LAW: THE CONTRACTOR'S SIDE: Handling disputes

“Arbitrability” comes into play in Big Dig case

Blog Entry May 06, 2013

Larry Caudle is a principal in Kraftson Caudle LLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction.

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In Massachusetts Highway Dept. v. Perini Corporation, et al., 83 Mass.App.Ct. 96 (2013) a dispute arose between a joint venture contractor that performed a portion of the Central Artery/Tunnel project in Boston and the Massachusetts Highway Department. The 1995 construction contract specified that disputes arising out of the contract should be submitted to a dispute review board (DRB), which would issue findings and a nonbinding recommendation to the project director. The project director could accept the DRB’s recommendation, revise it or reject it altogether. The project director’s decision could be appealed to Mass Highway’s board of commissioners or to Massachusetts state court.

In 1999, after several disputes arose on the project, the contractor and Mass Highways entered into a separate written agreement to submit those disputes to the DRB for binding arbitration. The agreement was limited to a list of disputes contained on an attached exhibit.    

When the contractor demanded arbitration, it included both claims that were identified in the arbitration agreement and claims that were not. Accordingly, the DRB was serving in a dual capacity—issuing binding decisions on certain claims and nonbinding recommendations on the others. The problem arose when the parties disagreed as to whether certain claims the contractor characterized as “related” to claims identified in the 1999 arbitration agreement should be decided on a binding basis or as nonbinding recommendations.
At the hearing, Mass Highways contended that the so-called “related” claims were not “related,” and it argued that only those claims expressly identified in the 1999 arbitration agreement were subject to binding arbitration.  

At the conclusion of the hearing, the DRB issued binding decisions for those issues it determined were arbitrable and forwarded to the project director its findings and nonbinding recommendations for the others. Mass Highways appealed the arbitration award to the Superior Court on the grounds it never agreed that the issue of arbitrability could be addressed by the DRB in binding arbitration. The trial court held that the issue of arbitrability was not one that was subject to binding arbitration and thus vacated the award. The contractor appealed.

On appeal, the contractor made three arguments. First, it argued that although the 1999 agreement did not expressly confer upon the DRB the power to decide arbitrability on a nonbinding basis, the parties’ conduct and business dealings evidenced that intention. Second, it argued that if the court decided that the DRB lacked such power, the court should make that decision and simply dispose of those DRB decisions that were improperly decided. Last, the contractor argued that since Mass Highways did not argue during the arbitration that the DRB lacked the power to decide arbitrability, it waived the right to make that argument on appeal.  

The court rejected the contractor’s first argument. On the second issue, the court agreed that in a typical situation, a court decides arbitrability absent an express provision in the arbitration agreement conferring that power to the arbitrator. However, in this case, the parties agreed in their original contract that they must exhaust the disputes proc­ess before resorting to the courts. Accordingly, the court held that the question of arbitrability must first be decided on a nonbinding basis by the DRB and the project director before the courts could entertain the question. Finally, the court held that although Mass Highways did not specifically argue during arbitration that the DRB lacked power to decide arbitrability, it consistently contended that only those issues identified in the arbitration agreement were subject to binding arbitration.  

Parties should consider including in their arbitration agreement language that expressly confers to the arbitrator the power to entertain and decide these questions when they do arise. R&B

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