Volume 7 - Number 47 | November 30, 2009 - Construction Claims Advisor

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You are here: Home » Volume 7 - Number 47 | November 30, 2009

Volume 7 - Number 47 | November 30, 2009

Recent Issues

EDITOR'S NOTES | Issue 7-47: The use of arbitration as a method of dispute resolution has grown over the years. Arbitration proceedings appeal to parties on private construction projects as an expeditious way to resolve disagreements. Legislatures and courts view it as an effective means of reducing crowded dockets. Statutes and case law strongly favor enforceability of arbitration clauses and arbitration awards.

Binding arbitration sometimes throws curveballs, however. This was illustrated in two recent cases. In one, a contractor arbitrated a claim against a project owner for unpaid retainage. The contractor prevailed and received an arbitration award. The contractor then went to court seeking attorney fees under the state's prompt payment statute. The owner said "too late," the claim should have been submitted to arbitration. The contractor argued that entitlement to attorney fees was established by the statute, not by the construction contract, which contained the arbitration clause, so it was not subject to arbitration. But in the end, the owner won the argument.

The other case involved the sometimes tricky interplay between mandatory arbitration and mechanic's lien rights. A mechanic's lien cannot be perfected and foreclosed without a lawsuit, yet the contractor has committed to arbitration of all disputes. An Indiana court showed that with proper procedure, these remedies are not mutually exclusive.

The third case reported this week considered whether the competitive bidding statutes applied to a lease-to-purchase agreement for a custom designed municipal facility.

STATUTORY ATTORNEY FEE CLAIM REQUIRES ARBITRATION: Even though recovery of attorney fees by a contractor that prevailed in a payment claim was authorized by state statute and not the contract, the fee claim was still subject to the binding arbitration provision of the construction contract.

MECHANIC’S LIEN NOT WAIVED BUT STAYED PENDING ARBITRATION: A “no-lien” caption on a contract did not waive a contractor’s mechanic’s lien rights since the body of the contract clearly contemplated the possibility of liens. The contract called for binding arbitration of disputes. The contractor was entitled to file a lien and a timely foreclosure action. The foreclosure suit was then stayed pending the outcome of arbitration of the underlying dispute.

LEASE OF CUSTOM BUILDING WITH OPTION TO BUY WAS SUBJECT TO COMPETITIVE BIDDING LAW: A lease-to-purchase agreement between a municipality and a private company was subject to competitive bidding statutes. The contract documents specified every aspect of construction and gave the municipality control over the work. The substance of the agreement was the municipality’s acquisition of a newly constructed building with public funds.