Dispute Clauses

When a party to any kind of a construction contract encounters a problem, he should promptly familiarize himself with the dispute provisions of his contract. This requirement cannot be overemphasized.

The disputes provisions of a contract are those clauses outlining steps to be taken if there is a claim, dispute or other problem between the contracting parties. A contract may be legally complete without disputes provisions, but most construction and construction-related contracts have some type of dispute resolution mechanics.

Without a dispute provision, parties are simply left to resolve their disputes among themselves or, as a last resort, battle them out in court. There is a wide variety of disputes clauses commonly in use in construction contracting. Consideration of the disputes provisions found in the American Institute of Architect standard form of General Conditions (AIA Document A201) will familiarize the reader with at least one type of disputes arrangement commonly in use. The AIA General Conditions disputes clauses involve a two-stage procedures:

(1) submission first to the architect, and

(2) appeal by way of arbitration. The provisions are designed to avoid delay in construction progress while a dispute is being resolved.

The first step under the AIA General Conditions is to submit the dispute for decision by the project architect. This should be done in writing with complete supporting documentation carefully prepared for the purpose of convincing the architect of the merits of the party’s claims. While not required, the other party is certainly entitled to provide the architect arguments in support of his position and other relevant documentation.

The architect is contractually required to decide the dispute as a neutral judge, without favoritism to either party.

Under the AIA provisions, if the architect renders his decision in writing or if he fails to render a decision within ten days after submission of the dispute to him, either party may initiate arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. This submission requires a written Demand for Arbitration served on the other contracting party and a copy filed with the appropriate regional office of the American Arbitration Association.

The time limits for filing a demand for arbitration are governed by any express provisions of the contract or the statutes of limitation of the state involved unless the architect’s written decision contains certain language. If the decision states

(1) that the architect’s decision is final but subject to appeal, and

(2) it also states that a demand for arbitration must be made within thirty days after receipt of the architect’s decision by the party seeking arbitration, there is a thirty-day deadline for instituting arbitration proceedings. A party seeking arbitration must therefore file his demand within that thirty days or the architect’s decision becomes final, binding and conclusive upon the parties.

Disputes clauses in government (public works) contracts frequently establish that disputes be submitted to review boards of higher contracting authorities. Disputes clauses of other contracts provide for arbitration but without the intermediate step of submission to the architect. Frequently, as with the AIA provisions, there are time limits for taking necessary actions in the dispute process and these limits must generally be strictly observed.

The risk of not proceeding in accordance with specific disputes provisions of the contract may result in the loss of an otherwise valid claim or defense of the other party’s claim. It is therefore imperative that when a dispute arises, contracting parties immediately read their contracts and determine what dispute procedures, if any, may apply.

A party who does not comply with the specific disputes procedures set forth in his contract risks the likelihood that his claim, even if valid, will be lost. This may be a high price to pay simply for neglecting to read contract provisions.

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