AAA Arbitration Clause

A December 2015 decision out of New York County reminds us of just how all-encompassing the standard AIA arbitration clause is.  In Bose v. Think Construction, et al.,  Index Number 154628/2015, the parties entered into a standard AIA construction contract (the Contract) which, as is often the case, incorporated AIA document A201-2007 as its “general conditions.” The contract further selected arbitration as the dispute resolution mechanism.  So what business did Plaintiff have placing its contract dispute in N.Y. Supreme Court?

Plaintiff argued that as the work for which it sought compensation was outside the scope of the contract, its claim related to that work was not subject to the contract’s arbitration clause.  The defendant GC disagreed and moved to dismiss and compel arbitration. The question before the court was as follows: Who determines whether a claim is "encompassed within the scope of an arbitration provision," the court or the arbitrator?  Generally, this question of "abitrability" (whether a claim is subject to arbitration) is an issue for the courts. This can change, however, where the Contract specifically incorporates AAA construction rules, which is exactly what 15.4 of A201 does.

AAA construction rules specify that the arbitration panel has the power "to rule on its own jurisdiction." This power includes questions as to the "existence, scope or validity of the arbitration agreement." In layman's terms, and where a party agrees to arbitration pursuant to most standard AIA contracts, the question as to whether a given dispute is covered by the contract is a determination for the arbitrator and not the courts.

The above highlights the importance of a careful review of all documents referenced in the prime contract.  When dealing with AIA documents it is imperative to revise the general conditions so as to fit the unique aspects of a given project.  Although a contractor might desire the arbitration of certain disputes, it may want to alter certain provisions such as to assure the arbitration will take place at the project venue, set the number of arbitrators, and to allow or disallow stakeholders such as the architect and Owner to be joined in the proceeding.  

The Construction Department at CATANIA, MAHON & RIDER, PLLC provides owners, contractors, and design professionals with the needed guidance and advice to properly tailor construction agreements so as to fit the uniqueness of the project, the parties involved, and the delivery method.