Read Your Construction Contract Arbitration Clauses Carefully

Read Your Construction Contract Arbitration Clauses Carefully

In May of last year, we discussed an opinion in U.S. ex rel. Thyssenkrupp Safway Inc. v. Tessa Structures LLC.  If you recall, this case involves a three way payment dispute between a supplier, Thyssenkrupp, a subcontractor, Tessa Structures, and a general contractor, Vista Contracting.  As discussed in the prior post, Thyssenkrupp did not get paid on a federal project and filed a Miller Act bond claim against all of the appropriate parties and a breach of contract claim against Tessa Structures.  Tessa Structures then cross claimed against Vista Contracting for indemnification and contribution.  Vista Contracting moved for a stay pending mediation and/or arbitration of the cross claim.

Of course, the contract between Vista Contracting and Tessa Structures required mediation between subcontractor and contractor in one place and arbitration of any claim relating to the subcontract.  In the opinion (U.S. ex rel. Thyssenkrupp Safway Inc. v. Tessa Structures LLC) the U. S. District Court for the Eastern District of Virginia in Alexandria considered the interaction of the two seemingly contradictory clauses.  In doing so, the Court considered other courts' opinions as to the application of the Federal Arbitration Act to mandatory mediation clauses.  After running through these opinions, the Court eventually determined that there was no need to talk about these distinctions given the broad nature of the arbitration provision of the contract.

In short, the Court determined that the broad language (i. e. any claim) required a stay despite Tessa Structures making the argument that its claim could not be determined until after the Court determined the validity and value of Thyssenkrupp's claim.  The Court, as Virginia state and federal courts are want to do, looked at the plain language of the agreement and tossed this seemingly logical and practical issue aside.

The takeaway?  Look at dispute resolution provisions in your construction contracts very carefully. I have discussed arbitration clauses in the past and only like them in the right circumstances.  In this case, Tessa Structures got caught in a practical bind by moving forward with the broad mandatory arbitration language in its contract.  These clauses will be enforced, an properly so in most instances.  Should you, as a contractor or subcontractor, find yourself faced with such a provision, an experienced construction attorney can assist you in negotiating a more equitable clause.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

View more from Construction Law Musings.

.... subscribers can explore/search Real Estate Law resources on or access any of these Mathew Bender Real Estate Law publications:

Non-subscribers can purchase Property Law treatises/resources and Mathew Bender publications from the LexisNexis Bookstore

Non-subscribers can purchase Real Estate Law treatises/resources and Mathew Bender publications from the LexisNexis Bookstore

For more information about LexisNexis products and solutions connect with us through our corporate site.