Turning to the contract for guidance can help settle disputes

Oct. 5, 2021

This column published as "The Best Map" in October 2021 issue

When it comes to resolving disputes, knowing when to negotiate may be more important than knowing what and how to make a deal.

Of equal importance is knowing when to meet filing deadlines to resolve disputes with third parties, such as: mediators, arbitrators, dispute review boards, and/or courts. Thankfully, the contract and well-established statutes should guide the way with signposts and mile-markers for deadlines and filing requirements. As such, a statute of limitation is like the last exit before a toll—when missed, a toll is inevitable. In a case from Arizona, the contractor carefully followed the map and took the right metaphorical exit by filing on time: Standard Construction Company, Inc. v. State of Arizona, 249 Ariz. 559 (2020), Review Denied, July 30, 2021.

On a project for the City of Glendale, the Arizona DOT engaged a contractor to build a pathway for the city. When a dispute arose, the contractor correctly turned for guidance to the best map—the contract. The contractual path/process for dispute resolution required administrative reviews by a series of ADOT engineers. The path/process was “sequential,” meaning later reviews could only be performed after preceding reviews. The first review of any dispute or claim was performed by the resident engineer, next by the district engineer, and then by the state engineer.

If the contractor did not like the state engineer’s decision, then the contractor had 15 days to reject it with  a formal, written notice. If any rejection was untimely, then the state engineer’s review was final and unappealable. The contractor timely rejected the state engineer’s review.

So far, so good. But here, the contractor and ADOT disagreed over the next steps in the dispute resolution journey. Separately from rejecting the state engineer’s review, the contractor could additionally request mediation within 30 days of the review. The contractor did not have to request mediation, but it chose to, and mediation was timely requested. The contract provided that if one party requested mediation, the other party had to participate.

About six months after the state engineer’s review, mediation concluded unsuccessfully; 172 days after mediation concluded (346 days after the state engineer’s review), the contractor filed a notice of claim. About six months later (and within one year of concluding mediation), the contractor filed a lawsuit in the Superior Court of Maricopa County. The Superior Court dismissed the lawsuit as untimely filed. The court reasoned that the contractor should have filed its lawsuit within 180 days of the state engineer’s review, not within 180 days of the mediation. The Arizona Court of Appeals reversed the Superior Court, holding the contractor’s request for mediation tolled (stayed or postponed) the deadline to file a lawsuit.

Under Arizona law, a notice of claim against a state entity must be filed within 180 days after the cause of action accrues, and a lawsuit must be filed within one year after the cause of action accrues. However, accrual is delayed when the parties are contractually obligated to first “exhaust” a contractual disputes process. As the court stated, “[t]olling ensures that the parties’ opportunity to engage in the alternative dispute resolution process is meaningful, which advances our state’s strong public policy of encouraging settlement.” OK, but when did the cause of action accrue? Without that date, the contractor will not know when the 180-day and one-year deadlines end.

Under Arizona Revised Statute 12-821.01(B), a cause of action accrues when “the damaged party realizes [it] has been damaged and knows or reasonably should know the cause, source, act, event, instrumentality or condition that caused or contributed to the damage.” The statute further provides that “any claim that must be submitted to ... an administrative claims process or review process ... shall not accrue ... until all such procedures, processes or remedies have been exhausted.” [ARS § 12-821.01(C)].

Had the contractor not requested mediation, the cause of action would have accrued upon the state engineer’s review. In this case, the contractor’s mediation request extended the time clock so that no claim accrued until mediation concluded. So, the contractor’s efforts were timely, and this case can proceed to a decision on the merits.

The contract is the best map on any project.

About The Author: Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].

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