DISPUTE RESOLUTION PROVISION IN SUBCONTRACT THAT SAYS OWNER, ARCHITECT OR ENGINEER’S DECISION IS FINAL

In subcontracts, it is not uncommon to see a provision that says something to the effect:

Should any dispute arise between the parties respecting the true construction or interpretation of the Plans, Specifications and/or the Contract Requirements, the decision of the Owner or the Owner’s designated representative as set forth in the General Contract shall be final.

This is a provision in a subcontract dealing with dispute resolution, typically when there is a dispute as to whether the subcontractor is performing extra-contractual or base contract work regarding an “interpretation of the Plans, Specifications, and/or the Contract Requirements.” It is not uncommon for there to be a dispute as to whether certain work is within the subcontractor’s scope of work or outside the subcontractor’s scope of work and subject to a change order.

This language, however, is not a get out of jail free card for a contractor just because the owner or the architect render a decision adverse to the subcontractor.

For instance, in F.H. Paschen, S.N. Nielsen & Associates, LLC v. B&B Site Development, Inc., 2021 WL 359487 (Fla. 4thDCA 2021), the subcontract contained the same provision discussed above.  During construction, a dispute arose as to whether a 561 square yard asphalt area was required to be demolished by the subcontractor and replaced with concrete.  The subcontractor claimed this area was not within its base scope of work that only required it to demolish concrete areas and replace such areas with new concrete. The subcontractor was directed to perform this disputed work and submitted its costs to the contractor.  The contractor submitted the subcontractor’s costs to the architect and the architect decided that the 561 square yard asphalt area was included in the contractor’s scope of work.  The contractor used the architect’s decision to argue the subcontractor was not entitled to the additional costs because the asphalt area was included in the subcontractor’s scope of work.

Unfortunately for the contractor, the court disagreed based on the express terms of the subcontract.    The subcontract did not use the term asphalt or require the subcontractor to demolish asphalt areas.  It did require the subcontractor to demolish concrete or pavement areas.  The court found that:

[T]he only reasonable interpretation of the subcontract is that the scope of work did not include the removal and replacement of asphalt [area] of the parking lot. ‘Asphalt’ and ‘concrete’ are not synonymous terms.  Nothing in the subcontract stated that the Sub was required to remove any asphalt from the parking lot.  The subcontract did not say that the Sub was required to remove pavement from the ‘entire’ parking lot.  Nor did the subcontract describe the specific square footage of pavement that the Sub was to remove.

B&B Site Development, supra, at *3.

Well, what about the validity of the decision of the architect that found the demolition and replacement of this asphalt area to be within the contractor’s scope of work?

While there are certainly times such a provision is governing, “construction contracts cannot leave the arbitrary or fraudulent decision of an architect or engineer or the like to operate as a conclusive settlement of matters in controversy.” B&B Site Development, supra, at *4 (quotation and citation omitted).  Stated differently, “[t]he law does not allow a third party’s arbitrary decision concerning the scope of a contract’s specifications ‘to operate as a conclusive settlement of matters in controversy.’” Id. (citation omitted).

Here, the court found that the subcontract was clear as to the subcontractor’s scope and allowing the architect’s decision to be conclusive would “unfairly allow the revision of the explicit scope of a subcontract after work has commenced, to the detriment of the subcontractor.”  B&B Site Development, supra, at *4.

It was clear that the 561 square yard asphalt area was included in the contractor’s scope of work.  However, it was also clear that this scope of work was not clearly included in the subcontractor’s scope of work.  As a result, it would be arbitrary for the architect to find this scope of work was included in the subcontract (when the architect never reviewed the subcontract) just because the contractor was always responsible for this work.   Clearly defined scopes of work are important.  This case illustrates why because had the subcontract included language that suggested the asphalt area was within the subcontractor’s scope of work, the ruling would have been different because the architect’s decision as to what was included in the contractor’s scope of work would have presumably been passed to the subcontractor.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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