Construction Law Insights

Recently, in ProBuild v. DPR, a Charlottesville, Virginia Circuit Court allowed a subcontractor to proceed straight to litigation despite the subcontract’s ADR provisions. The matter involved a dispute that arose after the completion of a construction project where ProBuild, the subcontractor, handled the framing and installation of exterior siding for DPR, the general contractor. ProBuild made a final payment claim of approximately $1.9 million on DPR, but DPR asserted a setoff of about $1.4 million for project delays and defective work that DPR said it had to cure.

On January 8, 2015, ProBuild both made a claim on DPR and sent a Formal Notice of Dispute claiming that DPR wrongly refused to pay what ProBuild claimed was due under the contract. The parties engaged in informal discussion and negotiation, but were unable to resolve their dispute. Then, in March, ProBuild filed suit against Continental Casualty and two other sureties on the payment bond. The sureties asked the court to stay the proceedings, refer the matter to binding arbitration, and defer its case until the matter between ProBuild and DPR was resolved by arbitration. A few weeks later, and after DPR filed a Demand for Arbitration, ProBuild filed suit against DPR. These two suits were consolidated by the court.

The court determined that ProBuild and DPR’s subcontract contained “a set, required sequence of events: formal dispute notice, required informal negotiation, required mediation at the discretion of the disputing party, and mandatory binding arbitration at DPR’s discretion.” Each step was required and was a condition precedent to the next step: “The fact that such [step] is not labeled in the subcontract as a ‘condition precedent’ does not mean that it is not one.”

Special emphasis was also placed on the subcontract’s repeated use of the term “the” disputing party. In this case, ProBuild was the disputing party and DPR could not qualify as a disputing party because it never filed a formal Notice of Dispute. DPR’s October, 2014 letter to ProBuild, discussing their differences and how to proceed, did not qualify as a formal Notice of Dispute. Even if it did, the parties did not pursue informal discussion and settlement efforts within 30 days as required by the subcontract. Additionally, DPR could not “become ‘the’ disputing party after the filing of the lawsuits, if they had not already filed a formal Notice of Dispute.”

Had ProBuild, the disputing party, exercised its right to mediation and the mediation was unsuccessful, only then could DPR demand arbitration. Because ProBuild elected to skip mediation, it was allowed to circumvent arbitration with DPR and head straight to court. Furthermore, the sureties could not demand arbitration because they were not parties to the subcontract, and, under Virginia law, ProBuild had the right to proceed directly against them and have the factual issues tried by a jury. “So there could be two parallel roads, with a race to the finish . . . because there are two different defendants, with different contractual and procedural rights.”

As this case demonstrates, it is always important to carefully review your construction contract and strictly follow its terms and provisions. A slight difference in action may alter your available legal remedies.

PLDR Law Mark Burgin 1

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