• “Arbitration, like litigation is too expensive, especially with 3 arbitrators.”
• “Arbitrations are supposed to be more efficient than court. Too often the rules of civil procedure are applied (even informally) leading to significant time and expense to get to the hearing.”

Finally, this is a poignant comment from a well-known construction lawyer who both represents parties in disputes and is a highly regarded arbitrator:

VIII. PERSPECTIVES BASED ON CASE LAW AND ARBITRATION AWARDS

One might think that the risks associated with DOT construction projects would be reflected in a substantial number of reported court decisions in each state. The reality is that there are few reported decisions involving suits by contractors against DOTs. While one can speculate as to why this is the case, the likely answer is based on what has been previously discussed in this digest. DOTs and their construction contractors need each other to be successful. Consequently, while there may be claims on certain projects, the parties find a way to resolve them before asking a judge, jury, or arbitration panel to make a binding decision for them.

This section will first briefly discuss the type of issues that occur on DOT projects. It will then look at specific reported decisions that addressed attempts by a party to overturn an arbitration award for or against a DOT. Finally, this section will review a handful of arbitration awards provided during the survey process.

A. Types of Construction Disputes on DOT Projects

It is beyond the scope of this digest to provide a comprehensive review of the type of claims and disputes that occur on DOT projects that may eventually be resolved through litigation, arbitration, or binding DRBs. However, the literature is rich in publications with studies on this subject, including recent ones that have analyzed: (a) the change order experience on Colorado DOT projects over almost a 15-year period; (b) the impact of delivery processes on changes; and (c) the effect of COVID-19.⁴⁰⁶ Based on this literature, most problems commonly arise from unforeseen site conditions, plan errors and omissions, and DOT-directed changes (i.e., scope increases), with this occurring regardless of the project delivery mechanism.

The literature shows that projects delivered by design-build and P3 have additional challenges.⁴⁰⁷ Contractors are not only required to provide lump sum prices based on the DOT’s 30% design, but they also assume substantial responsibility and risk for governmental permits, right-of-way, and utility relocation. When something goes wrong, the direct costs can be substantial. However, they typically pale in comparison to the costs associated with delay, disruption, and inefficiency.⁴⁰⁸ In fact, projects that have been delayed are the ones that are typically the most contentious and costly.

A striking example can be seen in the $4 billion Mario M. Cuomo Bridge project, which replaced the Tappan Zee Bridge over the Hudson River. The design-build consortium is in litigation with the New York Thruway Commission, seeking almost $1 billion in compensation based on a variety of claim theories, including a claim that owner-mandated changes to the bridge design and other events beyond the contractor’s control forced the contractor to accelerate its work and thereby increase its costs.⁴⁰⁹

The Tappan Zee Bridge project and a recent study conducted by Travelers Insurance reinforce how risky design-build projects can be in the civil infrastructure area. Travelers shared this study with the public in March 2021 and it has been a relatively constant subject of industry discussion ever since.⁴¹⁰ The study examined 224 heavy civil projects between 2004 and 2020 that

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⁴⁰⁶ See, e.g., Douglas Alleman, Arthur L. C. Antoine, M. Scott Stanford & Keith R. Molenaar, Project Delivery Methods’ Change-Order Types and Magnitudes Experienced in Highway Construction, J. LEG. AFF. DISPUTE RESOLUT. ENG. CONSTR., Vol. 12, No. 2 (2020); Ibrahim Osman & Hossein Ataei, Studying Construction Claims Due to COVID19 for Road and Highway Projects, J. LEG. AFF. DISPUTE RESOLUT. ENG. CONSTR., Vol. 14, No. 1 (2022); Mohammed S. Hashem M. Mehany & Neil Grigg, Causes of Road and Bridge Construction Claims: Analysis of Colorado DEPARTMENT OF Transportation Projects, J. LEG. AFF. DISPUTE RESOLUT. ENG. CONSTR., Vol. 7, No. 2 (2022).

⁴⁰⁷ See, e.g., MICHAEL LOULAKIS, et al., LIABILITY OF DESIGN-BUILDERS FOR DESIGN, CONSTRUCTION, AND ACQUISITION CLAIMS, NCHRP LRD 68, (Washington, DC: Transportation Research Board, 2015) https://doi.org/10.17226/22074.

⁴⁰⁸ This was confirmed in the Colorado DOT study referenced in Douglas Alleman, Arthur L. C. Antoine, M. Scott Stanford & Keith R. Molenaar, Project Delivery Methods’ Change-Order Types and Magnitudes Experienced in Highway Construction, J. LEG. AFF. DISPUTE RESOLUT. ENG. CONSTR., Vol. 12, No. 2 (2020). That study identified a set of project factors that might affect the rate of claim occurrence. It assessed a total of 780 CDOT projects from a data set of 1,060 projects completed in a time window from 1997 to 2012. These showed 213 claims within a subset of 62 claim-contained projects. Results showed that delays are the main cause of claims and are more important than the effects of added items and change orders.

⁴⁰⁹ https://www.constructiondive.com/news/tappan-zee-constructors-sues-new-york-state-thruway-on-4b-bridge-project/594765 (last visited October 31, 2023).

⁴¹⁰ The results were shared in several ways, including at a webinar presented by Travelers. While the author has a copy of the slides, he does not have authority to distribute them. The following publications refer to the study: https://www.constructiondive.com/news/report-p3-megaprojects-often-lose-money-for-contractors/606480 (last viewed October 31, 2023); https://www.enr.com/articles/52299-study-finds-design-builder-profit-shortfall-on-big-infrastructure-projects (last viewed October 31, 2023).

had contract values between $250 million and $2 billion. They encompassed bridge, highway, rail, tunnel, and other large-scale civil work, and most were projects on which Travelers had been the surety or co-surety. Sixty percent of the projects and over 70% of the total contract value were on design-build or P3 projects.

Stated simply, the results showed horrendous financial performance, something that was not entirely unexpected. In late 2018 and early 2019, many of the country’s biggest contractors publicly stated (sometimes during Wall Street analyst calls and earnings reports) that they were losing such substantial money on fixed price design-build and P3 contracts that they would, in some cases, no longer be pursuing that type of risky work.⁴¹¹ The Travelers study shared the overall financial performance of the projects, with 42% of them having a net or gross loss. Among other things, Travelers concluded that: (a) contractors were unable to accurately price civil construction work on 30% design documents; and (b) design-build and P3 had a higher frequency of claims because of the contractual risk transfer profile of these projects.

In terms of what contract provisions can cause the problems discussed above and be considered by an arbitrator, the answer is reasonably straightforward—any contract provision that relates to the basis for the change order request will be before the arbitrators. Clauses that address site condition risk, the DOT’s responsibility for errors in its contract documents, and time extension provisions are certainly in play. For design-build projects, so are provisions that address the big risks that led to the losses cited in the Travelers Study—right-of-way, permits, and utility relocation.

The individuals who responded to the surveys and participated in telephone interviews confirmed what is discussed above. The overwhelming majority of claims that are subject to arbitration are based on delays and disruptions caused by alleged differing site conditions or defective design documents from the DOT. While the direct costs of the root cause of the problem (i.e., differing site condition or defective design) might be material, the major expense of the delay and disruption on productivity almost always makes it challenging to settle the dispute and drives the parties to use arbitration.

This assessment of the “typical” construction dispute was corroborated by responses from the survey recipients to a question asking them to identify the type of contract clauses that arbitrators were typically asked to enforce. The respondents were given a choice of voting for any and all of the following categories: (a) notice provisions; (b) no damages for delay provisions; (c) indemnity clauses; (d) waivers of claims clauses; and (e) clauses that shift commercial risk (i.e., site conditions, utility relocations, and errors in the DOT’s design documents). They could also provide a narrative answer.

A substantial number of the DOT respondents voted equally for no damages for delay clauses and clauses that shift commercial risk, with only a few voting for the other choices. The industry survey had separate questions on this to be answered by those who worked or represented parties and those who served as neutrals. Their answers were virtually identical and voted in heavy numbers for the same two provisions as the DOT group (i.e., no damages for delay and commercial risk shifting provisions). However, there was a glaring difference between the industry group and the DOT group. The highest number of votes by the industry group were for notice provisions, and almost every respondent selected it. Virtually no DOT respondent selected this.⁴¹²

The response regarding notice provisions is particularly interesting. Notice provisions are not the cause of the contractor’s cost or time overruns. However, when a matter becomes contentious, DOTs and other owners frequently argue technical defenses, like whether the contractor has given proper notice of its claims and properly pursued the claims process required by the contract. Arbitrators are asked to decide technical defenses in determining merit, just as a judge would have to decide these defenses if the dispute was in court. In fact, as discussed in the next section, failure to comply with the contract’s procedural (including notice) requirements is often the grounds that a DOT will use to try to overturn an arbitration award.

Given the types of disputes being faced by DOTs with their contractors, there is a compelling case to be made in using arbitration to resolve those disputes. Among the most important reason is the benefit of having the “decider(s)” being smart and experienced about the substantive issues giving rise to the dispute. The number of pure legal questions that arise are usually few, and arbitrators are typically just as equipped to resolve them as would be a judge. The primary point is that the parties have to feel comfortable that the arbitrator or arbitration panel is unbiased, as well as smart and experienced.

B. Cases Seeking to Vacate an Arbitration Award

As discussed in Chapter III and with certain DOTs in Chapter V, most arbitration awards are final and resolve the dispute, and the appeal grounds are limited under both the FAA and the state’s arbitration act (typically either the UAA or RUAA). However, even though disappointed parties have very limited means of appealing, that does not mean they will not try to appeal. Hundreds of cases around the country address this subject in the context of arbitrations on a variety of disputes. However, only a few reported decisions about appeals involve a DOT construction project. Some of those are discussed here.

One of the noteworthy points about the following cases is how frequently the DOTs used the contractor’s alleged failure to exhaust administrative remedies or provide notice of claim as a basis for arguing arbitrability of the dispute. These are typically issues decided by the arbitrator under broad arbitration clauses.

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⁴¹¹ For example, Skanska Infrastructure announced it was leaving the U.S. P3 market in October 2018, which was attributed in part to the losses being suffered on FDOT’s I-4 Ultimate project, as discussed in: Skanska Books $100M Write-Off on P3s as US Civil Chief Exits That Role, ENGINEERING NEWS RECORD (October 24, 2018).

⁴¹² There were also “write-in” votes by the industry group for limitations of liability clauses and clauses which address discrepancies and ambiguities in the DOT’s plans and specifications.

However, when they are components of the statute creating the right to arbitrate, as in the following states, the argument that the court, rather than the arbitrator, should decide the matter can take on a whole different meaning. Contractors need to pay particular attention to this issue as they evaluate their ability/right to arbitrate against a DOT.

1. Connecticut

Connecticut DOT (CTDOT) has been a party to a number of reported decisions where either CTDOT or the contractor has tried to overturn an arbitration award. The most interesting and informative group of cases involve arbitrations and appeals arising out of disputes between CTDOT and White Oak Corporation (White Oak), a Connecticut contractor. This is a case study in how the supposedly “fast and inexpensive” arbitration process can play out to be just the opposite of “fast and inexpensive” under some circumstances.

The projects at issue were the Tomlinson Bridge in New Haven, which started construction in 1994, and the Yellow Mill Bridge in Bridgeport, which started construction in 1997. White Oak was substantially late on both projects and ultimately terminated by CTDOT for default. White Oak had claims on the order of $110 million on the Tomlinson Bridge and $45 million on the Bridgeport project and initiated arbitration proceedings to have the default terminations declared wrongful and recover for its damages, many of which were delay damages.

The manner in which these disputes were resolved is, to say the least, confusing and hard to fathom. In short, two arbitrations took place over the course of years. The Tomlinson Bridge arbitration had 42 days of hearings. The Bridgeport arbitration demand was filed in 2001 and had 150 days of hearings over a three-year period, with the award finally being issued in 2009. To complicate matters further, there were appeals to all levels of the Connecticut courts before, during, and after the arbitrations. By the time litigation finally ended in 2019, there were eight reported decisions, spanning a variety of topics relative to the arbitrations.

In terms of substance, the Tomlinson arbitration panel concluded that White Oak was in default and awarded CTDOT $1.2 million for delay-related damages. In the Bridgeport matter, the panel awarded White Oak approximately $8.3 million for improperly withheld liquidated damages and interest. The courts were asked to vacate/confirm on a number of issues, with many of the issues involving how the Connecticut arbitration statute was intended to work for specific issues. For example:

• Failure of White Oak to Give Proper Notice of Claim. CDOT filed an injunction to stop both arbitrations based on White Oak’s failure to give proper notice. However, the Tomlinson arbitration award was issued before the court ruled, and it was in favor of CTDOT, which made that issue moot. For the Bridgeport arbitration, the court said that the arbitrators had to decide the issue of whether proper notice was given.⁴¹³
• Standard for the Award Itself. White Oak asked the court to vacate the Tomlinson award on the sole basis that it failed to fully articulate the reasons for the amount of damages awarded to CTDOT. The court rejected this, finding that the award was 36 pages long and did not have to explain the precise calculation of the damages. Stated differently, the court did not find that this argument represented the manifest disregard of the law that would be a grounds for vacating an arbitration award.⁴¹⁴
• Separate Arbitrations on the Same Project. White Oak submitted a new claim and arbitration demand on the Tomlinson project after the first arbitration panel rejected its faulty default termination claim. The new claim was essentially a delay claim. CTDOT filed suit, arguing that the statute required White Oak to present all of its claims on a project in a single arbitration hearing. This case went to the Connecticut Supreme Court, which concluded in 2008 that the legislative history and purpose of the statute did not support having multiple arbitrations arising out of the same project.⁴¹⁵

While the Tomlinson dispute finally ended in 2008, the Bridgeport arbitration and dispute process continued. As noted above, White Oak ultimately received an award in its favor from the arbitrators in 2009. CTDOT moved to vacate the award on the grounds that, among other things, the arbitrators did not have jurisdiction over the dispute because proper notice had not been given. The lower court rejected that in 2011.⁴¹⁶ This was appealed and overturned by an appellate court in 2013.⁴¹⁷ White Oak then appealed that the Supreme Court and received a favorable ruling in 2015, in a decision that explains what one needs to do to meet notice requirements under the statute.⁴¹⁸ At each step along the way, the courts issued detailed opinions evaluating how to interpret the statute and whether the broad powers of the arbitrators could or could not overcome a jurisdictional challenge.

One would think that the dispute ended with the Supreme Court confirming the arbitration award for White Oak. It did not. CTDOT did not pay White Oak the entire arbitration award, as $1 million were withheld for unpaid taxes that White Oak allegedly owed to the Department of Revenue Services and the Department of Labor. White Oak argued that CTDOT had asked in the arbitration that there be a setoff for this tax debt and the panel concluded that CTDOT had failed to prove the claim. This then resulted in lawsuits about whether the $1 million withholding was precluded under the doctrine of collateral

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⁴¹³ State, Dept. of Transp. v. White Oak Corp., 2005 WL 3047232 (Conn. Super. Ct. 2005).

⁴¹⁴ State Dept. of Transp. v. White Oak Corp., 2006 WL 1493242 (Conn. Super. Ct. 2006).

⁴¹⁵ Department of Transp. v. White Oak Corp., 287 Conn. 1, 946 A.2d 1219 (Conn. Supreme Ct. 2008).

⁴¹⁶ State Dept. of Transp. v. White Oak Corp., 2011 WL 1992043 (Conn. Super. Ct. 2011).

⁴¹⁷ Department of Transp. v. White Oak Corp., 141 Conn. App. 738, 62 A.3d 599 (Conn. App. 2013).

⁴¹⁸ Department of Transp. v. White Oak Corp., 319 Conn. 582, 125 A.3d 988 (Conn. Supreme Ct. 2015).

estoppel. White Oak lost at Superior Court in 2017 and also lost at the Supreme Court in 2019.⁴¹⁹ In short, the Supreme Court concluded that if White Oak wanted to contest paying those taxes, it could not do so in arbitration, but had to go through another administrative process.

If every arbitration worked out like the CTDOT and White Oak saga, it is clear that probably nobody would use the process. At its core level, the disputes were somewhat easy to understand – who is contractually responsible for the project delays that eventually resulted in White Oak’s default termination and was the termination wrongful? What is hard to follow is how the arbitration process took as long as it did in both cases – 150 days in the Bridgeport matter over three years is astounding.

Several other cases in Connecticut over the past 20 years are less complicated but nevertheless depict fights over whether the notice requirements of the Connecticut arbitration statute were met. One dispute involved a differing site condition that affected the design of the contractor’s cofferdam. CTDOT moved to enjoin the arbitration on the grounds that the contractor had not complied with the statute, as its 100-page change order request did not constitute proper notice of a claim to the Commissioner. The court agreed, looking carefully at the statute’s language and determining that the notice was a mandatory requirement to demanding arbitration.⁴²⁰

One other case is of particular note. Parties often believe the arbitrators made a calculation mistake that can be corrected and ask the court to modify an arbitration award. The standards for doing so are very limited, as discussed at length in Chapter III. In Blakeslee Arpaia Chapman, Inc. v. State Department of Transportation,⁴²¹ the dispute involved the construction of a bridge that finished substantially late. The contractor claimed it was entitled to a 730-day time extension and delay damages for that time. The arbitrators found 610 days of compensable delay, but also found that the contractor had caused 120 days of delay that were properly subject to the assessment of liquidated damages. It allowed field office overhead costs for the compensable delay days, but did not allow extended home office overhead costs because the contract was completed in less time than the contract period of 1,507 calendar days. The arbitrators ultimately awarded the contractor approximately $2.5 million. The contractor moved to modify/vacate a portion of the award, based on the panel’s rulings on home office overhead and liquidated damages.

The matter eventually was heard by the Connecticut Supreme Court, which rejected the contractor’s argument. The court noted that there is nothing in the statute that says the award has to be consistent with the findings of fact. The arbitrators issued a 13-page decision that had 308 findings of facts that applied those facts to the contract, which complied with what the arbitration statute required for a form of award. The court also rejected any argument that the arbitrators manifestly disregarded the law of damages, because it would require the court to undertake a review of the arbitrators’ findings of fact and conclusions of law, which is prohibited.

2. Rhode Island

The Rhode Island Supreme Court has issued one written decision on arbitrations involving RIDOT, Aetna Bridge Company v. State Department of Transportation.⁴²² The project was a bridge reconstruction near Pawtucket, Rhode Island. Aetna Bridge Company was the contractor and subcontracted with a material supplier (Foster) to fabricate the structural steel for the catwalks, and Foster’s work included detailing the required structural steel and providing necessary shop drawings for the bridge catwalk. Foster hired a subcontractor (Alpha) to produce most of the shop drawings.

Alpha ultimately had a claim based on having to produce substantially more shop drawings than it estimated to complete the structural steel detailing. Alpha blamed this on inadequate design specifications by RIDOT’s outside engineering firm. Aetna filed a pass-through claim to RIDOT, which was denied, and then initiated arbitration under the Public Works Arbitration Act. RIDOT resisted, which required Aetna to go to court to obtain an order compelling arbitration. The court granted the order, and an arbitration hearing took place before a single arbitrator over a four-day period. Eight months after the hearing closed, the arbitrator gave a two-sentence award in favor of Aetna in the amount of approximately $70,000.

RIDOT filed a motion in superior court to vacate the award on the grounds that Aetna did not have the right to pass-through the claim because Aetna did not have any liability to either Foster or Alpha, which is a requirement for a pass-through. Aetna argued that it had a liquidation agreement with Foster and Alpha for this claim and that in any event RIDOT was estopped from raising this issue, as it participated in the arbitration without objecting to this. RIDOT countered by stating that it was only on the final day of the arbitration hearing that it learned that Aetna’s claim was a “pass-through” claim from Foster and that it had not been aware that Foster had contracted with Aetna. The superior court judge denied RIDOT’s motion to vacate, citing that while it appeared that Aetna’s claim was a pass-through claim on behalf of Foster, he could not make a final determination on this because he did not have the entire record of the arbitration proceedings and because the arbitrator had made no findings about whether Aetna’s claim was or was not a “pass-through” claim.

The Supreme Court noted this, as well as the fact that the arbitrator had a “bare-boned two-sentence award,” wherein he “simply hurdled over four days of hearing testimony and DOT’s challenge to Aetna’s standing to arbitrate its “pass-through” claim by tersely stating: “Petitioner Aetna Bridge Holding Company is hereby awarded the total sum of Sixty Seven Thousand

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⁴¹⁹ Department of Transportation v. White Oak Corporation, 2017 WL 5202863 (Conn. Super. Ct. 2017); Department of Transportation v. White Oak Corporation, 332 Conn. 776, 213 A.3d 459 (Conn. Supreme Ct. 2019).

⁴²⁰ State of Connecticut Dept. of Transp. v. Blakeslee Arpaia Chapman, Inc., 1997 WL 684896 (Conn. Super. Ct. 1997).

⁴²¹ 2003 WL 23149947 (Conn. Super. Ct. 2003).

⁴²² 795 A.2d 517 (R.I. Supreme Ct. 2002).

Eight Hundred Forty Five Dollars and 22/100 ($67,845.22). Interest is not awarded.”

Given the lack of record and the “terse” award, the Supreme Court found that it could not make a determination as to whether or not the arbitrator exceeded his power and committed a manifest error of law. It concluded, however, that if Aetna’s claim against RIDOT was a pass-through claim with no concomitant liability to Aetna, then it would not be arbitrable. It sent the case back to the lower court to have it make that determination.

Several things are interesting about this case. First, it sheds light on what was previously noted in Chapter V about the Public Works Arbitration Act. The act does not discuss process issues, such as discovery or exchange of information. The Supreme Court cited this as it noted that RIDOT had not been aware that this could be a pass-through claim until the hearing started. It also points out how challenging it can be when an arbitrator issues an award that provides no explanation of its rationale. This seems to be contrary to the current Public Works Arbitration Act, which does call for a reasoned award. Finally, the case brings to the forefront a question that has long been a challenge – how to deal with subcontractor pass-through claims? While state law will answer the nuances of this question, there is an arbitration issue as well, based on whether it is reasonable to have subcontractors participate directly or indirectly in the arbitration process.

3. North Dakota

North Dakota has several reported cases arising out of NDDOT projects that examine the standards for overturning arbitration awards. The first one, Scherbenske Excavating, Inc. v. North Dakota State Highway Dept.,⁴²³ involved a delay claim on a pavement project. The contract stated that the contractor would work on a mile-by-mile basis as other contractors completed their preparatory work on the road. NDDOT later decided that the contractor could not begin work until all subcontractors had completed preparation of the entire stretch of 21.5 miles. The contractor argued that this delayed its start, and that during construction it was affected by inclement weather, inferior site preparation by the other contractors, and a greater than anticipated increase of traffic.

NDDOT denied the contractor’s claim and arbitration ensued, where the contractor was awarded approximately $775,000. NDDOT moved to vacate the award in district court, lost, and then appealed to the North Dakota Supreme Court. The Supreme Court first confirmed that the North Dakota standard for overturning an arbitration award is that the award must be completely irrational. It then applied that standard to the question of whether the award should be overturned because the arbitrators adopted a “total cost” approach to awarding damages.

The court looked at the four-part test that is commonly used in justifying total cost approaches and determined that they were all satisfied, namely:

• The contractor’s increased costs were primarily caused by inclement weather, heavier than anticipated traffic, and inferior preparation by subcontractors. The daily difficulties encountered by Scherbenske because of these conditions resulted in additional costs which were not subject to precise measurement and would have been difficult, if not impossible, to calculate by any method other than the total cost approach.
• The contractor’s bid was realistic, as supported by the evidence and that NDDOT accepted the contractor’s bid.
• The evidence, even though conflicting, supported that the contractor’s costs were reasonable and that it was not responsible for the additional expenses.

Based on the standard, the court found sufficient factual and legal basis for the award to withstand the scrutiny of even a more liberal standard of review, but that in any event it was not devoid of rationality and that the arbitrators did not exceed their powers.

The other question that the Supreme Court considered was whether the contractor’s party-appointed arbitrator was biased. NDDOT pointed to the fact that this arbitrator “abandoned his proper role of disinterested and impartial arbitrator” and assumed the role of the contractor’s advocate by conducting extensive cross-examinations of NDDOT’s witnesses. The court rejected this, finding that this arbitrator was experienced in the highway industry and was expected to ask probing questions. “The partiality or bias which will overturn an arbitration award must be certain and direct, and not, as it is here, remote, uncertain or speculative.”

The next case, Byron’s Construction Co. v. North Dakota Department of Transportation,⁴²⁴ raised a similar question to what was considered in Connecticut with the White Oak arbitration on the Tomlinson Bridge project. In this case, the contractor filed an arbitration demand against NDDOT and lost because it failed to give proper notice under the statute. The contractor moved to vacate but the decision was largely upheld. The contractor then filed a new arbitration seeking compensation for claims for additional quantities relating to borrow quantities and gravel laydown.

The new arbitration panel met to determine if these were the same claims that had previously been adjudicated in the earlier arbitration proceeding. The panel concluded that these claims should have been raised in the earlier proceeding based on the contractor already having had its final estimate prepared with all final quantities, and issued an award against the contractor on the basis of res judicata. The district court agreed, and the matter was appealed to the Supreme Court for the limited question of determining: “Was the arbitrator’s determination that the doctrine of ‘res judicata’ precluded appellant’s right to arbitrate completely irrational?” In concluding that the award was not completely irrational, the Supreme Court went through the claims in both arbitrations and determined that there was sufficient subject matter overlap so as to justify the arbitrator

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⁴²³ 365 N.W.2d 485 (N.D. Supreme Ct. 1985).

⁴²⁴ 463 N.W.2d 660, 1990 WL 187770 (N.D. Supreme Ct. 1990).

using the doctrine of res judicata, even though the specific new claim may not have been directly decided by that first arbitration panel.

Perhaps the most interesting takeaway from this case is a brief opinion from a concurring judge on whether the arbitration statute contemplated “splitting claims” and having multiple arbitrations. The judge cautioned against reading too much into this case as precedent, saying that: “It seems to me that, under many circumstances, these [arbitration] statutes contemplate more than one arbitration on a single highway construction contract. This statutory plan for arbitrating disputes in highway construction contracts does not clearly preclude ‘splitting a cause of action,’ as in civil actions.”

The final case, State v. Gratech Co., Ltd., considered the issue of whether arbitrators had jurisdiction over a claim where the statutory notice requirements were not met.⁴²⁵ Gratech was a contractor working for NDDOT and claimed during the course of the project that it was experiencing difficult soil conditions and that this was not the “common excavation” covered under the contract. Gratech periodically asked for meetings on the subject with NDDOT and this happened before and after NDDOT sent Gratech a final estimate.

When the matter was not resolved, Gratech submitted an administrative claim to NDDOT seeking payment for the additional work. The claim was denied on the basis that Gratech failed to comply with the requirement that a written claim be made “not later than ninety days after the department has submitted the final estimate to the contractor.” This caused Gratech to file a demand with the AAA. NDDOT asked the arbitrators to dismiss the arbitration based on their lack of jurisdiction, given that, in its view, Gratech had failed to comply with the statutory requirements for arbitration by failing to file a timely administrative claim. The arbitrators found that Gratech had complied and denied the motion to dismiss.

NDDOT then went to district court to stay the arbitration and seek a declaratory judgment that the arbitrators did not have jurisdiction to determine whether Gratech had timely filed its claim. The district court disagreed with NDDOT, which prompted NDDOT to appeal to the North Dakota Supreme Court. The court similarly rejected NDDOT’s position on several bases. It cited the arbitration statute, which requires that all disputes be heard in arbitration. Nothing in the statute said that a court was to decide the issue of timeliness of a claim filing. Moreover, the court looked at how the arbitrators decided the issue and found it to be rationale. There were disputed facts and there was support for them reaching a determination that Gratech had timely filed.⁴²⁶

C. Arbitration Awards

As noted in Chapter V, most of the states that use arbitration allow their arbitration awards to be viewed by the public upon request. The Florida State Arbitration Board, for example, makes its cases available online. Other DOTs that participated in our research confirmed that arbitration awards would be provided on request and several of these awards were reviewed as part of the research for this digest. In the following section, we discuss several of these awards.

Before doing so, readers should note that arbitration awards are similar to reported court decisions. Sometimes they are very well-written and contain clear logic about why the dispute was resolved the way it was. Sometimes they are not. Consider the Connecticut arbitration award that was simply two “terse” sentences, which led in large part to the arbitration being successfully appealed. As a result, it is not always easy to understand all of the factors that went into the award. However, the awards discussed in the following are detailed enough to enable them to be discussed.

1. Caltrans

One of the awards we chose to discuss is from a Caltrans arbitration. It was notable not only in terms of how well-written it was, but in terms of the issues raised in the arbitration and how the arbitrator decided the case. The caption of the arbitration was Granite Construction Company v. State of California, Department of Transportation, and the arbitrator was Ken Gibbs, one of the country’s most highly regarded arbitrators and mediators. The arbitration took place over 15 days and a Final Award was issued on March 6, 2017.

The project was commonly referred to as the 805 North project in San Diego, California, and involved the construction of an HOV lane over a 4.4 mile length of the 805 freeway. The contract was procured on an A+B basis, and Granite had the lowest bid of approximately $16 million and a 150-day duration. The award describes that Granite was plagued from almost the start of the project with unsuitable soils and drainage design issues. It was also affected by Caltrans having rejected its paving sequence that affected the construction of multiple other elements of the work, including barrier walls. At the end of the day, the 150 planned working day duration turned into 375 working days. Caltrans recognized some of the impact of this and over the course of the project authorized about $3.8 million in change orders for direct costs and $3.3 million for impact, plus time extensions.

The arbitration was over Granite’s end of the job claim, where it sought, on a modified total cost basis, about $4 million. The arbitrator found that it was “beyond dispute that this project was riddled with differing site conditions, extensive redesign, change in means and methods, failed inspections and other complications, all of which contributed to delays and inefficiencies … and that all the evidence demonstrates that Granite did suffer from Caltrans-caused delays and inefficiencies.”

Based on this, one might have thought that the arbitrator would find a way to rule substantially in Granite’s favor. He did

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⁴²⁵ 655 N.W.2d 417, 2003 WL 133118 (N.D. Supreme Ct. 2003).

⁴²⁶ Another case, Gratech Co., Ltd. v. North Dakota Dept. of Transp., 676 N.W.2d 781, 2004 WL 560608 (N.D. Supreme Ct. 2004), is worthy of note. Gratech, a subcontractor, had a claim for differing site conditions. It did not give NDDOT the statutory notice but filed a demand for arbitration. The arbitrators denied the claim on that basis, as well as on the merits. The North Dakota Supreme Court upheld the arbitration award on many of the same grounds that have been discussed already.

not. He awarded it nothing. The reason is that he conducted a thorough assessment of Granite’s use of a modified total cost approach and concluded that it did not meet the four-part test for using a total cost approach. In conducting this assessment, he considered the legal standards and the expert and factual testimony and gave precise, logical explanations for his opinion. He also concluded that Granite had not met its burden of proving cause-and-effect, given that Granite was “substantially more to blame for the added losses than what it claims.”

Aside from the fact that this was an exceedingly well-reasoned and written award, it also helps explain why there are such strong advocates of arbitration. This arbitrator is an experienced construction lawyer who knew how to separate fact from fiction. His award shows that he carefully examined the evidence and the law and required burdens of proof to be met, notwithstanding that the overall project atmosphere showed that Granite had suffered significant consequences because of Caltrans.

2. Florida DOT

As we noted above, FDOT publishes its arbitration awards online. Its last published award was captioned as Request for Arbitration by Highway Safety Devices (Ajax Paving) and was dated March 7, 2014. This two-page award addressed a claim by the construction contractor that it was to be paid under the Pay Item category for borrow material to bring the shoulders up to meet line and grade, as opposed to having the borrow material being covered as part of the Prepared Soil Layer payment item (Section 162).

Section 162 read, in relevant part: “Unless otherwise called for on the plans, prepare a 6 inch thick layer of existing soil mixed with imported material, if necessary to achieve the pH and organic matter levels required.…” The contractor argued that this specification did not include borrow material to bring the slope up to line and grade, and that the borrow operation was a different operation than the Prepared Soil Layer operation. The arbitration board disagreed, citing the “Basis of Payment” provision for Section 162 that read that the price was to include: “furnishing, hauling, and placing materials to the line and grades as shown in the plans.” The Board concluded that all operations were included in the Payment Item for Section 162, and denied the contractor’s claim.

Because the award is so brief, several points are not mentioned, such as: (a) the overall dollar value of the contractor’s claim and what was financially at stake in this dispute; and (b) the contractor’s rebuttal, if any, to the Section 162 Basis of Payment. However, this case does give an example of some of the smaller disputes that might be before FDOT and other DOTs that use arbitration with monetary caps (e.g., Oregon at $50,000).

3. North Dakota DOT

NDDOT provided several arbitration awards for our review. As noted earlier, the Gratech decision involved disputes over the definition of “common excavation.” This was similar to a dispute that was addressed in an arbitration captioned as Central Specialties, Inc. v. North Dakota Department of Transportation, which case was administered by the AAA and decided on February 20, 2018. The dispute in the arbitration involved 20 discrete claims, including claims for interest and retainage. One of the biggest claims was over disputed final quantities for common excavation on both waste and borrow.

The project involved the contractor widening both sides of a highway while leaving the existing middle portion of the highway intact. There were specification requirements and notes that limited the contractor’s ability to cross the highway and required it to perform grading, excavation, fill, and related work on each side of the highway. As a result, the contractor treated excess fill on one side of the highway as “Common Excavation - Waste” regardless of whether the other side of the highway had need for additional fill. Similarly, if one side of the Project required additional fill, the contractor characterized material required to address this shortfall as “Common Excavation – Borrow,” even though the opposite side of the project may have had additional excess material. NDDOT believed that excess material on one side of the highway could be used to address requirements for additional fill on the opposite side, and essentially “netted” the projected excesses and fills across the road in arriving at its final quantities.

In conducting a detailed assessment of the facts and specifications at issue, the arbitrators concluded that the contractor was correct. They were heavily persuaded by the fact that the specifications and testimony agreed that the highway could not be crossed to accomplish the “netting” that NDDOT advocated. It awarded almost $500,000 for this claim. As for many of the other claims, the arbitrators provided similar reasoning—denying some in full, accepting some in full, and accepting some at different numbers than the contractor advocated.

The largest claim was for $2 million, related to utility interferences and related delays. The biggest component of this was a claim for almost $1.8 million overall project efficiency impact. The findings showed that utility conflicts were identified in the project bid documents but that most utilities did not relocate their lines, pipes, and/or poles in advance of the contractor’s work and that the utilities did not timely respond, much less cooperate.

The arbitrators concluded that the potential for utility interference was known going into the project and that it was only during construction that it became clear that many utilities were not going to be timely relocated. The panel therefore rejected NDDOT’s argument that the contractor failed to timely file notices of intent to claim. The panel was also persuaded that the contractor took appropriate steps to mitigate its damages regarding the utilities relocation by dedicating a dozer and operator to work exclusively utility issues. It found the rates acceptable and awarded the contractor approximately $120,000 for these costs. However, as to the lost productivity claim, the award stated simply that the contractor “has not sustained its burden of proof … as they are speculative, and they are denied.”

This provides an interesting contrast to the Granite award discussed above, which provided great detail as to why Granite’s