanism and its interplay with statutory remedies.

Don't miss next week's issue of Construction Claims Advisor:

• Liquidated Damages of $26.9 Million Were Not an Unenforceable Penalty
• Bid Nonresponsive Due to Failure to List Prior Projects
• Appeal Rights Determined by Contractor’s Claim Submittal

Bruce Jervis, Esq., Senior Editor
Construction Claims Advisor

Comments

[Austin]

Interesting issues. Can you provide the case names or legal citations for the cases you mention?

[Lori Stehlik]

Can you provide the Legal Brief for the retainage case? Thanks,

[Dennis Fleeher]

The arbitration has steered off course as to its intentions. First of all being a pennsylvanian I recently found out that the arbitration cases are controled from Rohde Island. The arbitration is supposed to be held within 90 days ,it took us 240 days and another 60 days to get a decision. The Pa. prompt payment act of Pa. has been over ridden by a state procurment act as to eliminate the mandatory 1% penalty and 1% interest fees against any go'vt agency (double standard). We were alloted 7% interest for 2008 and 5% for 2009
There seemed to be no proceedure in the case as we found no co-operation from the opossing counsel to start the testimonie earlier than 9:30 because he had to take his kid to day care and wouldn't work any latter than 4:30 because he had a dinner appointment. My counsel delayed the case after the 1st 3 days to take a cruse. The arbitrator had a previous commitment to teach a college class. Once we resumed our case in Sept. their 1st wittness didn't complete his testimonie at the end of the day and when he was asked to return he stated he was going on vacation.
yes we finally won 85% of our change orders and contract balance but our attorney took 30% of the funds $65,000 only to leave us short changed (with a $28,000 balance).
The Gov't agency that we contracted a $352,000 project which we incurred $120,000 in change orders only paid us $230,000 prior to court. the arbitrator awarded us another $236,000 but we ask for $653,000
to cover interest $56,000 , attorney fees $100,000 not to mention our loss of time we put in . The arbitration fees were due on the spot or arbitration would be held off (arbitration fees $18,000 )
This arbitration has gone aray.

[MED/ARB]

CONSTRUCTION ARBITRATION IS A FINE
WAY OF PROVIDING A REMEDY FOR ON-GOING CONFLICTS. AFTER HUNDREDS OF CONSTRUCTION ARBITRATIONS, IT IS MY SUGGESTION TO FIND A ARBITRATOR
WHO HAS CONSTRUCTION EXPERIENCE AND HAS BEEN THROUGH THE SYSTEM. NOT A RETIRED JUDGE WITH NO SPECIFIC CONSTRUCTION BACKGROUND TRYING TO ONLY APPLY "THE LAW".

[Bruce Jervis, Editor, Construction Claims Advisor]

There was a request for the case citations for the referenced arbitration cases.

Herring-Malbis, LLC v. TEMCO, Inc.
Court of Civil Appeals of Alabama
No. 2080296 (October 30, 2009)

Koors v. Steffen
Court of Appeals of Indiana
No. 57A03-0904-CV-167 (November 6, 2009)