When parties have an enforceable agreement to submit disputes to binding arbitration, courts are reluctant to review the merits of an arbitration award. If every award were subject to such review, the purpose and advantages of arbitration would be defeated. An award will be vacated only if an arbitrator exceeded the stipulated authority, violated public policy, or acted irrationally. An award is irrational if it is supported by no evidence whatsoever. These situations occasionally arise.

A New York court recently ordered that a delay damages award be vacated. The arbitrator failed to consider the claimant’s own substantial contribution to late project completion and also calculated delay damages at $1,000 per day, a figure which appeared to have been pulled from thin air.

The second case involves a private project owner naming an incorrect legal entity as the plaintiff in a suit against a contractor and subcontractor. The owner could not correct the problem without putting the claim outside the three-year limitation period of a statute. A California court was asked to bail out the project owner.

The third case addresses a Massachusetts public project owner’s use of the filed sub-bidder method of procurement. An electrical contractor alleged the owner had modified the electrical specifications in a manner that added work not customarily performed by the electrical trade.

An arbitrator’s award of delay damages was irrational and subject to being vacated. The arbitrator failed to account for the claimant’s contribution to late project completion and arbitrarily assigned a daily rate of $1,000 to delay damages.

A project owner named the wrong legal entity as plaintiff in a suit against a contractor and subcontractor. The owner was allowed to substitute the actual property owner as plaintiff and avoid having the suit barred by a three-year statute of limitation.

Work added to a bid package for electrical contractors could be considered a clarification of the specifications and did not violate the filed sub-bidder statute despite an argument that the added work was outside the scope of the trade. 

The two cases in this issue, each involving attempts to settle payment disputes, illustrate some of the pitfalls in administering the process.

In the first, a subcontractor was attempting to obtain final payment, but the prime contractor said the sub had not complied with a condition precedent to payment. The prime later offered to release payment without the precondition. The sub argued the condition had been waived. Meanwhile, the prime contractor said it had merely been an offer in compromise that, when not accepted by the sub, became nonbinding and inadmissible.

In the second, a project owner refused to pay a trade contractor for what the owner deemed deficient work. The contractor filed a mechanic’s lien on the property, and the owner argued the meritless lien prevented the owner from converting its costly construction loan into a long-term mortgage loan. The owner sued the contractor for slander of title.

A prime contractor did not waive a contractual requirement for waiver and release paperwork from its subcontractor despite offering to release final payment without the waivers.

A contractor filed a mechanic’s lien knowing the lien amount exceeded the value of the work performed and would prevent the property owner from converting its construction loan into a long-term mortgage loan. The contractor was liable for slander of title.

A party to a construction contract can waive a right by acting in a manner inconsistent with the enforcement of that right. A party can also waive a right by failing to follow contractual requirements for the enforcement of that right. A municipal project owner in Pennsylvania did both.

The owner encouraged a contractor to continue work past the completion deadline and made no mention of assessing the liquidated damages stipulated in the contract. The owner paid the contractor for the continued work with no set-off for liquidated damages. And, the owner failed to comply with the AIA General Conditions that required it to give the contractor written notice of a claim for liquidated damages within 21 days of the initial delay.

The second case in this issue called for the Federal Circuit to review the sufficiency of a contractor claim for constructive acceleration of the work schedule. The contractor failed to prove excusable delay on the schedule’s critical path. The government’s grant of a time extension and partial remission of liquidated damages was not evidence of government fault.

The third case involved compliance with the statutory requirement that an agreement to arbitrate be in writing. When a written contract form was unsigned by either party, did that comply?

A project owner waived its right to liquidated damages by encouraging the contractor to work beyond the schedule’s deadline with no mention of liquidated damages. The owner made progress payments without offsetting liquidated damages and did not assert its claim until after the contractor had completed its work.

A contracting officer’s grant of a time extension and partial release of liquidated damages did not establish excusable delay on the schedule’s critical path. The contractor failed to meet its burden of proof regarding constructive acceleration of the work.