A large percentage of private disputes are resolved through arbitration. In reviewing an arbitration award in a construction contract dispute, a federal appeals court recently said, “We have become an arbitration nation.” The court then defined the scope of an arbitrator’s authority when interpreting and applying contract clauses.
An erroneous legal interpretation of a clause by an arbitrator is not grounds to vacate an award. And, arbitrators are entitled to find that the parties to a contract, through their conduct, waived or modified a contract clause. However, an arbitrator does not have authority to disregard an express contract provision, effectively reading it out of the contract in order to produce a desired result.
The court then affirmed a lower court’s vacating of an arbitrator’s award in favor of a subcontractor. The arbitrator had not enforced subcontract language against the sub, not because the arbitrator misconstrued the clause and not because the parties had waived or modified the clause, but because enforcement of the clause, in the arbitrator’s opinion, would produce an unfair result for the subcontractor. This was improper.
In the other case in this issue, a federal contractor’s claim was valid even though the contractor reserved the right to restate its damages. The revised amount of the claim could be determined through simple arithmetic, so the claim stated a “sum certain” and did not violate the Contract Disputes Act.