Abraham J. Gafni, Neutral, Mediator and Arbitrator with ADR Options. Courtesy photo

ADR

Contracts among owners, general contractors and subcontractors will invariably contain provisions detailing the forum and procedures under which their disputes are to be resolved. Of critical importance to the general contractor, of course, will be that these provisions be consistent. Otherwise, it may find itself arbitrating against the owner in in one jurisdiction while litigating its dispute with a subcontractor in court in another. This may result, of course, in significant additional expense and potentially inconsistent results.

Generally, avoidance of this risk is sought by the inclusion of a provision that incorporates the ADR provisions from the principal contract into the subcontract. When preparing such incorporation provisions, however, special care must be taken to assure that they are consistent, or, as reflected in a recent California Court of Appeal case, they may not be enforceable in the way the Contractor intended.

In Remedial Construction Services (subcontractor) v. AECOM (contractor), 65 Cal. App 5th 658, 279 Cal. Rptr. 3rd 909 (2021), the contractor had entered into a prime contract with Shell Oil Products US (owner). The contractor subsequently entered into a subcontract with the subcontractor. The subcontractor eventually filed suit against the contractor, claiming a failure to pay certain costs. The contractor responded by filing a motion to compel arbitration, asserting that the mandatory arbitration in the prime contract had been incorporated into the subcontract. The prime contract provision stated that "Any dispute or claim arising out of or in connection with the contract or its subject matter or formation, whether in tort, contract, under statute, or otherwise … will be finally and exclusively resolved by arbitration" under the international dispute resolution procedures of the International Centre for Dispute Resolution.