In A Dispute Between An Owner And Contractor, An Architect's Decision Will Be Final And Binding If A Party Fails To File A Timely Demand To Arbitrate That Decision
January, 2004
A recent Idaho Supreme Court decision, Martel v. Bulotti, 65 P.3d 192 (Idaho 2003), holds that a project architect’s decision in a dispute between an owner and contractor is not enforceable as an arbitration under the Uniform Arbitration Act, but the decision will be final and binding if the parties to the dispute do not take action to appeal that decision per the requirements of their contract.
A homeowner contracted with a contractor to build an addition to her home, using an American Institute of Architects (“AIA”) contract form. The contract incorporated by reference General Conditions which set forth the process for resolving disputes that arose under the contract in a clause sometimes referred to as a “designer decision clause.” That clause provided that the parties to the contract were to submit their disputes to the project architect for decision. The architect was then to provide a written decision to each party. The architect’s decision was “final and binding on the parties subject to arbitration.” After the architect submitted a written decision to the parties that stated it was “final but subject to arbitration,” either party could demand arbitration of the dispute under the procedures set out in the conditions of the contract. Those conditions required the party who demands arbitration of the architect’s decision to give notice of the demand for arbitration in writing to the other party and to the American Arbitration Association (“AAA”), with a copy to the architect. Failure to demand that arbitration within 30 days would render the architect’s decision final and binding.
A dispute arose regarding the contractor’s performance, and it was submitted to the architect for a decision. The architect issued a written decision in favor of the owner in the amount of $11,594. The decision specifically stated: “This decision is final but subject to a demand for arbitration and a demand for arbitration of this claim must be made within 30 days of Ms. Martel’s [the owner’s] receipt of the certification.” The contractor faxed a demand for arbitration to the architect’s office one day short of the 30 day period in which to demand arbitration. The contractor did not send that demand to the owner or to the AAA as required by the conditions of the contract.
The owner sought a confirmation of the architect’s award and entry of judgment before the trial court. The contractor objected to that confirmation, arguing that there was no arbitration award to confirm. Additionally, the contractor asserted that the General Conditions to the contract did not become part of the owner/contractor agreement because the contractor never received nor read them, and that the contractor had substantially complied with the requirements for demanding arbitration, even though he had failed to give notice to the owner or the AAA in a timely fashion.
The trial court in Idaho rendered judgment in favor of the owner, concluding that the contract between the parties made the architect’s decision final and binding, and that the architect’s decision constituted an arbitration award subject to confirmation of the court under the Uniform Arbitration Act, as codified by the Idaho legislature.
On appeal, the Idaho Supreme Court framed the question as whether the decision of an architect constituted an arbitration award for the purposes of the Uniform Arbitration Act, as adopted by Idaho. The court found that an arbitration award “means a decision of an extra judicial arbitrator upon whom the parties have agreed and by whose decisions the parties have agreed to abide.” The Idaho Supreme Court acknowledged that it is not unusual in the construction context for the parties to agree to submit matters to an architect for a decision that, by agreement, will be final and conclusive. However, the Idaho Supreme Court found that the Uniform Arbitration Act would not apply to the architect’s decision in this context, as the architect was not an arbitrator for the purposes of the Uniform Arbitration Act. The Idaho Supreme Court found that a project architect employed by a party to a contract cannot be the sole arbitrator in a case because of the potential for bias and non-neutrality, and the possibility it will discourage a fair investigation of the facts. The court reasoned that the architect qualifies as an arbitrator only in the context of a multiple-arbitrator context which contemplates use of non-neutral arbitrators as well as a single neutral arbitrator agreed upon between the parties. Given that the architect’s decision did not constitute an arbitration award under the Uniform Arbitration Act, the trial court’s confirmation of the architect’s decision as an arbitration award was vacated.
However, that did not prevent the Idaho Supreme Court from finding against the contractor on alternative grounds. The court found that the contractor had failed to follow the requirements of the contract for filing a timely demand for arbitration. The court found that a contractor’s notice and demand for arbitration filed only with the architect was insufficient to avoid the architect’s decision becoming final and binding on the parties.
The Idaho Supreme Court rejected the contractor’s argument that his actions constituted a “substantial compliance” with the clause’s requirements for demanding arbitration. The court defined substantial compliance as meaning “that, despite deviation or omission by one party to a contract, the other party receives the important and essential benefits of the clause of the contract in question.” The court found that notice to the architect did nothing to trigger the arbitration process. As such, the failure to trigger the arbitration process by filing notice and demand for arbitration with the AAA in the time allowed denied the owner the benefit of the architect’s decision being settled expeditiously and efficiently through arbitration.
The court strictly applied the contract provision that, absent a demand for arbitration to the AAA and the opposing party within 30 days, the architect’s decision under the designer decision clause was final and binding. The final and binding language was part of the contract between the parties, and the court refused to rewrite the contract or relieve the contractor from his failure to comply with the contract requirements for demanding arbitration.
Learning Point:
When a dispute between an owner and contractor is submitted to an architect for decision, the parties who make that submission must abide strictly by the provisions for appealing that decision. The architect’s decision should be in writing and specifically cite the contract language making the decision subject to arbitration and final and binding if a timely demand for arbitration is not made.
If you would like a copy of this decision, please contact Margaret at mfahey@clausen.com. •
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