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Architect's "Final" Decision May Not Be Final




by:
Alan S. Bishop
Smith, Currie & Hancock LLP - San Francisco Office

 
September 26, 2013

Previously published on September 20, 2013

An architect specified as Initial Decision Maker (“IDM”) in an AIA contract wears many hats: independent design professional, owner’s agent on the construction site, and impartial decider of disputes. But is the architect also the judge and jury?

The decision in Neighbors Construction Co., Inc. v. Woodland Park at Soldier Creek, LLC., 284 P.3d 1057 (Kan. App. 2012) exemplifies the modern trend. The IDM’s decision was found be final for purposes of allowing the construction project to proceed. However, the IDM’s decision did not preclude arbitration and was not binding on the arbitrator or the court.

Initial Decision Maker as an ADR Tool
An IDM is one of many dispute resolution processes that are available: partnering, structured negotiations, mediation, dispute review boards, non-binding arbitrations, and expedited binding arbitrations. The IDM provides an initial decision that is temporary but final enough for the parties to proceed with the work. On some projects, the IDM is a neutral (not the owner’s architect or representative) with sufficient technical and legal expertise to respond quickly to disputes. This technique can be a cost-effective dispute resolution tool.

Historically, architects and engineers hired by or employed by project owners could render certain decisions that were binding and not appealable to an arbitrator or the court. That was not the approach of the AIA General Conditions at issue in the Woodland Park case. Under the AIA A201-2007 General Conditions of the Contract for Construction, the IDM presented with a dispute between the owner and a contractor may issue interim decisions to keep the job moving. If no party objects to the determination within 30 days, the IDM’s decision becomes final and absolutely binding. An objecting party is entitled to a review of the decision in future arbitration or litigation. At the future hearings, the IDM’s decision may be presented in evidence but is merely advisory.

Case Illustration
In Woodland Park, a payment dispute arose between the owner and contractor. The architect was responsible for certifying payment applications for the owner, and was also the IDM. The architect had certified the contractor’s payment applications as the job proceeded. However, after the owner refused to pay a portion of a payment application that had been approved by the architect, the owner submitted a claim to the architect asking for a review of every pay application. Subsequent to that review, the architect rescinded the earlier certification of the payment application disputed by the owner.  The unpaid contractor stopped work and terminated the contract.

An arbitration was held to settle the payment dispute. Contrary to the architect’s decision, the arbitrator held for the contractor, finding that the contractor’s pay application should have been certified and paid. When the contractor sought to enforce the arbitration award in court, the owner argued the architect, as IDM, had issued a conclusive decision and the arbitrator erred by not deferring to the architect’s decision.

The court rejected the owner’s contention that the IDM had the same authority as an arbitrator. The court distinguished the IDM of the AIA contract provisions from an arbitrator in significant ways:

  • The IDM’s decisions were final and conclusive for aesthetic determinations, but not for other dis-putes (unless the other decisions were not disputed within thirty days). Binding authority only exists if unambiguously granted by the contract.
  • The IDM’s decision-making lacked due process (an adversarial hearing with presentation of evidence and an opportunity to cross-examine witnesses).

The trial court and appellate court thus held that the arbitrator was entitled to reach his own conclusions and that the architect/IDM’s decision was merely advisory.

Preserving Claims for Judicial Review
Closely read the technical requirements and dispute resolution procedures of your contract. How are claims made and preserved? Who can make decisions in their sole, subjective discretion that can be overturned only for fraud or gross mistake? When can inaction lead to a binding, conclusive result? The prevailing party in this case knew the answers to those questions as it made hard choices during the project and ultimately obtained a satisfactory outcome.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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