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Prime Contract's Arbitration Rights Do Trickle Down To Subcontract

Wednesday, March 04, 2009 05:12 pm

 
Prime Contract's Arbitration Rights Do Trickle Down To Subcontract Arbitration Dobson Brothers Construction v. Ratliff, Inc. U.S.District Court for the District of Nebraska 2008 U.S.Dist.Lexis 97283; 4:08CV3103(Nov.6, 2008)

Arbitration, as a dispute mechanism, was a statutory part of the owner/general contractor agreement in the following case--and was incorporated by reference into all subcontracts.However, the court found that the subcon¬tractor was a third¬party beneficiary to the arbitration clause in the prime contract.And that unnecessary holding opened a can of worms.

In April 2007, Dobson Brothers Construction Company(Dobson)contracted with the Oklahoma Department of Transportation(ODOT)to perform high¬way construction.Dobson agreed to complete the project in 270 days.According to the contract, Dobson would receive an additional $10,000 per day for early perform¬ance and be penalized $10,000 per day for late perform¬ance.Dobson then subcontracted with Ratliff, Inc. (Ratliff)to install the sanitary sewer service and water lines for the project.Dobson agreed to pay $620,000 for the water line and $236.61 per linear foot for the sanitary sewer line if both were installed in a timely and satisfac¬tory manner.

Two months after Ratliff began work in August 2007, Dobson informed the subcontractor that its work was untimely, unsafe,"deficient, unsatisfactory, and not in compliance with the subcontract."Allegedly, Ratliff did not respond, and Dobson performed the subcontract work itself in order to finish the project on time.Dobson then sued Ratliff for breach of contract, seeking compensatory damages for labor, materials, equipment, late penalties, and loss of early performance payments.Ratliff counter claimed, alleging nonpayment and claiming that Dobson increased the scope of work that Ratliff had to perform as well as the deadlines to perform the new work.

Sub is a party to prime contract that's 'made a part of' the subcontract

Ratliff then tried to compel binding arbitration based upon the ODOT¬Dobson prime contract, which incorporat¬ed Special Provision 109.11 of the ODOT's Standard Specifications for Highway Construction.Special Provision 109.11 instructs that any payment dispute between a contractor and a subcontractor"shall be referred to a neutral alternative dispute resolution for hearing and decision with the costs for such mediation or arbitration to be shared equally by the parties."

The Dobson¬Ratliff subcontract did not mention Ratliff's right to pursue alternative dispute resolution, but the prime contract incorporated Standard Provision 109.10, which states that the prime contract does not"create[in the]public or any member thereof a third party benefici¬ary"under the contract [...]

 
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