Petition for Writ of Certiorari — Mission Insurance v. United States
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Rupreme Court, U8
FILED
92-1517 | MAR 16 1933
No. 7 | 9
OFFICE OF TRE CLERS
— ee eee
IN THE
Siygreuw Curt of the United States
OCTOBER TERM, 1992
W. M. SCHLOSSER COMPANY, INC.,
Petitioner,
V.
SCHOOL BOARD OF FAIRFAX COUNTY, VIRGINIA,
Respondent.
Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Fourth Circuit
PETITION FOR WRIT OF CERTIORARI
HERMAN M. BRAUDE
Counsel of Record
ROGER C. JONES
BRAUDE & MARGULIES, P.C.
1025 Connecticut Ave., N.W.
Suite 200
Washington, D.C. 20036
(202) 293-2993
Counsel for Petitioner
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
QUESTION PRESENTED
Whether the Federal Arbitration Act preempts a state
rule of statutory construction, which precludes enforce-
ment of a contract arbitration provision, where the state
has statutorily conveyed the power to contract but is
silent on the power to agree to an arbitration provision
within a contract?
(i)
TABLE OF CONTENTS
QUESTION PRESENTED
TABLE OF AUTHORITIES
OPINIONS BELOW
JURISDICTION
CONSTITUTIONAL AND STATUTORY PROVI-
SIONS INVOLVED .
STATEMENT OF THE CASE
A. Statement of Facts .
B. The Proceedings Below ..........
REASONS FOR GRANTING THE WRIT
I. VIRGINIA CANNOT NULLIFY THE EF-
FECT OF THE FEDERAL ARBITRATION
ACT ON SCHOOL BOARDS WHERE IT
STATUTORILY CONVEYS THE POWER TO
CONTRACT BUT IS SILENT ON THE
POWER TO AGREE TO A CONTRACT AR-
BITRATION PROVISION
Il. THE RULE OF LAW CREATED BY THE
FOURTH CIRCUIT’S APPLICATION OF
THE DILLON RULE IN THIS CASE DI-
RECTLY CONFLICTS WITH SECTION 2 OF
THE FEDERAL ARBITRATION ACT, IN
VIOLATION OF THE SUPREMACY
CLAUSE = eae
CONCLUSION
(iii)
Page
13
18
iv
TABLE OF AUTHORITIES
Cases Page
Boogher v. Stifel, 825 S.W.2d 27 (1992) 15
City of Atlanta v. Brinderson Corp., 799 F.2d 1541
(11th Cir, 1986) oo 11
County of Middlesex v. Gevyn Constr. Corp., 450
F.2d 53 (1st Cir. 1971), cert. denied, County of
Middlesex v. Gevyn Constr. Corp., 405 U.S. 955,
92S. Ct. 1176, 31 L. Ed. 232 (3972) ............ 12
Dean Witter Reynolds, Inc. vy. Byrd, 470 U.S. 2138,
105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985) 10
District of Columbia v. Bailey, 171 U.S. 161, 18
S. Ct. 868 (1897) ixetennas nnn am? 10
Johnson Controls, Inc. v. City of Cedar Rapids,
713 F.2d 370 (8th Cir. ee, 7,16
King County v. Boeing Co., 18 Wash. App. 595, pa
570 P.2d 713 (1977) ae 12
Lindon City v. Engineers Construction Co., 636
P.2d 1070 (Utah eee EI GE 12
Metropolitan Atlanta Rapid Transit Authority,
251 Ga. 15, 303 S.E.2d 1 (1983), vacated, 465
U.S. 1016, 104 S. Ct. 1263, 19 L. Ed. 670, deci-
sion on remand, 253 Ga. 219, 320 S.E.2d 742
a... Seen ene hen) hel bh) eh So a 8
Moses H. Cone Memorial Hosp. v. Mercury Con-
struction Corp., 460 U.S. 1, 103 S. Ct. 927, 74
L. Ed. 2d 765 SEE seal ncetsegaay oe 16
Saturn Distribution Corp., U8. ——, 11]
S. Ct. 516, 112 L. Ed. 2d 527 (1990) 7,14
Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct.
852, 79 L. Ed. 2d 1 (1984) ............. amin! 7,10, 15,17, 18
W’.M. Schlosser Co., Inc. v. School Board ef Fair-
fax County, Va., 980 F.2d 253 (4th Cir. 1992) ___ 1,7
Statutes
9U.S.C.Sectionl] eeeuh coceeuuaccatae toes 2
9U.S.C. Section2. enc slbsmatsnaeedatketbehaale: 3,6, 13, 14
9U.S.C.Section4.. eee iesetinmauee tes 2
Vv
TABLE OF AUTHORITIES—Continued
9 U.S.C. Section 15
28 U.S.C. Section 1254
28 U.S.C. Section 1291 .
28 U.S.C. Section 1332
Va. Code Section 22.1-71
Sup. Ct. R. 13.1
Sup. Ct. R. 13.4
IN THE
Supreme Comet of the United States
OCTOBER TERM, 1992
No.
W. M. SCHLOSSER COMPANY, INC.,
. Petitioner,
SCHOOL BOARD OF F'AIRFAX COUNTY, VIRGINIA,
Respondent.
Petition for a Writ of Certiorari to the
United St. es Court of Appeals
for the Fourth Circuit
PETITION FOR WRIT OF CERTIORARI
Petitioner respectfully prays that writ of certiorari
issue to review the judgment and opinion of the United
States Court of Appeals for the Fourth Circuit, in the
case captioned W.M. Schlosser Co., Inc. v. School Board of
Fairfax County, Va., 980 F.2d 253 (4th Cir. 1992).
OPINIONS BELOW
The opinion of the Court of Appeals for the Fourth
Circuit is reported at 980 F.2d 253, and is reprinted in
the Appendix hereto, pp. la-13a.
The Order of the United States District Court for the
Eastern District of Virginia (Hilton, J.) denying Peti-
tioner’s Petition to Compel Arbitration and the transcript
for the petition hearing are reprinted in the Appendix
hereto, pp. 16a, 17a-26a.
2
The initial decision and Order of the magistrate judge
of the United States District Court for the Eastern Dis-
trict of Virginia, denying Petitioner’s Petition to Compel
Arbitration and the transcript for the petition hearing
are also reprinted in the Appendix hereto, pp. 27a,
28a-32a.
. JURISDICTION
Invoking federal diversity jurisdiction under 28 U.S.C.
Section 1332, Petitioner filed a Petition to Compel Arbi-
tration in the United States Distriet Court for the East-
ern District of Virginia, pursuant to 9 U.S.C. Section 4,
The dispute between the parties is the subject of a writ-
ten arbitration agreement, which is governed by the
Federal Arbitration Act, 9 U.S.C. Section 1 et seq. By
Order dated December 13, 1991, the district court af-
firmed the decision of the magistrate judge, which denied
Petitioner’s Petition to Compel Arbitration.
This decision was appealed to the United States Court
of Appeals for the Fourth Circuit, pursuant to the pro-
visions of 28 U.S.C. Section 1291 and 9 U.S.C. Section 15.
The court of appeals affirmed the decision of the district
court by decision dated November 18, 1992. On Decem-
ber 16, 1992, the court of appeals denied Petitioner’s
Petition for Rehearing and Suggestion for Rehearing En
Bane and, by Mandate of the court, the November 18,
1992 judgment took effect as of December 23, 1992.
The jurisdiction of this Court to review the judgment
of the Fourth Circuit Court of Appeals is invoked under
28 U.S.C. Section 1254(1). This Petition is being dock-
eted within 90 days from the entry of the order denying
Petitioner’s petition for rehearing and the date by which
the judgment of the court of appeals took effect, in
accordance with Supreme Court Rules 13.1 and 13.4.
3
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
U.S. Constitution, Article 4, Clause 2:
This Constitution and the laws of the United States
. shall be the supreme law of the land....
9 U.S.C Section 2. Validity, irrevocability, and en-
forcement of agreements to arbitrate
A written provision in any maritime transaction or
a contract evidencing a transaction involving com-
merce to settle by arbitration a controversy there-
after arising out of such contract or transaction, or
the refusal to perform the whole or any part thereof,
or an agreement in writing to submit to arbitration
an existing controversy arising out of such a con-
tract, transaction, or refusal, shall be valid, irrevoca-
ble, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.
Virginia Code, Section 22.1-71. School board consti-
tutes body corporate; corporate powers.—The duly
appointed members shal! constitute the school board.
Every such school board is declared a body corporate
and, in its corporate capacity, is vested with all
the powers and charged with all the duties, obliga-
tions and responsbilities imposed upon school boards
by law and may sue, be sued, contract, be contracted
with and, in accordance with the provisions of this
title, purchase, take, hold, lease and convey school
property, both real and personal. School board mem-
bers appointed by district or otherwise shall have no
organization or duties except such as may be assigned
to them by the school board as a whole.
STATEMENT OF THE CASE
This appeal arises from a decision of the United States
Court of Appeals for the Fourth Circuit affirming the
district court’s denial of a Petition to Compel Arbitra-
tion, which was filed pursuant to the Federal Arbitration
Act (“FAA”). The appeal raises a significant policy
———
4
issue under the FAA and the U.S. Constitution Suprem-
acy Clause concerning preemption of a state rule of
statutory construction (7.e., the “Dillon Rule’) that was
held to preclude enforcement of a contract arbitration
provision, despite the decisions of numerous other state
supreme courts and federal circuit courts which have held
to the contrary when confronted with issues similar in
nature.
A. Statement of Facts
In June 1988, Petitioner, W. M. Schlosser Company,
Inc. (“Schlosser”), entered into a contract (“Contract’’)
with Respondent, the School Board of Fairfax County,
Virginia (“School Board” and/or “Owner’’) for the per-
formance of certain construction renovation work relat-
ing to the Falls Church High School (the “Project”).
(Appendix p. 37a). The Contract, which was written by
the School Board, consists of a number of documents in-
cluding the American Institute of Architects (“AIA”)
Standard Form of Agreement Between Owner and Con-
tractor, ALA Document A101, January 1974 Ed.; General
Conditions of the Contract for Construction, AIA Docu-
ment A201, April 1970 Ed. (“General Conditions”) ; and
Supplementary Conditions. These Contract documents are
reprinted in the Appendix at pp. 37a-133a.
With respect to the arbitration provision in question,
Articles 2.2.7 and 2.2.10 of the Contract General Condi-
tions specifically provide:
2.2.7 Claims, disputes and other matters in question
between the Contractor and the Owner relating to the
execution or progress of the Work or the interpreta-
tion of the Contract documents shall be referred
initially to the Architect for decision which he will
render in writing within a reasonable time.
» * * s
2.2.10 Any claim, dispute or other matter that has
been referred to the Architect ... shall be subject to
5
arbitration upon the written demand of either party.
However, no demand for arbitration of any such
claim, dispute or other matter may be made until
the earlier of:
9210.1 The date on which the Architect has
rendered his written decision, or
2 The 10th day after the parties have
presented their evidence to the Archi-
tect or have been given a reasonable
opportunity to do so, if the Architect
has not rendered his decision by that
date.
(Emphasis added) (Appendix pp. 54a-55a).
During the course of the Contract, Schlosser’s perform-
ance was hindered, disrupted, impacted and delayed due
to the actions, inactions and active interference of the
Owner. As a result, Schlosser’s Contract performance
was extended 209 calendar days and Schlosser suffered
significant additional costs and damages. (Appendix
p. 35a).
On August 3, 1990, Schlosser submitted to the Owner
a claim for its additional costs and damages, in the total
amount of $1,152,941.00. Since the claim related to the
“execution or progress of the work,” Schlosser also sub-
mitted a copy of the claim to the architect for his deci-
sion, consistent with Article 2.2.7 of the General Condi-
tions. (Appendix p. 35a).
Schlosser then waited a reasonable time for the archi-
tect to issue a decision. In accordance with Article 2.2.10
of the General Conditions, when the architect failed to
render a decision on Schlosser’s claim, Schlosser submitted
to the Owner a written demand for arbitration. (Ap-
pendix pp. 35a-36a, 136a).
The Owner failed to respond to Schlosser’s demand for
arbitration. (Appendix p. 36a). Therefore, Schlosser
filed a Petition to Compel Arbitration in the U.S. District
Court for the Eastern District of Virginia, invoking the
6
court’s diversity of citizenship jurisdiction pursuant to
28 U.S.C. Section 1332. (Appendix pp. 38a, 34a).
B. The Proceedings Below
A hearing on Schlosser’s Petition to Compel Arbitra-
tion was held before Magistrate Judge Brinkema. (Ap-
pendix pp. 28a-32a). In denying Schlosser’s petition, the
Magistrate concluded that Virginia law does not empower
school boards to enter into arbitration agreements with
respect to construction contract claims, notwithstanding
their power to contract. (Appendix p. 32a). The court
also concluded that Schlosser’s claim was not subject to
an arbitration agreement. (Appendix p. 3la).
Schlosser appealed the Magistrate’s ruling to a district
court judge and a hearing before the Honorable Claude
M. Hilton was conducted on December 13, 1991. Judge
Hilton also found that, despite their power to contract,
school boards in Virginia do not have authority to agree
to arbitrate and that, in any event, the arbitration clause
had been removed from the Contract. (Appendix p. 26a).
Based on these erroneous findings, Judge Hilton affirmed
the Magistrate’s prior decision. (Appendix p. 16a).
Schlosser appealed the district court’s decision to the
United States Court of Appeals for the Fourth Circuit.
On November 18, 1992, the court of appeals issued the
opinion of Judges Luttig, Phillips and Niemeyer. The
court declined to rule on the issue of whether the Con-
tract contained an arbitration clause. Instead, the court
held:
(1) Based on the “Dillon Rule” of strict construction,
Virginia school boards do not possess the power to
agree to arbitrate contract disputes and that such
power cannot be implied from the school board’s
power to contract; and
(2) The “Dillon Rule” is not preempted by the Fed-
eral Arbitration Act since it falls within the excep-
tion of 9 U.S.C. Section 2 as, “a rule of general ap-
7
plicability that defines and invalidates all ultra vires
acts of local governing bodies.”
W.M. Schlosser Co., Inc. v. School Board of Fairfax
County, Va., 980 F.2d 253, 256, 257, 259 (4th Cir. 1992}.
(Appendix pp. la, 7a, 8a, 12a-13a).
On December 1, 1992, Schlosser filed a Petition for
Rehearing and Suggestion for Rehearing En Banc. By
Order dated December 16, 1992, the court of appeals
denied this petition, without opinion. (Appendix p. 14a).
Thereafter, by Mandate issued December 23, 1992, the
November 18, 1992 judgment of the court of appeals took
effect as of December 23, 1992. (Appendix p. 15a).
REASONS FOR GRANTING THE WRIT
The Fourth Circuit’s decision creates a rule of law that
directly conflicts with the federal substantive law created
by the FAA, standing as an obstacle to the accomplish-
ment and execution of the full purposes and objectives
of Congress in implementing the FAA. Pursuant to this
rule of law, arbitration provisions in contracts with Vir-
ginia school boards are rendered completely unenforce-
able, even where the arbitration provision is governed by
the FAA. Petitioner respectfully submits this outcome is
in direct conflict with and ignores the Court’s decision in
Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852,
79 L. Ed. 2d 1 (1984), as well as the Fourth Circuit’s
own opinion in Saturn Distribution Corp. v. Williams,
905 F.2d 719 (4th Cir. 1990), cert. denied, Williams v.
Saturn Distribution Corp., —— U.S. , 111 S. Ct.
516. 112 L. Ed. 2d 527 (1990) and the opinion of the
Eighth Circuit in Johnson Controls, Inc. v. City of Cedar
Rapids, 718 F.2d 370 (8th Cir. 1983).
As recognized in Southland Corp., by “enacting [sec-
tion] 2 of the federal | Arbitration] Act, Congress declared
a national policy favoring arbitration and withdrew the
power of the states to require a judicial forum for the
resolution of claims which the contracting parties agreed
8
to resolve by arbitration.” 465 U.S. at 10. In doing so,
this Court noted that, “Congress has thus mandated the
enforcement of arbitration agreements” and that “con-
tracts to arbitrate are not to be avoided by allowing one
party to ignore the contract and resort to the courts.”
465 U.S. at 7 and 10.
The Court also noted that there are only two limita-
tions on the enforceability of arbitration provisions gov-
erned by the FAA. First, such provisions must be in
writing and part of a contract, “evidencing a transaction
involving commerce”; and second, such clauses may be
revoked only upon “grounds as exist at law or in equity
for the revocation of any contract.” 465 U.S. at 10-1]
and 16, n.11. [Emphasis added]. There is nothing else
in the Act to indicate the “broad principle of enforce-
ability is subject to any additional limitations under state
law.” 465 U.S. at 11. Further, where state law directly
conflicts with Section 2 of the Federal Arbitration Act, it
violates the Supremacy Clause of the U.S. Constitution.
465 U.S. at 10.
The instant case raises a preemption issue similar to
that raised in Southland Corp.’ Although it does not
' The instant case is also similar to the unsettled questions of law
raised in Local Division 732, Amalgamated Transit Union v. Metro-
politan Atlanta Rapid Transit Authority, 251 Ga. 15, 303 S.E.2d 1
(1983), vacated, 465 U.S. 1016, 104 S. Ct. 1263, 79 L. Ed. 670,
decision on remand, 253 Ga. 219, 320 S.E.2d 742 (1984). In Local
Division 732, the Metropolitan Atlanta Rapid Transit Authority
(“MARTA”) withdrew from binding interest arbitration with the
Union contending that under Georgia law arbitration agreements
were revocable at will. The Georgia Supreme Court agreed. 251
Ga. at 18-19, 303 S.E.2d at 4.
The U.S. Supreme Court held its ruling on the Union’s petition
for certiorari until it ruled in Southland Corp. It then vacated the
Georgia Supreme Court’s decision and remanded for reconsidera-
tion. 104 S. Ct. 1263. Despite this Court’s ruling, the Georgia Su-
preme Court reentered its earlier judgment, ruling that “MARTA’s
consent to arbitrate the terms and conditions of a new collective
bargaining agreement was an unlawful delegation of legislative
9
involve a statute, as was the case in Southland Corp.,
the Fourth Circuit’s application of a common law rule of
strict statutory construction, results in direct conflict
with Section 2 of the Federal Arbitration Act, precluding
enforcement of the arbitration clause contained in the
parties’ contract.
I. VIRGINIA CANNOT NULLIFY THE EFFECT OF
THE FEDERAL ARBITRATION ACT ON SCHOOL
BOARDS WHERE IT STATUTORILY CONVEYS
THE POWER TO CONTRACT BUT IS SILENT ON
THE POWER TO AGREE TO A CONTRACT ARBI-
TRATION PROVISION
Virginia Code Section 22.1-71 defines the general pow-
ers and duties of school boards, as follows:
Every such school board is declared a body corporate
and, in its corporate capacity, is vested with all the
authority” because it exceeded MARTA’s statutory authority. 253
Ga. at 222, 320 S.E.2d at 745. In doing so, the Georgia Supreme
Court believed that the state’s restriction on public body arbitra-
tion agreements fell within the exception in Section 2 of the FAA
for defenses “applicable to all other contracts.” 253 Ga. at 223, 320
S.E.2d at 745.
Much like the Fourth Circuit reasoned in the instant case, the
Georgia Supreme Court reasoned that absent an express grant of
statutory authority to agree to arbitration provisions, despite the
existence of the statutory power to contract, the arbitration provi-
sion within the agreement was unenforceable because it constituted
an unlawful delegation of authority, which was a general contract
defense under the “savings clause” in Section 2 of the FAA. Before
this controversy between the Georgia Supreme Court and the U.S.
Supreme Court could ultimately be resolved, the parties settled their
case.
Unquestionably, the lack of explicit authority to agree to arbitra-
tion (despite the authority to contract) is not a ground that exists
at law or in equity “for the revocation of any contract.” 465 U.S.
at 16, n.11. Rather, as in Southland Corp., and as in this case, it is
“merely a ground that exists for revocation of arbitration provisions
in contracts” with Virginia school boards, which is in direct conflict
with and is preempted by the FAA. 465 U.S. at 16, n.11.
10
powers and charged with al] the duties, obligations
and responsibilities imposed upon school boards by
law and may sue, be sued, contract, be contracted
With, «
The plain language of this statute gives to school boards
the power to contract. in a corporate capacity as well as
the power to sue and be sued. This power implicitly in-
cludes the power to “gree to arbitration provisions within
such contracts. The Fourth Cireuit’s decision to the con-
trary, based on erroneous application of the “Dillon Rule”
of strict Statutory construction, is illogical and ignores
the fact that the purpose of the Federal Arbitration Act
is to place arbitration agreements “upon the same fvot-
ing as other contracts, where | they | belong.” Dean
Witter Re ynolds, Ine. v. Byrd, 470 US. 213, 219, 105
S. Ct. 1238, 84 L. Ed. 24 158 (2985) (citing: H.R. Rep.
No. 96, 68th Cong. Ist Sess. 1 (1984) '. See also, South-
land Corp. v, Keating, 465 U.S. , 17 0h) continued, 104
S. Ct. 852, 79 L. Ed. 2d 1 (1984).
The issue of whether the power to arbitrate contract
disputes may be implied from the power to contract
‘granted to quasi public corporations, such as Virginia
school boards) was decided almost 100 years ago by this
Court in District of Columbia v. Bailey, 171 U.S. 161, 18
S. Ct. 868 (1897). The sailey Court squarely addressed
application of the “Dillon Rule” on this issue, stating:
50, also, the power of a municipal corporation to
arbitrate arises from its authority to liquidate and
settle claims, and the rule on this subject is thus
stated by Dillon (Mun. Corp. 4th ed. sec. 478) -
‘As a general proposition, municipal corporations
have, unless specially restricted, the same powers to
liquidate claims and indebtedness that natural per-
sons have, and from that source proceeds power to
adjust all disputed claims, and when the amount is
ascertained to pay the same as other indebtedness.
It would seem to follow therefrom that a municipal
corporation, unless disabled by positive law, could
1]
submit to arbitration all unsettled claims with the
same liability to perform the award as would rest
upon a natural person, provided, of course, that such
power be exercised by ordinance or resolution of the
corporate authorities.’ |[Hmphasis added].
171 U.S. at 172.
The Bailey Court then went on to reason:
In the early case of Brady v. Brooklyn, 1 Barb. 584,
589, the power of a municipal corporation to submit
to arbitration was ascribed to the capacity to con-
tract, with a liability to pay, and it was held that
corporations have al] the powers of ordinary parties
aus With respect to their contracts, except when they
are restricted cepressly, or by necessary implication.
In the case of minor public officials or corporations,
such as selectmen and school districts, the power to
arbitrate has been clearly rested upon the existence
of the right to adjust and settle claims of the particu-
lar character which had been submitted to arbitra-
tion. Die ve. Dummerston, 19 Vermont 262; Walnut
v. Rankin, 70 Iowa 65. Indeed, the proposition that
an independent agreement to submit to an award
must depend for its validity upon the existence of
the right to contract is so elementary that further
citation of authority to support it is unnecessary.
i lumphasis added}.
171 U.S. at 172.
Citing Bailey, the Eleventh Circuit in City of Atlanta
v. Brinderson Corp., T99 F.2d 1541 (11th Cir. 1986),
recognized :
The general rule is that, in the absence of statutory
prohibition, a municipal corporation has the power
to submit both present and future disputes to arbi-
tration. Annot. 20 A.L.R. 30, 569, 572 (1968) Am.
Jur. 2d, Arbitration and Award, Section 68 pp. 659-
571 (1962). Such a power is incident to its capacity
to contract oy make settlements, and its power to sue
and be sued. See, generally, McQuillin, 17 Mun, Cor.
12
Section 48.20 (3rd Ed.); City of Hartford v. Amen-
can Arbitrators Ass’n., 174 Conn. 472, 391 A.2d 187
(1978); E.E. Trip Excavating Contractor, Ine. v.
The County of Jackson, Michigan, 60 Mich. App. 221,
230 N.W.2d 556 (1975). | Emphasis added].
799 F.2d at 1543."
Based on this sound reasoning, the Brinderson court
held that with respect to the City of Atlanta:
| Their] power to arbitrate is ascribed to the capacity
to contract. Accordingly, the City has the incident
and necessarily implied power to arbitrate.
799 F.2d at 1543. See also, County of Middlesex ».
Gevyn Constr. Corp., 450 F.2d 58, 55 (1st Cir. 1971),
cert. denied, County of Middlesex v. Gevyn Constr. Corp.,
405 U.S. 955, 92 S. Ct. 1176, 31 L. Ed. 232 (1972)
(county recognized to have implied power to arbitrate
contract claims based on its power to contract).*
2The Supreme Court of Utah reached the same conclusion in
Lindon City v. Engineers Construction Co., 636 P.2d 1070, 1074
(Utah 1981). Citing the Supreme Court of Washington in King
County v. Boeing Co., 18 Wash. App. 595, 570 P.2d 713, 717 (1977),
the Lindon court acknowledged that:
Arbitration is a contractual remedy for the settlement of dis-
putes by extrajudicial means. It is a remedy freely bargained
for by the parties, and ‘provides a means of giving effect to the
intention of the parties, easing court congestion, and providing
a method more expeditious and less expensive for the resolution
of disputes.’ There is a strong public policy in favor of such
remedy. ...
The Lindon court further reasoned that:
There appears to be no ‘public policy’ or other good reason why
persons effectively and by contract, should not be able to agree
to an out-of-court settlement.
7 * * ”
The trend toward such inter se agreements without resort to
litigation, reflects a good, practical way to resolve disputes.
636 P.2d at 1073.
3’ Numerous state supreme courts have also concluded that the
power of municipal and/or quasi public corporations to arbitrate
13
The Fourth Circuit’s holding, therefore, on the issue
of whether Virginia school boards have the power to
agree to arbitrate is clearly in error. The Fourth Cir-
cuit’s application of the Dillon Rule defies logic, the Dillon
Rule itself and well established law. It also nullifies the
import and effect of the Federal Arbitration Act, which
attempts to place arbitration agreements on the same
footing as contracts, where they belong. See, Dean Witter
Reynolds, Inc., supra, 470 U.S. at 219.
Il. THE RULE OF LAW CREATED BY THE FOURTH
CIRCUIT'S APPLICATION OF THE DILLON RULE
IN THIS CASE DIRECTLY CONFLICTS WiTH
SECTION 2 OF THE FEDERAL ARBITRATION
ACT, IN VIOLATION OF THE SUPREMACY
CLAUSE
In specifically addressing the preemption issue, the
Fourth Circuit stated that the Dillon Rule, “is a rule of
general applicability that defines and invalidates al] uw/tra
vires acts of local governing bodies.” 980 F.2d at 259
The court concluded, therefore, “as ‘a general rule of
contract formation,’ it constitutes a ‘ground as exist/s
at law or in equity for the revocation of any contract,’
within the meaning of 9 U.S.C. Section 2 {and} as such.
it falls within the exception to Section 2’s general mile
of enforceability of arbitration provisions, and therefore
is not preempted by the FAA {citations omited}.” 980
F.2d at 259.
In reaching this conclusion, the court failed to recog-
nize the distinction between a rule of statutory construe-
tion ‘such as the Dillon Rule: and the result that may
flow from application of the rule. While the Dillon Rule.
by itself, is not subject to preemption, the result flowing
from the court’s misapplication of the Dillon Rule in this
case is subject to preemption. Essentially, the Court’s
is implied from their power to contract, sue and be sued. See,
generally, Annotation, 20 A.L.R. 3d 569. Power of Municipal Cor-
poration to Submit to Arhitration.
14
reasoning process in this case creates a rule of law that
goes solely to the arbitration provision in the School
Board’s contract and not to contracts, generically, as con-
templated by 9 U.S.C. Section 2. Further the preemption
issue created by the end result stemming from this rule
of law cannot be avoided by the court merely saying the
Dillon Rule is simply a “rule of general applicability.”
The Fourth Circuit’s decision in this case is also com-
pletely inconsistent with their decision in Saturn Distribu-
tion Corp. v. Williams, 905 F.2d 917 (4th Cir. 1990),
cert. denied, Williams v. Saturn Distribution Corp.,
US. , 111 S. Ct. 516, 112 L. Ed. 2d 527 (1990).
In Saturn, Judges Chapman and Wilkinson recognized
with respect to 9 U.S.C. Section 2 that, “with few limita-
tions, if a state law singles out arbitration agreements
and limits their enforceability it is preempted.”* As
stated in Saturn:
State laws are subject to preemption not only if they
directly contradict federal law, but also if they stand
‘as an obstacle to the accomplishment and execution
of the full purposes and objectives of Congress.’
(Citation omitted]. The language of the FAA re-
quires that states place no greater restrictions upon
arbitration provisions than they place upon other con-
tractual terms.
. ao . *
The Commissioner argues that the scope of FAA pre-
emption is limited to laws covering existing arbitra-
tion agreements, and does not extend to laws that
prohibit or regulate the formation of arbitration
agreements. We disagree. [Emphasis in original].
905 F.2d at 722-723.
The result flowing from the Fourth Circuit’s misappli-
eation of the Dillon Rule in this case, however, creates
4 The Court proffered as possible exceptions, “fraud or the sort
of overwhelming economic power which can render an agreement
unconscionable.” 905 F.2d at 727.
15
precisely such a rule of law in Virginia as applied to
arbitration provisions in contracts with local school
boards. Under Southland Corp. and Saturn preemption
would only occur, using the Dillon Rule, where a school
board did not have the power to contract and the power
to sue and be sued in the first instance. Then, and only
then, would the Dillon Rule fall within the savings clause
in section 2 of the FAA as a defense applicable to all
contracts.
Even more troubling, however, is the notion that the
Fourth Circuit’s decision will allow the state to do by
silence what it cannot do by statute. For example, if
Virginia Code Section 22.1-71 granted school boards the
power to contract but expressly provided that, “arbitra-
tion provisions to resolve contractual disputes, contained
in such contracts, are unenforceable,” then under South-
land Corp. v. Keating, 465 U.S. 1, 16-17, 104 S. Ct.
852, 79 L. Ed. 2d 1 (1984), such a statute would be
preempted.°
Since, however, Virginia Code Section 22.1-71 is silent
as to arbitration (although it includes the power to con-
tract and to sue and be sued) the Fourth Circuit permits
the Dillon Rule of strict construction to revoke and render
®° The Missouri Court of Appeals recognized this logic in Boogher
v. Stifel, 825 S.W.2d 27, 29 (Mo. 1992). In Boogher, the plaintiff
argued his claims under the Missouri Human Rights Act were not
arbitrable because the Federal Age Discrimination in Employment
Act, did not expressly provide for arbitration. Citing Southland
Corp., the Boogher Court reasoned that, “a state law which at-
tempts to preclude enforcement of an arbitration agreement in a
contract involving interstate commerce would be in conflict with the
FAA and, therefore, in violation of the supremacy clause.” 825
S.W.2d at 29. Thus, the Boogher, Court concluded:
Plaintiff’s argument is flawed because the Missouri Legislature
could not enact a provision of the MHRA which precludes arbi-
tration without violating the supremacy clause. Under the
FAA, plaintiff’s age discrimination suit brought under the
MHRA is subject to compulsory arbitration pursuant to his
agreement.
825 S.W.2d at 29.
16
unenforceable the arbitration clause contained in the par-
ties’ contract. This result is not only illogical but it
allows contravention of the Federal Arbitration Act de-
spite the fact that the Act constitutes, “a congressional
declaration of a liberal federal policy favoring arbitra-
tion agreements, notwithstanding any state substantive or
procedural policies to the contrary.” Moses H. Cone
Memorial Hosp. v. Mercury Construction Corp., 460 U.S.
1, 24, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983). See
also, Southland Corp., supra, 465 U.S. at 16 (“In creat-
ing a substantive rule applicable in state as well as fed-
eral courts congress intended to foreclose state... at-
tempts to undercut the enforceability of arbitration
agreements”).
When confronted with a similar situation, the Eighth
Circuit Court of Appeals in Johnson Controls, Inc. v. City
of Cedar Rapids, lowa, 713 F.2d 370, 376 (8th Cir.
1983) rejected contravention of the Federal Arbitration
Act, applying federal substantive law over state law.
In Johnson Controls the city’s contentions, which are not
unlike the School Board’s contentions in this case, were
rejected by the court:
The city claims that at the time this contract was
entered into, lowa law rendered executory arbitra-
tion agreements generally unenforceable. [Citations
omitted]. Iowa law also provides that municipalities
are without power to make contracts that are incon-
sistent with state law. [Citations omitted]. Thus,
the city asserts that if the contract is construed as
providing for mandatory arbitration, the contract
would be ultra vires and void under Iowa law.
e ” * *
The city’s argument is misplaced. The arbitration
act was specifically enacted to reverse antiquated
state rules of law that make arbitration agreements
revocable at will any time prior to the issuance of
the arbitration award. {Citations omitted} Because
federal substantive law preempts state laws govern-
17
ing the enforceability of arbitration agreements in
interstate contracts, the present contract is not unen-
forceable under applicable federal law. Hence, con-
struing the contract as providing for mandatory
arbitration would not be against controlling federal
public policy. To the contrary, federal policy favors
arbitration in interstate contracts.
713 F.2d at 376.
Pursuant to this Eighth Circuit decision, a state law
relating to contract formation which would render an
arbitration provision ultra vires and void (as the court
construed the Dillon Rule in this case) is preempted by
federal substantive law created by the Federal Arbitra-
tion Act. Further, as recognized in Johnson Comtrols,
even if a state law prohibits a municipal corporation
from entering into an arbitration agreement, the Federal
Arbitration Act displaces the state’s power over the activi-
ties of two parties in interstate commerce. 713 F.2d at
381. Based on this reasoning, the Fourth Circuit’s deci-
sion in the instant case results in inconsistency with the
Kighth Circuit’s decision in Johnson Controls.
Although predating the U.S. Supreme Court’s decision
in Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct.
852, 79 L. Ed. 2d 1 (1984) (1984), the court’s rationale
in Johnson Controls accords completely with the court’s
decision in Svuthland Corp. As recognized by the South-
land Corp. Court, in enacting Section 2 of the Federal
Arbitration Act, Congress declared a national poliey
favoring arbitration and withdrew the power of the states
to require a judicial forum for the resolution of claims
that the contracting parties agreed to resolve by arbitra-
tion. 465 U.S. at 12-13. Certainly, the Fourth Cireuit’s
application of the Dillon Rule in the instant case to re-
quire a judicial forum notwithstanding the arbitration
clause contained in the parties’ contract is contrary to not
only the purpose and intent of the Federal Arbitration
Act but also the law as stated by the United States
Supreme Court.
18
CONCLUSION
The Fourth Cireuit’s decision in this case not only
ignores this Court’s holding in Southland Corp. v. Keat-
ing, 465 U.S. 1, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984)
and the Supremacy Clause of the U.S. Constitution, it
also creates precedent which substantially erodes federal
substantive law created by the Federal Arbitration Act.
By allowing a state rule of statutory construction to stand
as a complete obstacle to the enforcement of an arbitra-
tion provision, the Fourth Circuit is permitting states
to accomplish by silence that which they cannot accom-
plish by express statute. Federal substantive law requires
the enforcement of an arbitration provision where, as in
this case, they are part of a contract which involves in-
terstate commerce. To the extent a state rule of statutory
construction precludes enforcement of such an arbitra-
tion provision, then its application violates the Supremacy
Clause of the U.S. Constitution and it is preempted by
the Federal Arbitration Act. In order to avoid inconsist-
ent decisions between the circuits and to provide guidance
for parties invoking the Federal Arbitration Act in state
court proceedings, it is important for this Court to finally
address and resolve the significant issue raised by this
case, which involves conflicting federal substantive law
and state law with respect to the validity and enforce-
ability of a contract arbitration provision.
Respectfully submitted,
HERMAN M. BRAUDE
Counsel of Record
ROGER C. JONES
BRAUDE & MARGULIES, P.C.
1025 Connecticut Ave., N.W.
Suite 200
Washington, D.C. 20086
(202) 293-2993
Counsel for Petitioner
APPENDICES
tas
a aN 2 ll CARMINA is alt OP CR iin tai Sis tie ead tthe i eK, Meson
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOURTH CIRCUIT
No. 92-1008
W.M. SCHLOSSER COMPANY, INCORPORATED,
Plainti ff-A ppellant,
¥.
SCHOOL BOARD OF FAIRFAX COUNTY, VIRGINIA,
Defendant-A ppellee.
Argued Sept. 29, 1992
Decided Nov. 18, 1992
As Amended Jan. 13, 1993
Herman Martin Braude, Braude & Margulies, P.C.,
Washington, D.C., argued (Roger C. Jones, on brief), for
plaintiff-appellant.
Thomas John Cawley, Hunton & Williams, Fairfax,
Va., argued (Stuart A. Raphael, on brief), for defendant-
appellee.
Before PHILLIPS, NIEMEYER, and LUTTIG, Circuit
Judges.
OPINION
LUTTIG, Circuit Judge:
The W.M. Schlosser Company appeals an order of the
district court denying its motions to compel arbitration
and to appoint an arbitrator to resolve its construction
€ ‘
Za
contract dispute with the School Board of Fairfax County,
Virginia. We conclude that regardless of whether the
School Board agreed to arbitrate the dispute in question,
it lacked the legal authority to arbitrate under the laws
of the Commonwealth of Virginia. We therefore affirm.
I.
The relevant facts necessary to the disposition of this
appeal are not in dispute. On June 10, 1988, the W.M.
Schlosser Company [Schlosser], a Maryland corporation,
entered into a contract with the Fairfax County School
Board {the School Board] for the performance of reno-
vation construction at the Falls Church High School. The
contract comprised a number of documents, the most
important of which were two standard construction forms
prepared by the American Institute of Architects, the
AIA Standard Agreement and the AIA General Condi-
tions, and a set of Supplementary Conditions that in-
cluded extensive modifications to the terms of the AIA
standard forms. J.A. at 5-41.
The AIA General Conditions provide for the arbitra-
tion of claims arising under the contract. Article 2.2.7
of the General Conditions stipulates that all disputes be-
tween contractors and owners must first be referred to
the project architect for an initial decision.’ Id. at 14.
Article 2.2.10 states that “ al|ny claim, dispute or other
matter that has been referred to the Architect . . . shall
be subject to arbitration upon the written demand of
either party.” Jd. Finally, Article 7.10, entitled “ARBI-
TRATION,” provides that all contract disputes shall be
arbitrated in accordance with the Construction Industry
Arbitration Rules of the AIA and outlines the arbitration
process. /d. at 20. In the Supplementary Conditions por-
tion of the contract, Schlosser and the School Board left
‘Under Article 2.2.2 of the General Conditions, the project archi-
tect is the agent and representative of the owner, which in this
case is the School Board. J.A. at 14.
3a
Articles 2.2.7 and 2.2.10 unchanged. Jd. at 27. They
deleted Article 7.10 of the AIA General Conditions, how-
ever, in its entirety. /d. at 302
Prior to completion of the Falls Church High School
project, Schlosser alleged that it had been delayed in the
performance of its contract obligations by the School
Board, and on August 3, 1990, it served the Board with a
claim for damages in the amount of $1,152,941. Schlosser
submitted a copy of the claim to the project architect for
an initial adjudication, pursuant to Article 2.2.7 of the
General Conditions. /d. at 3. Several months later, the
architect granted Schlosser a short extension of the time
within which it was required to complete its work, but
denied Schlosser’s damages claim. /d. at 75-79.
On March 27, 1991, Schlosser presented the Board with
a written demand for arbitration pursuant to Article
2.2.10 of the General Conditions. The following day,
invoking the court’s diversity jurisdiction, Schlosser
moved in the district court to compel arbitration and to
designate and appoint an arbitrator under the terms of
the Federal Arbitration Act |FAA|, 9 U.S.C. £8 1 ef seq.
Schlosser’s petition was referred to a federal magistrate
who, after conducting a hearing, denied both of Schlosser’s
motions on the ground inter alia that the School Board
lacked the authority tv arbitrate under Virginia law and
thus that any attempt by the Board to contract to arbi-
trate was unenforceable. J.A. at 103, 105.
Schlosser appealed the magistrate judge’s decision to
the district court. The district court adopted the magis-
* The director of design and construction services for the school
system stated in his declaration that because “neither the [School
Board} nor any of its agents has the authority to enter into arbitra-
tion agreements,” “it is the custom and standing practice of Fairfax
County Public Schools to climinate standard form arbitration provi-
sions contained in construction contracts.” Hanton Decl., J.A. at 70
* Schlosser initially appealed the magistrate’s decision to this
court. We dismissed the appeal for lack of jurisdiction. W_M.
Schlosser Co. v. Fairfax County Sch. Bd., No. 91-2515 (4th Cir
Aug. 2, 1991).
4a
trate’s recommendations, holding that the Board had no
authority under Virginia law to arbitrate contract dis-
putes. /d. at 125-26. This appeal followed.’
II.
A.
The question before the court is whether the School
Board possesses the authority under the laws of the
Commonwealth of Virginia to agree to arbitrate contrac-
tual disputes, for if it does not, then any such agreement
by the Board is unenforceable as. u/tra vires and the
motion to compel arbitration therefore must. be denied.
See Richmond Ry. Co. », Richmond, Ete., 145 Va. 266,
299, 123 S.E. 888, 898 (1926) (“When the contract is
once declared ultra vires, the fact that it is executed does
not validate it, nor can it be ratified so as to make it the
basis of suit or action, nor does the doctrine of estoppel
apply.” ) ; accord Richard L. Deal & Assocs., Inc. ». Com-
monwealth, 224 Va. 61%, 299 S.K.2d 346 (19%3). The
resolution of this question depends in turn upon applica-
tion of the Dillon Rule, a rule of construction applicable
in Virginia when determining the powers of local govern-
ment: “There can be no question that Virginia long has
followed, and still adheres to, the Dillon Rule of strict
construction concerning the powers of local governing
bodies.” Commonwealth +. County Bd., 217 Va. 558, 232
S.E.2d 30, 40 (1977).
* The district court also held that Schlosser and the Board had
not agreed to arbitrate disputes arising out of their contract. Be-
cause we agree with the district court that the Board lacked the
authority to arbitrate contract disputes, we need not and do not
reach this question of contract interpretation.
5 The Virginia Supreme Court first recognized the Rule—some-
times referred to as Dillon’s Rule —in Winchester y. Redmond, 93
Va. 711, 25 S.E. 1001 (1896). The Rule takes its name from John
F. Dillon, a federal circuit judge, chief justice of the Iowa Supreme
Court, and noted law professor. See infra note 6.
Re
va
According to the Dillon Rule, local governing bodies
such as counties, municipal corporations, and school
boards “possess and can exercise only those powers @x-
pressly granted by the General Assembly, those neces-
sarily or fairly implied therefrom, and those that are
essential and indispensable.” * City of Richmond v. Com-
frere Club, 239 Va. 77, 387 S.E.2d 471, 473 (1990) (cit-
ing cases); County Bd. v. Brown, 229 Va. 341, 329 S.B.2d
46%, 470 (1985); see also School Bd. v. Burley, 225 Va.
316, 37%, 302 S.B.2d 53, 55 (1983) (“A school board may
exercise only the power granted it by the General Assem-
bly.” ; Kellam v. School Bd., 202 Va. 252, 117 S.E.2d 96,
98 (1960) ‘school boards “constitute public quasi cor-
porations that exercise limited powers and functions of a
public nature granted to them expressly or by necessary
implication, and none other’). The Rule is strictly con-
strued and strictly enforced by the Virginia Supreme
Court and the court does not liberally recognize govern-
mental powers by implication. See Brown, 329 S.E.2d
at 472 (power to lease realty cannot be implied from
county’s express power to sell or convey realty); Com-
monwealth v, County Bd., 222 S.E.2d at 44 (power to
bargain collectively cannot be implied from expressly
granted powers of school boards to contract, hire employ-
ees, and set terms of employment). significantly, “{ilf
there is any reasonable doubt whether legislative power
exists, that doubt must be resolved against the loca] gov-
erning body.” Confrere Club, 387 S.E.2d at 473 ‘em-
® See Winchester, 93 Va. at 714, 25 S.E. at 1002 (quoting 1 Dillon
on Mun. Corp. § 89 (3d ed.))-
a municipal corporation possesses and ean exercise the follow-
ing powers, and no others: First, those granted in eXPress
words ; Second, those necessarily or fairly implied in or incident
to the powers expressly granted: Third, those essential to the
declared objects and purposes of the corporation, not simply
convenient, but indispensable. Any fair, reasonable doubt con-
cerning the existence of power is resolved by the courts against
the corporation, and the power is denied.
Oa
phases added); accord Stallings v. Wall, 235 Va. 313,
316, 367 S.E.2d 496, 497 (1988).
B.
Schlosser and the School Board agree that the state
constitution does not expressly confer the power to arbi-
trate on Virginia school boards. Both parties also appear
to agree that such a power cannot be considered ‘‘essen-
tial” or “indispensable” to the functioning of school
boards. Therefore, if the power to agree to arbitrate is
not expressly granted by statute or cannot be implied
from a power explicitly conferred on school boards by the
General Assembly, it does not exist.
Schlosser contends that the authority to agree to arbi-
trate is conferred in section 22.1-71 of the Virginia Code.
That statute, which lists the corporate powers of the Com-
monwealth’s school boards, provides that every
school board is . . . vested with all the powers and
charged with all the duties, obligations and responsi-
bilities imposed upon school boards by law and may
sue, be sued, contract, be contracted with and, in ac-
cordance with the provisions of this title, purchase,
take, hold, lease and convey school property. . . .
Va.Code Ann. § 22.1-71 (Michie 1985) (emphasis added).
Schlosser asserts that because the School Board has the
“capacity to centract, [it] .. . clearly has the power to
enter into construction contracts containing arbitration
provisions for the resolution of claims relating to the con-
tract.” Appellant’s Br. at 10-11.7
It is not entirely clear whether Schlosser contends that
the grant of the power to contract in section 22.1-71 is an
express conferral of the power to agree to arbitrate or
7 Alternatively, Schlosser contends that the authority to arbitrate
may be implied from that portion of section 22.1-71 that grants
school boards the power to sue and be sued. Appellant’s Br. at 13,
16. See infra note 10.
~ et
Ta
whether it contends that the power to arbitrate is implied
in the power to contract. While neither contention is
without force, ultimately each fails. Both the Public
Procurement Act, Virginia Code §§ 11-35 et seq., and
section 15.1-508 of the Virginia Code confirm that the
Virginia General Assembly does not consider the grant
of a right to contract as expressly conferring a right to
agree to arbitrate. It is also evident from these statutes,
especially when they are construed strictly as required by
the Dillon Rule, that we are not at liberty to imply such
a right from the School Board’s right to contract.
C.
The Public Procurement Act, which governs the pro-
curement of goods and services by counties, cities, towns,
and school divisions from nongovernmental sources, sets
forth procedures for resolving contract disputes between
public entities and private contractors. Section 11-69 of
the Act requires in relevant part that “[{e]ach public
body ... include in its contracts a procedure for consid-
eration of contractual claims,” and mandates that “|t]he
decision of the public body shall be final and conclusive
unless the contractor appeals. . . .” Appeal of the final
decision of the public body is limited to the “finvocation
of] administrative procedures meeting the standards of
$ 11-71, if available, or in the alternative [to] institu-
tlion] [of] legal action |in the appropriate state court!.”
Va.Code Ann. § 11-69 D. (Michie 1985).. Thus, under
section 11-69 D., contract disputes are to be decided by
the public body itself, with appeal available only through
the public body’s administrative appeal procedure, if one
exists, or to the courts. There is no provision for the
dispute to be decided either initially or on appeal by an
* Section 11-71 allows, but does not require, public bodies to
“establish an administrative procedure for hearing . . . appeals from
decisions on disputes arising during the performance of a con-
tract.” Apparently, the School Board has not adopted any such
procedure.
Su
arbitrator. Indeed, the Act would appear to prohibit, by
negative inference, decision by an arbitrator, who by
definition is neither a representative of the publie body
nor a court of law.”
The fact that the General Asssembly does not provide
for arbitration in the very statute in which it prescribes
the methods for public contract dispute resolution, we
believe, is persuasive evidence that the Assembly does not
regard the right to contract as expressly encompassing
the right to agree to arbitrate. If the Assembly believed
that the right to contract expressly subsumed such a
right, arbitration almost certainly would be included in
section 11-69 D. as one means by which contract disputes
could be resolved.
Our conclusion that the Genera] Assembly does not
consider the right to contract as encompassing such a
right is reinforced by the recent amendment of section
15.1-508 of the Virginia Code to provide expressly that
counties may agree to arbitrate. In 1987, notwithstand-
ing that county officials had Jong been authorized to
contract by section 15.1-105 of the Virginia Code, the
Assembly amended section 15.1-508 to include the foliow-
ing express right to agree to arbitrate: “The governing
body of a county may enter into a written agreement to
submit any existing controversy to arbitration and may
* Schlosser argues that the arbitration provision assertedly em-
bodied in its contract with the School Board satisfies the require-
ment in section 11-69 B. that “each public body shall include in its
contracts a procedure for consideration of contractual claims.” Ses
Appellant’s Br. at 14-15. We disagree. Section 11-69 B. clearly
contemplates that the initial decision of any dispute will be ren-
dered by the public body. See section 11-69 D. (“The decision of
the public body shall be final and conclusive unless the contractor
appeals... .”) (emphasis added). This requirement would appear
to be satisfied, however, by the procedure outlined in Article 2.2.7
of the General Conditions, which pie vides that contract disputes are
to be submitted initially to the project architect, given that the
architect is the School Board’s agent.
4
Qu
erecule a contract which contains a provision to submit
lo arhitration any controversy thereafter arising.” 1987
Va. acts ¢. 483 (emphasis added). This amendment obvi-
ously would have been unnecessary if the legislature
believed that the power to contract conferred in section
15.1-105 expressly included the power to arbitrate.
Finally, our conclusion that the power to contract dos
not by definition include the power to agree to arbitrate
is consistent with decisions of the highest court in Vir-
ginia to have considered the question. See Hanover
County Sch. Bd. v. Gould, (Hanover Cty.Cir.Ct. C-23-
1984, Apr. 4, 1984) ‘holding, on state constitutional]
grounds, that school boards Jack authority to arbitrate) ;
‘f. Spotsylvania County Sch. Bd. v. Sherman Constr.
Corp., 14 Va.Cir. 333 (1989) ‘implicitly assuming that
right to agree to arbitrate not expressly conferred in
right to contract) ; Spotsylvania County Sch. Bd. v. RE.
Lee & Son, Inc., 5 Va.Cir. 48 (1962) (same). But ef.
McKennie v. Charlottesville & Albemarle Ry., 110 Va. 70.
78, 65 S.E. 503 (1909) (municipality’s power to settle
and compromise claims is “a necessary incident to it
right to contract and to sue and be sued’).
Together, the Public Procurement Act, the amendment
to section 15.1-508, and the Virginia authority cited, are
convineing evidence that school boards have not been ex-
pressly accorded the power to arbitrate through the power
to contract in section 22.1-71.
D.
Whether
the power to contract is another question, but one which
—
he power to arbitrate may be implied from
we also believe must be answered in the negative. The
Virginia Supreme Court has consistently rejected elsims
to implied power, absent compelling evidence that the
General Assembly intended that such power be implicit in
power enumerated. See Commonicvcalth v». County Bd.
a
232 S.h.2d at 42 (“In questions of implied power. the
10a
answer is to be found in legislative intent. To imply a
particular power from a power expressly granted, it must
be found that the legislature intended that the grant of
the express also would confer the implied.” (emphasis
added) ).
Schlosser has offered no evidence that the General As-
sembly intended for school boards to have the right to
arbitrate, much less that it intended for such a right to
be implied from the right to contract. Indeed, we believe
that the legislature’s amendment of section 15.1-508 to
confer expressly upon counties the power to agree to
arbitrate disputes, without a corresponding amendment
to section 22.1-71 to accord school boards the same power,
“demonstrates a clear legislative intent to withhold from”
school boards such power.'® See Brown, 329 S.E.2d at
472 ‘inferring legislative intent to withhold from coun-
ties the power to lease government property from fact
that municipal corporations, but not counties, had been
granted a general power to lease property) ; Common-
wealth v. County Bd., 282 S.E.2d at 42-44 (power to
bargain collectively would not be implied from school
boards’ express powers to contract, hire employees, and
set the terms of their employment where legislature had
selectively enacted legislation authorizing collective bar-
gaining but had consistently rejected general authorizing
legislation).'' This intention is underscored by the fact
' Prior to its amendment in 1987, section 15.1-508 only authorized
counties to sue and be sued. A reasonable inference to be drawn
from the fact that the leyislature amended this statute so as to
expressly permit counties to arbitrate is that the legislature did not
believe that the power to arbitrate could be implied from the power
to sue and be sued. Schlosser’s alternative argument that the
authority to arbitrate may be implied from section 22.1-71’s express
grant to school boards of the power to sue and be sued, see supra
note 7, therefore, also fails.
"Cf, Tabler v. Board of Supervisors, 221 Va. 200, 269 S.E.2d 358
(1980) (county’s claimed power to require a minimum cash refund
value on non-alcoholic beverage containers would not be implied
where General Assembly had repeatedly rejected bills authorizing
lla
that the Public Procurement Act, as discussed supra, it-
self appears to forbid arbitration. See Sherman Constr.
Corp., 14 Va.Cir. at 339 (“[T]he contention that local
school boards possess an implied power to submit con-
struction contract disputes to binding arbitration clashes
with the express provisions of the [Public Procurement |
ae.” 35"
Even if we were not convinced that the Virginia legis-
lature does not intend for school boards to have the right
to arbitrate contractual disputes, we would still hold that
such a right cannot be implied. At the very least, the
amendment to section 15.1-508, the terms of the Public
Procurement Act, and the recited caselaw collectively
raise a reasonable doubt as to whether Virginia school
boards possess the authority to execute contracts contatn-
ing arbitration provisions. The Dillon Rule, as noted, re-
quires that any reasonable doubt over whether a particu-
lar power exists be resolved against its existence,
Accordingly, because the Virginia General Assembly
has not expressly conferred upon school boards the power
to arbitrate, and because such a power cannot, under the
Dillon Rule, be implied from the express power to cone
tract. we hold that the School Board lacked the legal
authority to agree to a binding arbitration provision in
its contract with Schlosser. Any agreement to arbitrate,
therefore, was unenforceable.
HI.
Schlosser, perhaps anticipating our holding, contends
that the Federal Arbitration Act preempts application of
regulation of beverage containers) ; see also Deal, 299 S.E.2d at 347-
49 (Commonwealth could not be bound to arbitration agreement by
its agents absent specific legislation authorizing such agents to
submit disputes to arbitration).
“2 RE. Lee & Son, supra, summarily concluded otherwise, but
without citation to authority and without discussion of the limited
avenues for dispute resolution authorized in the Public Procurement
Act.
12a
the Dillon Rule.’ It argues that any state law, such as
the Dillon Rule, that prohibits enforcement of an arbitra-
tion agreement runs afoul of the FAA because the FAA
“is a congressional declaration of a liberal federal policy
favoring arbitration agreements, notwithstanding any
State substantive or procedural policies to the contrary,”
Moses H, Cone Memorial Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765
(1983), which requires that federal courts “rigorously
enforce agreements to arbitrate,” Dean Witter Reynolds
Inc. v. Byrd, 470 U.S, 218, 221, 105 S.Ct. 1238, 1243, 84
L.Ed.2d 158 (1985). This argument is unavailing.
The FAA does embody “a national policy favoring
arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 10,
104 8.Ct. 852, 859, 79 L.Ed.2d 1 (1984). This policy is
enunciated broadly in section 2 of the FAA, which pro-
vides in pertinent part that
[a] written provision in... a contract evidencing
a transaction involving commerce to settle by vrbi-
tration a controversy thereafter arising out of such
contract or transaction, ... shall be valid, irrevoca-
ble, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any contract.
9 U.S.C. § 2 (emphases added). And we have held that
“|tlhe language of [section 2] requires that states place
no greater restrictions upon arbitration provisions than
they place upon other contractual terms,” and that gen-
erally, “if a state law singles out arbitration agreements
and limits their enforceability it is preempted.” Saturn
Distrib, Corp. v. Williams, 905 F.2d 719, 722 (4th Cir.)
(emphasis added; footnote omitted), cert. denied, ——~
U.S. ——-, 111 S.Ct. 516, 112 L.Ed.2d 527 (1990). In
Saturn, for example, we invalidated a provision of the
Virginia Motor Vehicle Dealer Licensing Act which pro-
hibited automobile manufacturers and dealers from enter-
ing into agreements that included mandatory alternative
“This Constitution, and the Laws of the United States... shall
be the supreme Law of the Land...” U.S. Const. Art. VI cl, 2.
’
18a
dispute resolution provisions. We held that the provision
was preempted by the FAA because it “singleid| out
arbitration clauses and unreasonably burden|ed] the abil-
ity to form arbitration agreements.” 905 F.2d at 723.
The Dillon Rule, however, does not single out and dis-
proportionately burden arbitration provisions. It is a
rule of general applicability that defines and invalidates
all ultra vires acts of local governing bodies. Unlike the
provision drawn into question in Saturn, the Rule is not
“an idiosyncratic rule specific to arbitration agreements,”
but is instead “merely an unremarkable part of Vir-
ginia’s general laws of contract formation.” Jd. at 725.
As “a general rule of contract formation,” Supak & Sons
Mfg. Co. v. Pervel Indus., Inc., 593 F.2d 135, 1387 (4th
Cir.1979), it constitutes a “ground|] as exist{s] at law
or in equity for the revocation of any contract,” within
the meaning of 9 U.S.C. § 2. As such, it falls within the
exception to section 2’s general rule of enforceability of
arbitration provisions, and therefore is not preempted by
the FAA. See Perry v. Thomas, 482 U.S. 483, 492 n. 9,
107 S.Ct. 2520, 2527 n. 9, 96 L.Ed.2d 426 (1987) (under
the FAA, “state law, whether of legislative or judicial
origin, is applicable if that law arose to govern issues
concerning the validity, revocability, and enforceability of
contracts generally”) (emphasis in original) ; Supak, 593
F.2d at 137 (“Section 2 [of the FAA] dictates the effect
of a contractually agreed-upon arbitration provision, but
it does not displace state law on the general principles
governing formation of the contract itself.”).
IV.
For the reasons set forth, the appellant’s motions to
compel arbitration and to appoint an arbitrator were
properly denied. The decision of the district court is
therefore affirmed.
AFFIRMED,
l4a
APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 92-1008
W. M. SCHLOSSER COMPANY, INCORPORATED,
Plaintiff-A ppellant
zy
Vv.
SCHOOL BOARD OF FAIRFAX COUNTY, VIRGINIA,
Defendant-A ppellee
| Filed December 16, 1992]
On Petition for Rehearing with Suggestion
for Rehearing In Banc
Appellant has filed a petition for rehearing with sug-
gestion for rehearing in banc. No member of the Court
requested a poll on the suggestion for rehearing in banc,
and the original judicial panel voted to deny the petition
~ for rehearing.
The Court denies the petition for rehearing with sug-
tion for rehearing in bance.
Entered at the direction of Judge Luttig, with the con-
currence of Judge Phillips and Judge Niemeyer.
For the Court,
s/ Bert M. Montague
Clerk
;
a a
15a
APPENDIX C
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 92-1008
CA-91-4-M
W M SCHLOSSER Co INC
Vv.
SCHOOL BOARD
[Filed December 23, 1992]
MANDATE
The judgment of this Court dated 11/18/92 takes ef-
fect today.
BERT M. MONTAGUE
Clerk
l6a
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
Civil Action No. 91-0004-M
W. M. SCHLOSSER Co., INC.,
Plaintiff,
v.
THE COUNTY SCHOOL BOARD OF FAIRFAX, VIRGINIA,
Defendant.
ORDER
This matter came before the Court on the plaintiff’s
appeal of the Magistrate Judge’s order of April 5, 1991.
For reasons stated from the bench, it is hereby
ORDERED that the decision of the Magistrate Judge
is AFFIRMED.
s/ Claude M. Hilton
United States District Judge
Alexandria, Virginia
December 13, 1991
17a
APPENDIX E
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
C.A. No. 91-4-M
W. M. SCHLOSSER Co., et al.,
-VS-
THE COUNTY SCHOOL BOARD OF FAIRFAX COUNTY,
Defendant.
HEARING ON MOTIONS
December 13, 1991
Before: Claude M. Hilton, Judge
APPEARANCES:
Roger C. Jones, Counsel for the Plaintiff
Thomas J. Cawley, Counsel for the Defendant
[2] THE CLERK: Civil action 91-4-M, William
Schlosser Company, Inc. versus the County School Board
of Fairfax County, of Fairfax, Virginia, I am sorry.
This matter comes on for motions.
Are counsel ready, please?
MR. JONIES: Good morning. Your Honor. My name
is Roger Jones, and I represent the petitioner, William
Schlosser Company.
a
bw
la
After somewhat of a circuitous journey, this matter
comes before you on appeal from Magistrate Brinkema’s
order denying the petition to compel arbitration under
the Federal Arbitration Act. There is really two issues
in this appeal. The first issue is whether the contract in
question contains an arbitration provision. And the see-
ond issue involves whether the school boards in Virginia
have the power to enter into contracts containing arbi-
tration provisions. And I would like to take them one at
a time.
On the first issue, a little background. Schlosser is a
general contractor in Maryland, and they entered into a
lump sum contract with the County School Board here in
Fairfax to do some renovation work on the Falls Church
High School. That contract was a 1974 AIA modified
standard form contract. And it contained in Article
2.2.7 a requirement that claims and disputes relating to
the exectuion or progress of the work be submitted to
the architect for his 13] decision. In Article 2.2.10 of
the contract it said the architects, those claims and dis-
putes would be subject to arbitration.
I think the conflict here with this issue stems from the
fact that Article 7.10 of the contract involving the proce-
dure for arbitration which was to be conducted at the
American Arbitration Association under the standard
form ATA agreement was deleted in the supplementary
conditions to the contract. Basically the supplementary
conditions said delete the content of Article 7.10. It did
not say, delete the arbitration requirement. And it did
not say, this contract is not subject to arbitration.
THE COURT: But it did say that there would be no
damages to be recovered for delay.
MR. JONES: Well—
THE COURT: That is right behind the leading—
MR. JONES: That issue, Your Honor, I think is an
issue that is not an issue in this petition. This is a peti-
tion to compel arbitration, not a hearing on the merits
of the case itself.
19a
THE COURT: Why would that be a hearing on the
merits? | mean, if you found the contract provided you
couldn’t recover the damages asked for in your complaint,
you wouldn’t send the case to arbitration, would you?
MR. JONES: The arbitrators would have the ultimate
'4| decision-making authority to decide whether the dam-
ages claimed by petitioner in an arbitration forum were
appropriate and proper, not the Court. The arbitration
agreement would divest the Court of deciding the merits
of the case, and it would be for the arbitrators to decide.
That’s what agreements to arbitrate are all about.
And that’s what the Federal Arbitration Act is all about,
liberally construing agreements to arbitrate.
THE COURT: I don’t disagree with what you are
saying the law is. But I find it difficult to believe that if
you have got a contract that says you can’t get damages
at all, that you then appoint an arbiter and send that
to arbitration for them to determine a contract.
MR. JONES: Well, as Your Honor probably knows,
there are numerous exceptions to what we call the no
damage for delay clause in the contract. A recent one in
this court which recognizes some of those exceptions, such
as those involved with amounts of interference with the
contractor’s work, bad faith and fraud. And at the arbi-
tration hearing those are all issues that could be delved
into and presented to the arbitrators factually for the
arbitrators to determine whether the no damage for delay
clause is enforceable or not enforceable.
THI COURT: All right.
MR. JONES: I would submit to the Court that the
[5] agreement in this particular action is complete on its
face, it is unambiguous. There is an arbitration provi-
sion. I think the Schoo] Board recognizes the contract
contains an arbitration provision, although they charac-
terize it as an accidental reference left in the contract.
The second issue involves whether school boards have
the power to enter into contracts containing arbitration
provisions, if you will. And the petitioner contends that
OK
20a
Virginia Code Section 22.1-71, which gives school boards
their power to contract as well as the power to sue and
be sued, gives the School Board in this case the power to
enter into the construction contract in question which
contains an arbitration provision relating to the resolu-
tion of disputes for the particular construction work to be
performed.
There are a couple of Supreme Court cases, Dean
Witter and Southland Corporation which suggests that
the purpose of the Federal Arbitration Act is to put
agreements to arbitrate on the same footing as contract
agreements, they are one in the same. And they want to
give agreements to arbitrate the same force and effect as
a contract agreement. There is also a D.C. Circuit case,
I think it is called Pierce, cites the same proposition.
For that reason the petitioner believes the School Board
had the power clearly to enter into this contract, and
they had the power to enter into this contract which [6]
contained an arbitration provision governing resolution
of disputes relating solely to the contract itself,
Now, the School Board has raised severa] issues. The
first issue goes to how the Virginia Code Section 22.1-71
is construed. The School Board would argue that under
the Dillon Rule that statute has to be strictly construed.
And because that statute doesn’t say school boards have
the power to arbitrate, rather it only says school boards
have the power to contract, under Dillon Rule of con-
struction, school boards don’t have the power to enter
into agreements to arbitrate.
Petitioner would contend in response to that issue that
the statute does on its face say school boards have the
power to contract. The Supreme Court has said that
contracts are one in the same with agreements to arbi-
trate. And for that reason the statute gives the School
Board the power to enter into contracts containing arbi-
ration clauses.
There is a case that was issued by the Supreme Court
of Virginia called Arlington County which interpreted
2la
application of the Dillon Rule. And also looked at a rule
called the reasonable selection of method rule. The Dillon
Rule is whether the power exists. And the reasonable
selection of method rule is whether the power has been
properly executed.
The Dillon Rule is a rule of strict construction. [7]
The reasonable selection of method rule is a rule that is
liberally construed in favor of the method chosen.
The petitioner would submit that the statute gives the
power to enter into the contract, and the agreement with
the arbitration is a reasonable method to execute that
power to contract. Arbitration provisions are fairly com-
mon in the construction industry. It is a way of having
complex construction cases resolved by arbitrators who
often are familiar with construction and technical aspects
of construction. And for that reason, many of the stand-
ard contracts in the construction industry, including all
of the AIA standard contracts, contain arbitration provi-
sions and the parties agree to arbitrate their disputes
relating to the construction work rather than litigate
their disputes.
Finally, the School Board has cited a number of cases
that deal with arbitration agreements entered into with
the School Board, really the collective bargaining agree-
ments containing arbitration agreements. And in those
rare cases, those two or three of them, the Supreme Court
of Virginia has said that Article 8, Section 7 of the
Virginia Constitution empowers the school boards to su-
pervise their teaching staff, so to speak, and it would be
an unconstitutional divestiture of that power granted by
the Virginia Constitution to allow an arbitrator to decide
policy concerning the teaching staff.
[8] The cases all rationalize that where an agreement,
in those cases it was a collective bargaining agreement,
divest to an arbitrator to promulgate and establish pol-
icy, that is ununconstitutional act. In this case we are
not talking about promulgation or application of policy.
In this case we are dealing with one specific contract for
|
22a
the renovation of certain work at a school, There is 2
claim that relates to the contract itself and nothing else.
And the parties have agreed to arbitrate that claim under
the mutual provision of the contract. The arbitrator’s de-
cision is not going to set policy for the School Board on
any other construction contracts, it is just going to de-
cide the issues of the claim in question.
For that reason the petitioner would ask the Court to
sustain its appeal and enter an order compelling arbitra-
tion in this dispute.
Thank you.
MR. CAWLEY: Good morning, Judge Hilton. Tom
Cawley for the Fairfax County School Board.
Your Honor, I think it is important to realize the con-
text under which the deletion in question occurred here.
Mr. Jones describes the deletion in 7.10 and then describes
the fact that a couple of sections, 2.2.9, I think 2.2.10
were left in. He doesn’t point out, however, that the
section that was deleted by the School Board was en-
titled [9] Arbitration, and is the basic arbitration provi-
sion in an AIA general condition. It is entitled Arbitra-
tion and has and says, all claims. disputes and other
matters arising out of, et cetera, shall be sent to arbitra-
tion. And then it gives the procedures for actually arbi-
trating or utilizing the arbitration process. It says that
the American Arbitration Association processes will be
used and the construction rules of the American Arbitra-
tion Association will be employed.
All of that is taken out. And what happened is that
the sections that weren’t deleted had to go, were buried
really in the section on architects. And many sections
into the section on architects there was this section that
says appeals from architects’ decisions could be arbitrated.
Moreover, when the original petition was filed we filed
an affidavit from the Director of Design and Construction
of the school system that pointed out that the school sys-
tem has never arbitrated. That there is no language or
no document that ever evidenced any intention to arbi-
23a
rate. That the first word arbitration that ever occurred
in the dealings between these two parties occurred when
there was a demand for arbitration filed the next day by
this petition. And that in fact this contractor has con-
tracted with the School Board in the past and of course
had no arbitration provision.
So, I think it is clear in the first instance that [10]
there was no intention of the parties to have any sort of
arbitration. And it would be absurd to think that the
parties would delete the basic arbitration provision that
explains how things would be arbitrated and how they
would come about and the procedures for accomplishing
that and then say that parenthetically some unstructured
method of arbitration would be used to appeal architects’
decisions.
Moreover, as Your Honor points out, it would be espe-
cially ironic if the very section that replaced the arbitra-
tion section, which was a no damage for delay clause,
then became the very substance of the claim that is sup-
posed to be sent to arbitration.
But going bevond that point, the fact of the matter is
that in Virginia there simply is no power on the part of
school boards to arbitrate. And Mr. Jones said that the
Dillion Rule of construction is a rule of construction
construing statutes. And while sometimes it is used to
construe statutes, more fundamentally the Dillion Rule
I think is a rule to construe powers, to construe whether
or not local government has a particular power.
And obviously, and I know Your Honor is familiar with
this, but the Commonwealth versus Arlington County
case, which was a Commonwealth versus Arlington
County and Arlington County School Board case, dis-
cussed at length the application of the Dillon Rule of the
construction of powers [11] to try to determine what
powers a local school division in a local county govern-
ment would have. With respect to school boards, that case
said school boards exercise limited powers and functions
a
24a
of a public nature granted to them expressly or by neces-
sary implication and none other.
And I think the thing that is so dispositive on this
question of whether school boards have the power to arbi-
trate is the fact that in 1987 the General Assembly de-
cided to give to county governments the right to arbitrate.
And they did so by amending 15.1-508, which talks, which
follows the basic section about how counties may sue and
be sued, et cetera. And they added this language, the
governing body of a county may enter into a written
agreement to submit any existing controversy to arbitra-
tion and may execute a contract which contains a provi-
sion to submit to arbitration any controversy thereafter
arising.
Now, whether you look at the Dillon Rule of construc-
tion or you even use just basic contract principles, in-
clusio unius est exclusio alterius I believe it is, it seems
to me clear that if the counties are expressly given the
power to arbitrate and school boards can point to no
statute that gives them a similar power, it would be
impossible to say under either contract construction prin-
ciples or the Dillon Rule that school boards have the power
to arbitrate.
(12] And that analysis in fact was utilized by the Su-
preme Court of Virginia in that case of Arlington County
versus Brown where the County of Arlington argued that
it had the power to enter into a lease. And it said, well,
we have the power to transfer land, we have the power
to sell. Therefore. we must have the power to lease. And
the Supreme Court pointed out that cities expressly had
the power to lease under Virginia law. And, therefore, if
cities expressly had the powers to lease, and the county
couldn’t point to a similar power, then clearly the inten-
tion of the legisltaure was not to grant a similar power.
I think it is clear that the school boards in Virginia
don’t enjoy the power to arbitrate.
Finally, the Federa! Arbitration Act doesn’t change
that result. Now, the Federal Arbitration Act would have
25a
an impact on a specific statute in a state that singled out
arbitration and was designed to prevent it. But it does
not have an impact on general contractual provisions
which might have the effect of not having an arbitration
provision in a contract.
And those clearly enunciated principles are found in
the Supak case by the Fourth Circuit. In that case there
Was a situation where a buyer in in South Carolina was
buying materials from a New York supplier, and in the
confirmation of sale the New York supplier when he
would send the [13] confirmation of sale would put in
that the parties agreed to arbitrate. And that case, when
there was a dispute as to whether they had to go to
arbitration, was determined under UCC 2-207 which says
that in a confirmation of sale, if there is a material
change in the terms, then those material changes don’t
give rise to a new contract. Or don’t become a contractual
provision. And there the other side said, well, the Fed-
eral Arbitration Act requires this arbitration to go for-
ward.
And the Fourth Circuit said, no, it doesn’t. This is not
a situation where we have a singling out of a statute
that is intended to do away with the right to arbitrate.
It is a basic rule of construction of contracts which
causes the situation where there is no arbitration provi-
sion, and it would apply to many things that might be
material changes.
You compare that case to the Saturn case where a
Virginia statute which did single out arbitration was
struck down because of the fact that there was to that
extent pre-emption by the Federal Arbitration Act. But
the Federal Arbitration Act is not designed to, as one
court said, to occupy the entire field of arbitration. And
it does permit by its own terms an exception that permits
arbitration except upon such grounds as exist at law or in
equity for the revocation of any contract.
That’s what we have here. We have a general [14]
contractual provision, which is the Dillon Rule, which
VARY
prevents school boards from arbitrating. And, therefore,
there is no federal pret Daypt hon On that issue,
And we would ask that the decision of Magistrate
Syinkema be upheld,
rite COURT: All right. Well, TE find that it) was
the intent of the parties that the arbitration clause be
removed from. this. contra lt was removed. The pri-
mary arbitration clause was taken out of the contract.
fh went even further when they took it out and said they
couldn’t even make a claim for these kinds of damages.
It is just clear the intent of the parties was to take
out the arbitration provisions in the contract even though
it may have been mentioned in passing in another area or
two of the contract.
I also find the School Board doesn’t have any authority
to arbitrate in Virginia,
I do not find the decision of the magistrate to be
clearly erroneous, and it will be affirmed.
MR. CAWLEY: Thank you, Yeur Honor.
HEARING CONCLUDED
27a
APPENDIX F
IN TH UNITED STATES DISTRICT COURT
FOR THE EASTIERN DISTRICT OF VIRGINIA
ALMXANDRIA DIVISION
Civil Action No, 91-4-M
W. M. SCHLOSSER COMPANY, INC
Pla intiff,
THE COUNTY SCHOOL BOARD
OF FAIRFAX COUNTY, VIRGINIA,
Defendant.
i Filed April » 199]
ORDER
For the reasons stated in open court, petitioners Mi
tions to Designate an Arbitrator and f an Order to
Compel Arbitration are DENIED.
The Clerk is directed to forward conic (orde)
ty counsel of record
lontered this 5th day of A) ril, 1991.
Leonie M. Brinke)
LEONIE M. B TA
| ec \I f r
APPENDIX G
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
Civil Action Number 91-4-M
W. M. SCHLOSSER COMPANY, INC.,
Petitioner,
VS.
THE COUNTY SCHOOL BOARD
OF FAIRFAX COUNTY, VIRGINIA,
Respondent.
Friday, April 5, 1991
Courtroom IV
United States District Courthouse
Alexandria, Virginia
The above-entitled matter came on to be heard before
THE- HONORABLE LEONIE M. BRINKEMA, United
States Magistrate, in und for the United Siates District
Court for the Eastern District of Virginia, beginning at
10:59 o’clock a.m.
APPEARANCES:
On Behalf of the Petitioner:
ROGER C. JONES, ESQUIRE
BRAUDE & MARGULIES, P.C.
[2]
On Behalf of the Respondent:
THOMAS J. CAWLEY, ESQUIRE
HUNTON & WILLIAMS
a ee ee
29a
3] PROCEEDINGS
THE CLERK: Civil action 91 dash 4 M, W.M.
Schlosser Company versus The County Board of Fairfax
County.
MR. JONES: Good morning, Your Honor.
THE COURT: Good morning.
MR. JONES: Roger Jones on behalf of the Petitioner.
THE COURT: I’m sorry; the door was slamming.
MR. JONES: I’m sorry; Roger Jones on behalf of
the Petitioner, W.V. Schlosser.
THE COURT: And for the County?
MR. CAWLEY: Excuse me; Thomas Cawley for the
School Board, Your Honor.
THE COURT: All right; now, this comes before me
on two motions of the Petitioner, one to designate an
arbitrator and one for an order to compel arbitration.
MR. JONES: That’s correct, Your Honor.
THE COURT: I’ve looked at both your pleadings.
I understand that the School Board’s position is, number
one, that it was certainly their intent when they entered
this contract that arbitration not be a part of the
contract.
(4] And they’ve cited to a miscellaneous provision
within the contract which negates, in their opinion, arbi-
tration.
I understand you're saying that they only negated a
particular portion of the A.I.A. contract.
MR. JONES: Negated not really a portion; the pro-
cedure by which arbitration is pursued under the A.I.A.
contract, that procedure is that the American Arbitra-
tion Association—
Article seven point ten that was deleted simply deleted
that procedure. The supplementary condition did not say
arbitration is deleted from this contract.
It just said delete article seven point ten. The under-
lying arbitration agreement in article two, two point two
point ten, is still intact.
That wasn’t deleted by any supplementary condition.
a
30a
THE COURT: But of course what I have here is a
—this is sort of a classic contract problem. I have two
parties to a contract. There is language in dispute.
One side says, ‘We didn’t intend for that.’ And they’re
also saying further, ‘We’re not legally able—|5]we
couldn’t contract that, even if we wanted to.’
You’re saying, ‘This is what the parties agreed to.’
And furthermore, ‘You can do it under the law.’
MR. JONES: Well, I think if you read the provisions
consistent with each other and compatible with each
other, which is black letter contract law, if you read
article two point two point ten, that claims relating to
execution and the progress of the work which had been
referred to the architect are subject to arbitration.
You read the supplementary condition deleting article
seven point ten as deleting the procedure to proceed with
that arbitration at the American Arbitration Association.
And it just leaves—it doesn’t—there’s no method pre-
scribed in that contract for arbitration, which is okay.
The Federal Arbitration Act then sets up a procedure
where they can go to court and have designated arbi-
trators.
There’s a lot of reasons why parties might want to
delete the procedure of arbitration under triple A. It’s
expensive.
[5| Over the years, it’s—it’s taking more time now.
THE COURT: I’m curious; were you the attorneys
involved in negotiating the contract?
MR. CAWLEY: No, Your Honor.
THE COURT: No; so, neither of you knows what
the—have you talked with the various negotiators as to
what their understanding was at the operation of that
provision?
MR. CAWLEY: Your Honor, I am counsel for The
School Board. And in general—lI’ve been counsel for The
School Board for 15 years—and we’ve always advised
them that they don’t have the right to arbitrate.
3la
The particular formatien of this contract was done—I
believe the architect had something to do with it and the
staff was involved.
But I don’t believe there were attorneys on either side,
to my knowledge.
MR. JONES: No; the Petitioner in this case is a
Maryland company. He’s coming here to Virginia to do
some renovation work on a high school.
If there was a dispute about execution or the progress
of the work, I’m sure that they intended to have [7] it
submitted to arbitration versus going to trial with a
Jury in Fairfax County.
Arbitration may be a more impartial way of resolving
any sort of dispute between the parties.
THE COURT: All right; well, I’ve read the contract
that you all attached to the pleadings. And I’ve looked
at your briefs real carefully.
I can’t grant the motion. I am convinced, as I read the
law, that Mr. Cawley’s argument is the better of the two.
I don’t think—there certainly is unclarity as to what
the parties intended with the language of the contract.
But I think that the case law and the argument made
as to the legal ability of The School Board to contract
for arbitration is the sounder of the two arguments.
So, I’m going to deny your motion to designate an
arbitrator and the motion to compel arbitration.
MR. JONES: And just so I understand, it’s based on
the fact that
THE COURT: I’m not at all clear that the parties
intended—
[8] MR. JONES: Okay.
THE COURT: From my reading of the contract, I
don’t think it was the intent of at least one party to the
contract to allow for arbitration.
I think they attempted to do that with the language
that may not have been as artfully drafted as it should
have been to make it crystal clear that there is no arbi-
tration available in this contract.
32a
And secondly, I don’t think that Virginia law em-
powers school boards to enter into that kind of an arbi-
tration agreement.
MR. JONES: Notwithstanding the provisions of the
Virginia Code 22—
THE COURT: That’s correct.
MR. JONES: -—point 1 dash 71?
THE COURT: That’s correct; I don’t think it applies
to the school boards.
All right, sir?
MR. JONES: Thank you.
MR. CAWLEY: Thank you, Judge Brinkema.
[9] (Whereupon, at approximately 11:06 o’clock a.m.,
the hearing in the above-entitled matter was concluded.)
33a
APPENDIX H
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
Miscellaneous No. 91-0004-M
W.M. SCHLOSSER COMPANY, INC.
2400 5ist Place
Hyattsville, Maryland 20781,
Petitioner,
v.
THE COUNTY SCHOOL BOARD OF
FAIRFAX COUNTY, VIRGINIA
10700 Page Avenue
Fairfax, Virginia 22030
Respondent.
Serve:
JANE TIMIAN
Clerk, Fairfax County School Board
10700 Page Avenue
Fairfax, Virginia 22030
PETITION FOR ORDER TO COMPEL ARBITRATION
1. Petitioner, W.M. Schlosser Company (‘Schlosser’),
is a Maryland corporation with its principal place of busi-
ness in Hyattsville, Maryland. Petitioner is engaged in
the business of construction contracting as a general con-
tractor.
2. Respondent is the School Board of Fairfax County,
Virginia (hereinafter sometime referred to as the
“Owner”’’),
34a
3. This Petition is filed pursuant to the provisions of
9 U.S.C. $4 for an Order to Compel Arbitration of a
claim, which is the subject of a written arbitration agree-
ment that is governed by the Federal Arbitration Act, 9.
U.S.C. $1, et seg. since the underlying transaction in-
volves interstate commerce and is between parties of
different states. Respondent has failed and refused to
arbitrate said claim.
4. This Court has jurisdiction pursuant to the provi-
sions of 28 U.S.C. § 1332, based upon diversity of citizen-
ship and since the amount in controversy exceeds $50,000,
exclusive of interest and costs.
5. All conditions precedent for the filing of this Peti-
tion have been satisfied.
6. On or about June 10, 1988, Respondent entered into
a Contract with Petitioner (hereinafter the “Contract”’),
for the performance of certain construction renovation
work relating to Falls Church High School (hereinafter
the “Project”). The Project is located in Fairfax County,
Virginia. A copy of said Contract, with its General and
Supplementary Conditions, is attached hereto as Ex-
hibit A.
7. The Contract provides in pertinent part:
2.2.7 Claims, disputes and other matters in question
between the Contractor and the Owner relating to
the execution or progress of the work or the inter-
pretation of the Contract documents shall be referred
initially to the architect for decision which he will
render in writing within a reasonable time.
* * + *
2.2.10 Any claim, dispute or other matter that has
been referred to the architect ... shall be subject to
arbitration upon the written demand of either party.
However, no demand for arbitration of any such
claim, dispute or other matter may be made until
the earlier of:
35a
2.2.10.1 The date on which the architect has ren-
dered his written decision, or
.2 The 10th day after the parties have pre-
sented their evidence to the architect or
have been given a reasonable opportunity
to do so, if the architect has not rendered
his decision by that date. [Emphasis
added].
8. During the course of the Contract, Schlosser’s per-
formance was hindered, disrupted, impacted and delayed
due to the actions, inactions and active interference of
the Owner. The Owner’s conduct in this regard consti-
tuted a breach of the Owner’s Contract obligations. As
a result of the Owner’s breaches of Contract, Schlosser’s
Contract performance was extended 209 calendar days
and Schlosser suffered significant additional costs and
damages.
9. On or about August 3, 1990, Schlosser submitted to
the Owner a claim for its additional costs and damages
stemming from the extended Contract performance, in
the total amount of $1,152,941. In accordance with Arti-
cle 2.2.7 of the Contract, Schlosser also submitted a copy
of this claim to the architect for his decision.
10. On or about October 9, 1990, the Owner advised
Schlosser that Schlosser’s claim was being reviewed by the
architect. By letter dated January 10, 1991, Schlosser
noted to the Owner that its claim, “was initially copied
to the architect and we expect his decision on our entire
claim, in accordance with the Contract requirements.” A
copy of this letter is attached hereto as Exhibit B. De-
spite the fact that a reasonable time has elapsed, the
architect has failed to render in writing a decision on
Schlosser’s claim.
9. In accordance with Article 2.2.10 of the Contract,
on March 27, 1991, Schlosser submitted to the Owner a
written Demand for Arbitration with respect to their
|
36a
claim for extended Contract performance. A copy of this
Demand for Arbitration is attached hereto as Exhibit C.
To date, the Owner has failed to respond to this Demand
for Arbitration.
10. By separate motion, filed contemporaneously here-
with, Petitioner also seeks this Court to designate and
appoint an impartial arbitrator(s) pursuant to 9 U.S.C.
Ss
3 ©,
WHEREFORE, Petitioner, W.M. Schlosser Company,
Inc. respectfully requests this Court to enter an Order
directing that arbitration of Petitioner’s claim proceed in
the manner provided for in the parties’ Arbitration
Agreement and as required by the Federal Arbitration
Act, and for such other and further relief as this Court
deems just and appropriate.
Respectfully submitted, -
By: /s’ Roger C. Jones
Rear? C. JONES
Va. Bar No. 25256
BRAUDE & MARGULIES, P.C.
1828 L Street, N.W.
Suite 900
Washington, D.C. 20036
Counsel for Plaintiff
W.M. Schlosser Company, Inc.
Dated: 3.28.91
37a
EXHIBIT A
THE AMERICAN INSTITUTE OF ARCHITECTS
| Loco}
AIA Document A101
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND CONTRACTOR
where the basis of payment is a
STIPULATED SUM
This Document Has Important Legal Consequences:
Consultation With An Attorney Is Incouraged With
Respect To Its Completion Or Modification
Use only with the latest Edison of AIA Document A201,
General Conditions of the Contract for Construction.
This document has been approved and endorsed by
The Associated General Contractors of America.
AGREEMENT Contract #090-88-RE-599
made this 9th day of June in the year of Ninteen Hun-
dred and Eighty-Eight
BETWEEN the Owner:
The County School Board of Fairfax County, Virginia
10700 Page Avenue
Fairfax, Virginia 22030
and the Contractor:
W. M. Schlosser Company, Ince.
2400 S51st Place
Hyattsville, Maryland 20781
—
38a
the Project:
Renewal of
Falls Church High School
the Architect:
The Fairfax Architects, P.C.
246A West Broad Street
Falls Church, Virginia 22046
The Owner and the Contractor agree as sei forth below.
ARTICLE 1
THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Con-
ditions of the Contract (General, Supplementary and
other Conditions), Drawings, Specifications, all Addenda
issued prior to execution of this Agreement and all Modifi-
cations issued subsequent thereto. These form the Con-
tract, and all are as fully a part of the Contract as if
attached to this Agreement or repeated herein. An
enumeration of the Contract Documents appears in Arti-
cle 7.
ARTICLE 2
THE WORK
The Contractor shall perform all the Work required by
the Contract Documents for the provision of all labor,
materials, equipment and services necessary for the re-
newal of the existing building at Falls Church High
School, 7521 Jaguar Trail, Falls Church, Virginia 22042.
ARTICLE 3
TIME OF COMMENCEMENT AND COMPLETION
The Work to be performed under this Contract shall be
commenced on or about June 10, 1988 and shall be sub-
stantially completed on or before August 31, 1989.
39a
The project shall be constructed in phases. The Architect
shall determine and certify when the work is substantially
completed for each phase. Work shall commence and be
substantially completed on or before the dates shown in
section 01010 entitled summary of the work, Paragraph
3.1.B, “Schedule for Delivery of the Work”. Should the
work not be substantially completed by the dates specified
for each phase, it is understood and agreed that there will
be deducted the sum of $200.00 for each phase, per con-
secutive calendar day, as liquidated damages, but not as
a penalty, for each day’s delay thereof until substantial
completion of each phase is certified by the Architect.
Should the totai project not be substantially completed by
August 31, 1989, it is understood and agreed that there
will be deducted the further sum of $600.00 per consecu-
tive calendar day, in addition to any other sum due here-
under for the total project, as liquidated damages, but not
as a penalty, for each day’s thereof until substantial com-
pletion is certified by the Architect and accepted by the
Owner.
ARTICLE 4
CONTRACT SUM
he Owner shall pay the Contractor for the performance
of the Work, subject to additions and deductions by
Change Order as provided in the Conditions of the Con-
tract, in current funds, the Contract Sum of nine million
three hundred seventy six thousand dollars ($9,376,000)
consisting of:
$8,777,000 Base Bid
599,000 Alternate No. 1
$9,376,000
ARTICLE 5
PROGRESS PAYMENTS
Based upon Applications for Payment submitted to the
Architect by the Contractor, the Owner shall make prog-
40a
ress payments on account of the Contract Sum to the
Contractor as provided in the General and Supplementary
and Special Conditions.
“The form for each progress payment shall be the Fairfax
County School Board’s ‘Requisition for Partial Payment’
and will be obtained from the School Board’s Design and
Construction Department. The form shall be completed
in detail and submitted in six (6) copies. The Owner
shall make a Progress Payment to the Contractor on the
basis of a duly certified and approved. estimate of the
work performed during the preceding calendar month
under this contract, but to insure proper performance of
this contract, the Owner shall retain five (5) percent of
the amount of each estimate properly allocable to labor,
materials and equipment incorporated in the work and
ten (10) percent of the amount of each estimate properly
allocable to materials and equipment suitably stored at
the site until final completion and acceptance of all work
covered by this contract. The Contractor shall include a
similar provision limiting retainage on progress pay-
ments in all subcontracts it enters into pursuant to the
Contractor’s performance of this Contract.”
ARTICLE 6
FINAL PAYMENT
Final payment, constituting the entire unpaid balance of
the Contract Sum, shall be paid by the Owner to the
Contractor Thirty (30) days after Substantial Comple-
tion of the Work unless otherwise stipulated in the Gen-
eral and Supplementary Conditions, provided the Work
has been satisfactorily completed, the Contract totally
completed, and a tinal certificate for Payment has been
issued by the Architect.
4la
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Terms used in this Agreement which are defined in
the Conditions of the Contract shall have the meanings
designated in those Conditions.
7.2 The Contract Documents, which constitute the en-
tire agreement between the Owner and the Contractor,
are listed in Article 1 and, except for Modifications issued
after execution of this Agreement, are enumerated as
follows:
(List below the Agreement, Conditions of the Contract
(General, Supplementary, and other Conditions), Draw-
ings, Specifications, Addenda and accepted Alternates,
showing page or sheet numbers in all cases and dates
where applicable.
Standard Form of Agreement Between Owner & Contrac-
tor, AIA Document A101 January 1974.
General Conditions of the Contract for Construction, AIA
Document A201 April 1970.
Specifications: See attached pages 1 through 3, pages 1,
li.
Drawings: Civil C-1 through C-4
Architectural A-0 through A-60
Structural S-1 and S-2
Mechanical M-1 through M-88
Plumbing P-1 through P-34
Electrical E-1 through E-51
Addenda: Addendum No. 1 dated May 13, 1988.
Addendum No. 2 dated May 18, 1988
Addendum No. 3 dated May 20, 1988
Addendum No. 4 dated May 23, 1988
Addendum No. 5 dated May 24, 1988
Accepted: Base Bid and Alternate No. 1
_
42a
This Agreement executed the day and year first written
above. This Agreement, under seal, is executed in 4
counterparts each deemed as original.
OWNER
The County School
Board of Fairfax
County, Virginia
s {[lIllegible|
Chairman
s Jane Timion
Clerk of the School
Joard SEAI
CONTRACTOR
W.M. Schlosser Company,
Inc.
s’ [Illegible]
President
s’ [Illegible]
Corporate Secretary |SEAL}
43a
Section 00700
General Conditions
THE AMERICAN INSTITUTE OF ARCHITECTS
| Loco |
AIA Document A201
GENERAL CONDITIONS OF THE CONTRACT
FOR CONSTRUCTION
This Document Has Important Legal Consequences:
Consultation With An Attorney Is Encouraged With
Respect To Its Modification
TABLE OF ARTICLES
1. CONTRACT 9. PAYMENTS AND
DOCUMENTS COMPLETION
2. ARCHITECT 10. PROTECTION OF
PERSONS AND
8. OWNER PROPERTY
4. CONTRACTOR 11. INSURANCE
5. SUBCONTRACTORS 12. CHANGES IN THE
6. SEPARATE WORK
CONTRACTS 18. UNCOVERING AND
7. MISCELLANEOUS CORRECTION OF
PROVISIONS WORK
8. TIME 14. TERMINATION OF
THE CONTRACT
This document has been approved and endorsed by
The Associated Gencral Contractors of America.
SSS aaa
tda
INDEX
Acceptance of Defective or Non-Conforming Work 13.3
Access to Work 2.2.0
Accident Prevention 2.2.4, 18
Addendum, Definition of 1.1.1
Additional Costs, Claims for 12.2.1
Additional Work ' 12
Administration of the Contract 2.2
Agreement, Extent of Bee.
Allowances, Cash A.S.7
Applications for Payment 2.2.5, 9.2.1, 9.3.1, 9.3.3, 9.4.1,
9.4.2, 9.6.1, 9.6.7, 9.7.2
Arbitration, Owner-Contractor Claims and
Disputes 2.2.6 through 2.2.12, 7.19
ARCHITECT 2
Architect, Definition of 2.1
Architect's Access to the Work 2.2.0
Architect's Authority 22.2, 23.12, 32:14, 2.2.04; S84, keh
Architect’s Authority to Reject Work yy Ae
Architect’s Decisions 2.2.6 through 2.2.12
Architect's interpretations 1.2.5, 2.2.6 through 2.2.11, 12.1.6
Architect's Full-Time Project Representative 2.2.16
Architect’s States a2
Architect’s Visits to Site 2.2.3, 2.2.4, 2.2.16, 7.8, 9.7
Bonds. Contract (Performance, Labor and Material
Payment) 1.5
Builder’s Risk Insurance (See Property Insurance) ii.a
Cash Allowances 1.8.1
Certification for
Payment 2.2.5, 2.2.15, 5.4.2, 9.4, 9.3.1, 9.6.1, 9.7. 2
CHANGES IN THE WORK 12
Changes, Minor 2.2.14, 12.3
Change Orders 2.2.14, 4.8.1, 12.1
Change Orders, Definition of 12.1.2
Claims and Disputes Between the Contractor and the
Owner 2.2.6 through 2.2.12, 7.10
Claims for Additional Cost or Time 8.3.2, 8.3.3, 12.1.6,
IS, Lee
Claims for Damages ..1.4, 8.3
Claims of the Subcontractor 5.3. 1.4
A4fia
Cleaning up A.16,6.4
(‘odes A.7.2. 18.2.3
Commencement of the Work 7.0.4, 6.hoe
Communications 2.2.2, 3.2.4, 4.9.1, 4.17
COMPLETION, PAYMENTS AND 9g
Completion Substantial 2.2.15, 8.1.3, 8.2.3. 9.7
Contract, Definition of 1.1.2
Contract Bonds 7.6
CONTRACT DOCUMENTS |
Contract Documents, Copies Furnished and
Ownership of 1.3
Contract Documents, Definition of se
Contract Documents, Execution, Correlation,
intent and interpretation |.2
Contract Modifications Be ee Ae
(Contract Sum, Changes of lak, Dee
Contract Sum, Definition of 9.1.1
Contract Termination by Contractor 14.1
Contract Termination by Owner 14.2
Contract Time 214
Contracts, Separate e
CONTRACTOR 4
Contractor, Definition of 4
Contractor, Stopping the Work by the 2
Contractor, Termination of the Contract by the {
Contractor’s Liability Insurance te
Contractor’s Relations with Subcontractors | 2.4.3.3
Contractor’s Responsibility for Protection
and Safety 2
Contractor’s Responsibility for Those Performing
the Work !
Contractor’s Review of Contract Documents 2.2, 4.2
Contractor’s Superintendent 1.9.1, 10.2.5
Contractor’s Supervision and Construction
Procedures 1.3
Contractors, Mutual Respensibilit f 3.2
Copies Furnished of Drawings and Specifications 3.1
Correction of Work 3.2
Cutting and Patching of Work ie
Cutting and Patching Under Separate Contracts :
46a
eRe “Soe SN a cinerssenasdannasnuinetnannecsmmeneencns 7.4, 8.3
I Se ac nccaccspunnanenssesumenbneeasceccascsersscieeiens 8.3.4
I III WOE. oo ceccs ce nanecseaenctsbedinssiusnernineanacncrercesennnh a ne
LEFT ATE TON RCL SY OTRO ROE 4.16, 6.4
Deductions for Uncorrected Work .......................-........-... 18.8.1
Defective or Non-Conforming Work,
I I a aaa neon presser tka a entsranntenieaniecienmnenes 13.3
Delays and Extension of Time ...................2.........:.22:00000+- 8.3
Documents, Execution of the Contract _.......... oy Sat ala 12.1
Drawings and Specifications at the Site ........000........... 4.12
Drawings and Specifications, Ownership of ............. RRA 1.3.2
Drawings, Arrangement of ......................---...--2-00-+- a 1.2.4
Drawings as Written Interpretations —......................... 1.2.5
EES OOO Sele SE AS SR EON Ord hat Re 3.2.2
Emergencies ...... Ee LANE ON TMLee SURE LL ROD Pe WD 10.3
Execution, Correlation, Intent and Interpretations of
Py ae oe > a an ea anne rere 12
I RE eo 7a a gene asm ca neaisendencneeds 8.3, 12.1
ER RI ie SEATS ED: Ee aL TO CEPOL NNT LD. 12
I MO IN oro csc on sarreseessssencicencnrcstacaeseomtreansstcaes 9.6
re I ee rn daeaaniee anpaueneataea tana 1.2.5, 12.3, 12.4
I te ope venservastn cee meeneueananentenroavanennaad ees 9.7
Fire, Extended Coverage, Vandalism and Malicious
I I oar ccs tts ccc seccnneeena acne . ea
Governing Law ..... nL PRE seiisnaie siaasaainteupatiareeeeae 7.1
enn I od 3, sas ss erece onan nnmeci nee paaeesoanseeameaaaes 7.5
Guarantee ......- "UEP ARERR ea a A santana actadesmecerenciacs 9.3.3, 13.2.2
I ero oe aaa es eskne aceee hag eeeaeetaicas 4.18
Information and Services Required of the Owner ene 3.2
Inspection _.......... Reeiaiakbacae ican tka cd aniveen deca terenmmartareses 2.2.15, 7.8, 9.7
Instructions to the Contractor eee eae Nese eanl see B tere 2.2.2, 3.2.4
INSURANCE .......... eee ae a lenient 11
Insurance, Builders Risk (See Property
a do erence etn cu anoens meee Abate y 11.3.1
Insurance, Contractor’s Liability —........................ aces 11.1
Insurance, Fire, Extended Coverage, Vandalism, and
Whatieiee TEIMCMAGE onc.n..ncncecceecnccccccenc.sccsscccrvencsesscessssns: _ 11.3.1
I. TI A I ogocia cra nes seeesaotev nce s recennenangstaeaesnye 11.4
Insurances, Owner® LARDITIGY .......00:0icc<e.-0021--00cessepseeeeeneeses 11.2
’
47a
Insurance, Property _............... Jas Spnsilaciccsta serait ats cote 11.3
PROUT RNCR, TIRE TOURING nnn ci ccsccsencnsccdecct oe 11.3.5
Insurance, Steam Boiler and Machinery .......................... 11.3.2
Ie cases davecsees ka Couette antiennicimecntd adlcaa a eskiedcasinabe ea iar aaa 7.9.1
Interpretaitons and Decisions
Oe Se I Sincere cree 2.2.6 through 2.2.12
Interpretations, Written ........... laucaeseae 1.1.1, 1.2.6, 12.3, 12.4
DARD CUNT BG isis ves evans cce nt cneevse trends ecccesonrlinnss 4.4, 4.5
Labor and Material Payment Bond .......... eset ail 7.5
BE oncte octane Hei W heel esc AS Berens 4.6, 4.7, 7.1, 10.2
| RN Be Sena Ae tA and caankonteto BRa eta aati o elitors 9.7.3, 9.7.5
Re OE Une TRONS 28k eee Caine 11.4.1
SON, | eNO I oo 58 oh ek cncsacwsnacnnnevassua veneer metoens 4.4, 4.5
Minor Changes in the Work ................................ 1.1.1, 12.3, 12.4
MISCELLANEOUS PROVISIONS ...............2.2.<...2005.:--. 7
Wiodiemtiome Co TH COURTING ncn cic ciica csc lecccccc ieee 11.1, 12
Mutual Responsibility of Contractors —_......................... 6.2
Non-Conforming Work, Accepance of
I NE poh o saspuansacastuiabeeshasennsanende 13.3.1
Notice of Testing and Inspections ..................... ecccecuentee 7.8
PHOUEOR CO PTOCWOG annie ncenccsscecescivscccnsseaes: acetone ueuaalanaenea 8.1.2
ee I occ ees tc cucentncaeenianteaieeceions acer dS oA 13
Notices, Permits, Fees and ...............................- eas 4.7
3B] -_ SERRRM Ren nme aU an Nene Sitewir™ a ee eee Le eae ie 3
CE Br ON ooo ecerseneians ncerstee cra crenerweastcnmneene 3.1
Owner, Termination of the Contract by the 0.000000... 14.2
Owner’s Information and Service |....................-.-...... oho 3.2
Owner’s Liability Insurance __..... ns 2
Owner’s Right to Carry Out the Work . eee 3.4
Owner’s Right to Clean Up _. . Lae heen 4. 16. 2.6.4
Owner’s Right to Award Separate Contracts Dye mctenretes 6.1
Owner’s Right to Stop the Work .......... ieee ae 3.3
Ownership of Drawings and Spectifications ey
SIS G5E | WU oe econ aches svessasacaencaccs nwsctagecsacates a. he
Patching of Work Under Separate Contracts _ ........... 6.3
Payments, Royalties and _....... cacacsaoeeaavcncaaetwhiesees a ane
PAYMENTS AND COMPLETION - See 9
Payment, Applications for 2a.8, 9.2.1, 9, 3. 1, 9.3 3 3, 9.4.1,
9.4.2, 9.5.1, 9.6.1, 9.7.2
a
48a
Payment,
Certificates for ..........2.2.5, 2.2.15, 5.4.2, 9.4, 9.5.1, 9.6.1, 9.7.2
Sn) PURINE ONE 2 sac cacucseusscdnaccumaeeal eee en 9.6
I oe oat ppaun rere ccr vue cyccecbewastisarcde ad eee 2.2.18, 9.7
rn ar IIS... co... cece ca dnconceasaceracaamseua neers 9.3, 9.4
PUPS GO BURCONEPRCIONS ........0c..<csccesccceccssncsescassecssesees 5.4
NE I ooo acorns casncivecacaren abepeadan omen enemies 9.5
Performance Bond ..... dad tad hecho cetsiie sce ehertan erence 7.5
Payments, Fees and Notices .......................----..-sseseeceeeeceeeee 4.7
PERSONS AND PROPERTY, PROTECTION OF........ 10
ene I CUNT ooo concn cencecsn covncesconccasencecececcers 8.2
ry. TN oo ecco scyctvccvcccteeceue Sse hecaran orien 9.3, 9.4
Sunn: 5 III 05088 8 re, Lena ae oS 4.11
I I no ee eee 1.1.4
Project Loss or Damage Insurance ........0.......002.00000000- ac ALO
Project Representatives, Full-Time .........00.....0.00000000...... 2.2.16
eI RI oo cgsiciosusnassbatendinse neice saulbanmsiaass 11.3
PROTECTION OF PERSONS AND PROPERTY........ 10
SINNED. «=. susconaunssucdipunsonckoeeuasteae aicthaidliieaat 4.7.2, 10.2.2
EIN OE FU EM voce scciccccasceveesccsnesscnevensaneeses Av secdaaevuned 2.2.12, 13.2
Releases of Waivers and Liens ..........00000..... EAL 9.7.3, 9.7.5
Responsibility for Those Performing the Work ........4.10, 9.7.1
IE GOIN Cont Tt te 2 oe ee eee oe seenal 5.4.2, 9.7.3, 9.7.4
Review of Contract Documents by the Contractor....1.2.2, 4.2
Royalties and Patents ............ Pibaeeie asdicctidentedemnsalte 7.7
Rights and Remedies .................... A AOR ANS AI SIs 4 7.6
EREOCY GL FOEMOTIE GIN PODGTED ovvivicsssccisececccessonsssscsensceresns 10.2
Safety Precautions and Programs .............................. 2.8.4, 10.1
Samples, Shop Drawings and ........................-.se000000+- 2.2.18, 4.13
a A eee a eee aa AS Coa 9.2
Schedules, Progress .................. a eckakiaiueliemmenawaiite FS OS 4.71
AE OE POW EPR BOD vnissh vinssccsesnkcecdsvestsasaaseagseowsurs 6
Separate Contracts, Owner’s Right to Award ................ 6.1
Shop Drawings and Samples ..................................-. 2.2.13, 4.13
I ce te ee gut ay anes weuca can decmakeea weed iat 4.14.1
Special Hazards Insurance Spend eenateepaesmcecuueckaca teas sausage 11.3.5
Specifications, Organization of .........................0..cccccscss00. 1.3.4
Steam Boiler and Machinery Insurance .......................... 11.3.2
IY SPIE, Cw ahdueocegaeueheonansubeneurnvocneianenasl 3.3
I I 7 I ss. sacs cnansvnndereneusaabeniensipcapanetenpbevmtaanennake 5
49a
Subcontractor, Claims of ......................cccccccccccccoseccoccceeeeee 5.3.1.4
Subcontractor, Definition of Res: 5.1.1
Subcontracts, Award of ES AEA een, Se ER ER ine 1.2.4, 5.2
Subcontractual Relations 0. 5.3
Substantial Completion and Final Payment ._...._ 2.2.15, 9.7
Substantial Completion, Date of 2.2.15, 8.1.3, 8.2.3
Sub-subcontractor, Definition of 5.1.2
Subsurface Conditions ........................cccccccsccsssccooscscecsceesese 12.1.6
Successors and Assigns _____. FAL ae Rm Pays enol 7.2
Supervision and Construction Procedures Bre ah do VALS TP 4.3.1
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Termination by the en Reine apetea len Dae ee Sanam tte 14.1
Termination by the Owner __. See ee,
TERMINATION OF THE CONTRACT. ARES A Pas 14
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UNCOVERING AND CORRECTION OF WOFK __. 13
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Waiver of Claims by the Owner ......................---ecccccceccceeee 9.7.5
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50a
GENERAL CONDITIONS OF THE CONTRACT
FOR CONSTRUCTION
ARTICLE 1
CONTRACT DOCUMENTS
1.1 DEFINITIONS
1.1.1 THE CONTRACT DOCUMENTS
The Contract Documents consist of the Agreement, the
Conditions of the Contract ‘General, Supplementary and
other Conditions), the Drawings, the Specifications, all
Addenda issued prior to execution of the Contract, and
all Modifications thereto. A Modification is (1) a written
amendment to the Contract signed by both parties, (2) a
Change Order, (3) a written interpretation issued by the
Architect pursuant to Subparagraph 1.2.5, or (4) a
written order for a minor change in the Work issued by
the Architect pursuant to Paragraph 12.3. A Modification
may be made only after execution of the Contract.
11.2 THE CONTRACT
The Contract Documents form the Contract. The Con-
tract repiesents the entire and integrated agreement be-
tween the parties hereto and supersedes all prior negatia-
tions, representations, or agreements, either written or
oral, including the bidding documents. The Contract may
he amended or modified only by a Modification as defined
in Subparagraph 1.1.1.
11.8 THE WORK
The term Work includes all labor necessary to produce
the construction required by the Contract Documents, and
all materials and equipment incorporated or to be in-
corporated in such construction.
en
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11.4 THE PROJECT
The Project is the total construction designed by the
Architect of which the Work performed under the Con-
tract Documents may be the whole or a part.
12 EXECUTION, CORRELATION, INTENT AND
INTERPRETATIONS
1.2.1. The Contract Documents shall be signed in not
less than triplicate by the Owner and Contractor. If
either the Owner or the Contractor or both do not sign
the Conditions of the Contract. Drawings, Specifications,
or any of the other Contract Documents, the Architect
shall identify them.
1.2.2 By executing the Contract, the Contractor repre-
sents that he has visited the site, familiarized himself
with the local conditions under which the Work is to be
performed, and correlated his observations with the re-
quirements of the Contract Documents.
1.2.3. The Contract Documents are complementary, and
what is required by any one shall be as binding as if re-
quired by all. The intention of the Documents is to in-
clude all labor, materials, equipment and other items as
provided in Subparagraph 4.41 necessary for the proper
execution aid completion of the Work, it is not intended
that Work not covered under any heading, section, branch,
class or trade of the Specifications shall be supplied unless
it is required elsewhere in the Contract Documents or is
reasonably inferable therefrom as being necessary to pro-
duce the intended results. Words which have well-known
technical or trade meanings are used herein in accord-
ance with such vecognized meanings.
1.2.4 The organization of the Specifications into divi-
sions, sections and articles, and the arrangement of
Drawings, shall not control the Contractor in dividing
the Work among Subcontractors or in establishing the
extent of Work to be perfurmed by any trade.
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1.2.5 Written interpretations necessary for the proper
execution or progress of the Work, in the form of draw-
ings of otherwise, will be issued with reasonable prompt-
ness by the Architect and in accordance with any sched-
ule agreed upon. Either party to the Contract may make
written request to the Architect for such interpretations.
Such interpretations shall be consistent with and reason-
ably inferable from the Contract Documents, and may be
effected by Field Order.
1.3 COPIES FURNISHED AND OWNERSHIP
1.3.1 Unless otherwise provided in the Contract Docu-
ments. the Contractor will be furnished, free of charge,
ll copies of Drawings and Specifications reasonably nec-
essary for the execution of the Werk. .
1.3.2. All Drawings, Specifications and copies thereof
furnished by the Architect are and shall remain his prop-
erty. They are not to be used on any other project, and,
with the exception of one contract set for each party to
the Contract are to be returned to the Architect on re-
quest at the completion of the Work.
ARTICLE 2
ARCHITECT
2.1 DEFINITION
21.1 The Architect is the person or organization lic-
ensed to practice architecture and identified as such in
the Agreement and is referred to throughout the Con-
tract Documents as if singular in number and masculine
in gender. The term Architect means the Architect or his
authorized representative.
2.1.2 Nothing contained in the Contract Documents shall
create any contractual relationship between the Architect
and the Contractor.
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2.2 ADMINISTRATION OF THE CONTRACT
22.1 The Architect will provide general Administration
of the Construction Contract, including performance of
the functions hereinafter described.
2.2.2 The Architect will be the Owner’s representative
during construction and until final payment. The Archi-
tect will have authority to act on behalf of the Owner to
the extent provided in the Contract Documents, unless
otherwise modified by written instrument which will be
shown to the Contractor. The Architect will advise and
consult with the Owner, and all of the Owner’s instruc-
tions to the Contractor shall be issued through the
Architect.
2.2.3 The Architect shall at all times have access to the
Work wherever it is in preparation and progress. The
Contractor shall provide facilities for such access so the
Architect may perform his functions under the Contract
Documents.
2.2.4 The Architect will make periodic visits to the site
to familiarize himself generally with the progress and
quality of the Work and to determine in general if the
Work is proceeding in accordance with the Contract
Documents. On the basis of his on-site observations as
an architect, he will keep the Owner informed of the
progress of the Work, and will endeavor to guard the
Owner against defects and deficiencies in the Work of the
Contractor. The Architect will not be required to make
exhaustive or continuous on-site inspections to check the
quality or quantity of the Work. The Architect will not
be responsible for construction means, methods, tech-
niques, sequences or procedures, or for safety precautions
and programs in connection with the Work, and he will
not be responsible for the Contractor’s failure to carry
out the Work in accordance with the Contract Documents.
2995 Based on such observations and the Contractor’s
Applications for Payment, the Architect will determine
_
54a
the amounts owing to the Contractor and will issue Cer-
tificates for Payment in such amounts, as provided in
Paragraph 9.4.
2.2.6 The Architect will be, in the first instance, the
interpreter of the requirements of the Contract Docu-
ments and the judge of the performance thereunder by
both the Owner and Contractor. The Architect will,
within a reasonable time, render such interpretations as
he_may deem necessary for the proper execution or prog-
ress of the Work.
2.2.7 Claims, disputes and other matters in question be-
tween the Contractor and the Owner relating to the execu-
tion or progress of the Work or the interpretation of the
Contract Documents shall be referred initially to the
Architect for decision which he will render in writing
within a reasonable time.
2.2.8 All interpretations and decisions of the Architect
shall be consistent with the intent of the Contract Docu-
ments. In his capacity as interpreter and judge, he will
exercise his best efforts to insure faithful performance
by both the Owner and the Contractor and will not show
partiality to either.
2.2.9 The Architect’s decisions in matters relating to
artistic effect will be final if consistent with the intent
of the Contract Documents.
2.2.10 Any claim, dispute or other matter that has been
referred to the Architect, except those relating to artistic
effect as provided in Subparagraph 2.2.9 and except any
which have been waived by the making or acceptance of
final payment as provided in Subparagraphs 9.7.5 and
9.7.6, shall be subject to arbitration upon the written
demand of either party. However, no demand for arbitra-
tion of any such claim, dispute or other matter may be
made until the earlier of:
2.2.10.1 The date on which the Architect has rendered
his written decision, or
5dDa
.2 the tenth day after the parties have presented
their evidence to the Architect or have been
given a reasonable opportunity to do so, if the
Architect has not rendered his written decision
by that date.
2.2.11 If a decision of the Architect is made in writing
and states that it is final but subject to appeal, no de-
mand for arbitration of a claim, dispute or other matter
covered by such decision may be made later than thirty
days after the date on which the party making the de-
mand received the decision. The failure to demand arbi-
tration within said thirty days’ period will result in the
Architect’s decision becoming final and binding upon the
Owner and the Contractor. If the Architect renders a
decision after arbitration proceedings have been initiated,
such decision may be entered as evidence but will not
supersede any arbitration proceedings unless the decision
is acceptable to the parties concerned.
2.2.12 The Architect will have authority to reject Work
which does not conform to the Contract Documents.
Whenever, in his reasonable opinion, he considers it nec-
essary or advisable to insure the proper implementation
of the intent of the Contract Documents he will have
authority to require special inspection or testing of the
Work in accordance with Subparagraph 7.8.2. whether
or not such Work be then fabricated, installed or com-
pleted. However, neither the Architect’s authority to act
under this Subparagraph 2.2.12, nor any decision made
by him in good faith either to exercise or not to exercise
such authority, shall give rise to any duty or responsibil-
ity of the Architect to the Contractor, any Subcontractor,
any of their agents or employees, or any other person
performing any of the Work.
2.2.13 The Architect wil! review Shop Drawings and
Samples as provided in Subparagraphs 4.13.1 through
4.13.8 inclusive.
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2.2.14 The Architect will prepare Change Orders in
accordance with Article 12, and will have authority to
order minor changes in the Work as provided in Sub-
paragraph 12.3.1.
2.2.15 The Architect will conduct inspections to deter-
mine the dates of Substantial Completion and final com-
pletion, will receive and review written guarantees and
related documents required by the Contract and assem-
bled by the Contractor and will issue a final Certificate
for Payment.
2.2.16 If the Owner and Architect agree, the Architect
will provide one or more Full-Time Project Representa-
tives to assist the Architect in carrying out his responsi-
bilities at the site. The duties, responsibilities and limita-
tions of authority of any such Project Representative
shall be as set forth in an exhibit to be incorporated in
the Contract Documents.
2.2.17 The duties, responsibilities and limitations of au-
thority of theArchitect as the Owner’s representative dur-
ing construction as set forth in Articles 1 through 14
inclusive of these General Conditions will not be modified
or extended without written consent of the Owner, the
Contractor and the Architect.
2.2.18 The Architect will not be responsible for the acts
or omissions of the Contractor, any Subcontractors, or
any of their agents or employees, or any other persons
performing any of the Work.
2.2.19 In case of the termination of the employment of
the Architect, the Owner shall appoint an architect
against whom the Contractor makes no reasonable objec-
tion whose status under the Contract Documents shall be
that of the former architect. Any dispute in connection
with such appointment shall be subject to arbitration.
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ARTICLE 3
OWNER
3.1 DEFINITION
3.1.1 The Owner is the person or organization identified
as such in the Agreement and is referred to throughout
the Contract Documents as if singular in number and
masculine in gender. The term Owner means the Owner
or his authorized representative.
3.2 INFORMATION AND SERVICES REQUIRED OF
THE OWNER
3.2.1 The Owner shall furnish all surveys describing
the physical characteristics, legal limits and utility loca-
tions for the site of the Project.
3.2.2 The Owner shall secure and pay for easements for
permanent structures or permanent changes in existing
facilities.
3.2.3. Information or services under the Owner’s control
shall be furnished by the Owner with reasonable prompt-
ness t6 avoid delay in the orderly progress of the Work.
3.2.4 The Owner shall issue all instructions to the Con-
tractor through the Architect.
3.2.5 The foregoing are in addition to other duties and
responsibilities of the Owner enumerated herein and espe-
cially those in respect to Payment and Insurance in Arti-
cles 9 and 11 respectively.
3.3 OWNER’S RIGHT TO STOP THE WORK
3.3.1 If the Contractor fails to correct defective Work
or persistently fails to supply materials or equipment in
accordance with the Contract Documents, the Owner may
order the Contractor to stop the Work, or any portion
thereof, until the cause for such order has been elimi-
nated.
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3.4 OWNER’S RIGHT To CARRY OUT THE WORK
3.4.1 If the Contractor defaults or neglects to carry out
the Work in accordance with the Contract Documents or
fails to perform any provision of the Contract, the Owner
may, after seven days’ written notice to the Contractor
and without prejudice to any other remedy he may have,
make good such deficiencies. In such case an appropriate
Change Order shall be issued deducting from the pay-
ments then or thereafter due the Contractor the cost of
correcting such deficiencies, including the cost of the Ar-
chitect’s additional services made necessary by such de-
fault, neglect or failure. The Architect must approve
both such action and the amount charged to the Contrac-
tor. If the payments then or thereafter due the Contrac-
tor are not sufficient to cover such amount, the Contractor
shall pay the difference to the Owner.
ARTICLE 4
CONTRACTOR
4.1 DEFINITION
4.1.1 The Contractor is the person or organization iden-
tified as such in the Agreement and is referred to
throughout the Contract Documents as if singular in
number and masculine in gender. The term Contractor
means the Contractor or his authorized representative.
4.2 REVIEW OF CONTRACT DOCUMENTS
4.2.1. The Contractor shall carefully study and compare
the Contract Documents and shall at once report to the
Architect any error, inconsistency or omission he may
discover. The Contractor shall not be liable to the Owner
or the Architect for any damage resulting from any such
errors, inconsistencies or omissions in the Contract Docu-
ments. The Contractor shall do no Work without Draw-
ings. Specifications or Modifications.
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4.3 SUPERVISION AND CONSTRUCTION PROCE-
DURES
4.3.1 The Contractor shall supervise and direct the
Work, using his best skill and attention. He shall be
solely responsible for all construction means, methods,
techniques, sequences and procedures and for coordinat-
ing all portions of the Work under the Contract.
4.4 LABOR AND MATERIALS
4.4.1 Unless otherwise specifically noted, the Contractor
shall provide and pay for all labor, materials, equipment,
tools, construction equipment and machinery, water, heat,
utilities, transportation, and other facilities and services
necessary for the proper execution and completion of the
Work.
4.4.2 The Contractor shall at all times enforce strict
discipline and good order among his employees and shall
not employ on the Work any unfit person or anyone not
skilled in the task assigned to him.
4.5 WARRANTY
4.5.1 The Contractor warrants to the Owner and the
under this Contract will be new unless otherwise speci-
fied, and that all Work will be of good quality, free from
faults and defects and in conformance with the Contract
Documents. All Work not so conforming to these stand-
ards may be considered defective. If required by the
Architect, the Contractor shall furnish satisfactory evi-
dence as to the kind and quality of materials and equip-
ment. 7
4.6 TAXES
4.6.1. The Contractor shall pay all sales, consumer, use
and other similar taxes required by law.
-
60a
4.7 PERMITS, FEES AND NOTICES
4.7.1 The Coniractor shall secure and pay for all per-
mits, governmental fees and licenses necessary for the
proper execution und completion of the Work, which are
applicable at the time the bids are received. It is not the
responsibility of the Contractor to make certain that the
Drawings and Specifications are in accordance with ap-
plicable laws, statutes, building codes and regulations.
4.7.2. The Contractor shall give all notices and comply
with all laws, ordinances, rules, regulations and orders
of any public authority bearing on the performance of
the Work. If the Contractor observes that any of the
Contract Documents are at variance therewith in any re-
spect, he shall promptly notify the Architect in. writing,
and any necessary changes shall be adjusted by appropri-
ate Modification. If the Contractor performs any Work
knowing it to be contrary to such laws, ordinances, rules
and regulations, and without such notice to the Architect,
he shall assume full responsibility therefor and shall bear
all costs attributable thereto.
4.8 CASH ALLOWANCES
4.8.1 The Contractor shall include in the Contract Sum
all allowarces stated in the Contract Documents. These
allowances shall cover the net cost of the materials and
equipment delivered and unloaded at the site, and all ap-
plicable taxes. The Contractor’s handling costs on the
site, labor, installation costs, overhead, profit and other
expenses contemplated for the original allowance shall be
included in the Contract Sum and not in the allowance.
The Contractor shal’ cause the Work covered by these
allowances to be performed for such amounts and by such
persons as the Architect may direct, but he will not be
required to employ persons against whom he makes a rea-
sonable objection. If the cost, when determined, is more
than or less than the allowance, the Contract Sum shal!
be adjusted accordingly by Change Order which svil! in-
6la
clude additional handling costs on the site, labor, installa-
tion costs, overhead, profit and other expenses resulting
to the Contractor from any increase over the original
allowance.
4.9 SUPERINTENDENT
4.9.1 The Contractor shall employ a competent superin-
tendent and necessary assistants who shall be in attend-
ance at the Project site during the progress of the Work.
The superintendent shall be satisfactory to the Architect,
and shall not be changed except with the consent of the
Architect, unless the superintendent proves to be unsatis-
factory to the Contractor and ceases to be in his employ.
The superintendent shall represent the Contractor and
all communications given to the superintendent shall be
as binding as if given to the Contractor. Important com-
munications will be confirmed in writing. Other commu-
nications will be so confirmed on written request in each
ease,
4.10 RESPONSIBILITY FOR THOSE PERFORMING
THE WORK
4.10.1. The Contractor shall be responsible to the Owner
for the acts and omissions of all his employees and all
Subcontractors, their agents and employees, and all other
persons performing any of the Work under a contract
with the Contractor.
4.11 PROGRESS SCHEDULE
4.11.1 The Contractor, immediately after being awarded
the Contact, shall prepare and submit for the Architect’s
approval an estimated progress schedule for the Work.
The progress schedule shall be related to the entire
Project to the extent required by the Contract Documents.
This schedule shall indicate the dates for the starting and
completion of the various stages of construction and shall
be revised as required by the conditions of the Work,
subject to the Architect’s approval.
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4.12 DRAWINGS AND SPECIFICATIONS AT THE
SITE
4.12.1 The Contractor shall maintain at the site fer the
Owner one copy of all Drawings, Specifications, Addenda,
approved Shop Drawings, Change Orders and other Modi-
fications, in good order and marked to record all changes
made during construction. These shall be available to the
Architect. The Drawings, marked to record all changes
made during construction, shall be delivered to him for
the Owner upon completion of the Work.
4.13 SHOP DRAWINGS AND SAMPLES
4.13.1 Shop Drawings are drawings, diagrams, illustra-
tions, schedules, performance charts, brochures and other
- data which are prepared by the Contractor or any Sub-
contractor, manufacturer, supplier or distributor, and
which illustrate some portion of the Work.
4.13.2. Samples are physical examples furnished by the
Contractor to illustrate materials, equipment or work-
manship, and to establish standards by which the Work
will be judged.
4.13.38 The Contractor shall review, stamp with his ap-
proval and submit, with reasonable promptness and in
orderly sequence so as to cause no delay in the Work or
in the work of any other contractor, all Shop Drawings
and Samples required by the Contract Documents or sub-
sequently by the Architect as covered by *Modifications.
Shop Drawings and Samples shall be properly identified
as specified, or as the Architect may require. At the time
of submission the Contractor shall inform the Architect
in writing of any deviation in Shop Drawings or
Samples from the requirements of the Contract Docu-
ments.
4.13.4 By approving and submitting Shop Drawings and
Samples, the Contractor thereby represents that he has
determined and verified all field measurements, field con-
struction criteria, materials, catalog numbers and similar
68a
data, or will do so, and that he has checked and coordi-
nated each Shop Drawing and Sample with the require-
ments of the Work and of the Contract Documents.
4.13.5 The Architect will review and approve Shop
Drawings and Samples with reasonable promptness so as
to cause no delay, but only for conformance with the de-
sign concept of the Project and with the information given
in the Contract Documents. The Architect’s approval of a
separate item shall not indicate approval of an assembly
in which the item functions.
4.13.6 The Contractor shall make any corrections re-
quired by the Architect and shall submit the required
number of corrected copies of Shop Drawings or new
Samples unti*approved. The Contractor shall direct spe-
cific attention in writing or on resubmitted Shop Draw-
ings to revisions other than the corrections requested by
the Architect on previous submissions.
4.13.7 The Architect’s approval of Shop Drawings or
Samples shall not relieve the Contractor of responsibility
for any deviation from the requirements of the Contract
Documents unless the Contractor has informed the Archi-
tect in writing of such deviation at the time of submis-
sion and the Architect has given written approval to the
specific deviation, nor shall the Architect’s approval re=
lieve the Contractor from responsibility for errors or «
omissions in the Shop Drawings or Samples.
4.13.8 No portion of the Work requiring a Shop Draw-
ing or Sample submission shall be commenced until the
submission has been approved by the Architect. All such
portions of the Work shall be in accordance with ap-
proved Shop Drawings and Samples.
4.14 USE OF SITE
4.14.1 The Contractor shall confine operations at the
site to areasepermitted by law, ordinances, permits and
the Contract Documents and shall not unreasonably en-
cumber the site with any materials or equipment.
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4.15 CUTTING AND PATCHING OF WORK
115.1 The Contractor shal! do all cutting, fitting or
patching of his Work that may be required to make its
several parts fit together properly, and shall not endanger
uny Work by cutting, excavating or otherwise altering the
Work or any part of it.
1.16 CLEANING UP
1.16.1 The Contractor at all times shall keep the prem-
ives free from accumulation of waste materials or rub-
hish cansed by his operations. At the completion of the
Work he shall remove all his waste materials and rub-
bish from and about the Project as well as all his tools,
construciion gevipment, machinery and surplus materials,
and shall clean all glass surfaces and leave the Work
“broom-clean” or its equivalent, except as otherwise
snecified, ome
110.2 if the Contractor fails to clean up, the Owner
nay de so and the cost thereof shall be charged to the
Contracler as provided in Paragraph 3.4.
iL17 COMMUNICATIONS
4.17.1 The Contractor shall forward all communications
to the Owner through the Architect.
118 INDEMNIFICATION
4.18.1 The Contractor shall indemnify and hold harmless
the Owner and the Architect and their agents and em-
ployees from and against all claims, damages, losses and
expenses inciuding attorneys’ fees arising out of or re-
sulting from the performance of the Work, provided that
any such claim, damage, loss or expenses (1) is attributa-
ble to bodily injury, sickness, disease or death, or to in-
jury to or destruction of tangible property (other than
the Work itself) including the loss of use ‘resulting there-
from, and (2) is caused in whole or in part by any negli-
65a
gent act or omission of the Contractor, any Subcontrac-
tor, anyone directly or indirectly employed by any of
them or anyone for whose acts any of them may be liable,
regardless of whether or not it is caused in part by a
party indemnified hereunder.
4.18.2 In any an@# all claims against the Owner or the
Architect or any of their agents or employees by any em-
ployee of the Contractor, any Subcontractor, anyone di-
rectly or indirectly employed by any of them or anyone
for whose acts any of them may be liable, the indemnifi-
cation obligation under this Paragraph 4.18 shall not be
limited in any way by any limitation on the amount or
type of damages, compensation or benefits payable by
or for the Contractor or any Subcontractor under work-
men’s compensation acts, disability benefit acts or other
employee benefit acts.
4.18.3 The obligations of the Contractor under this Par-
agraph 4.18 shall not extend to the liability of the Archi-
tect, his agents or employees arising out of (1) the prepa-
ration or approval of maps, drawings, opinions, reports,
surveys. Change Orders, designs or specifications, or (2)
the giving of or the failure to give directions or instruc-
tions by the Architect, his agents or employees provided
such giving ow failure to give is the primary cause of the
injury or damage.
ARTICLE 5
SUBCONTRACTORS
5.1 DEFINITION
5.1.1 A Subcontractor is a person or organization who
has a direct contract with the Contractor to perform any
of the Work at the site. The term Subcontractor is re-
ferred to throughout the Contract Documents as if singu-
lar in number and masculine in gender and means a Sub-
contractor or his authorized representative.
66a
5.1.2 A Sub-subcontractor is a person or organization
who has a direct or indirect contract with a Subcontractor
to perform any of the Work at the site. The term Sub-
subeontractor is referred to throughout the Contract Doce-
uments as if singular in number and masculine in gender
and means a Sub-subcontractor or an authorized repre-
sentative thereof.
5.1.8 Nothing contained in the Contract Documents shall
create any contractual relation between the Owner or the
Architect and any Subcontractor or Sub-subcontractor.
5.2 AWARD OF SUBCONTRACTS AND OTHER
CONTRACTS FOR PORTIONS OF THE WORK
5.2.1 Unless otherwise specified in the Contract Docu-
ments or in the Instructions to Bidders, the Contractor,
as soon as practicable after the award of the Contract,
shall furnish to the Architect in writing for acceptance
by the Owner and the Architect a list of the names of the
Subcontractors proposed for the principal portions of the
Work. The Architect shall promptly notify the Contractor
in writing if either the Owner or the Architect, after due
investigation, has reasonable objection to any Subcontrac-
tor on such list and does not accept him. Failure of the
Owner or Architect to make objection promptly to any
Subcontractor on the list shall constitute acceptance of
such Subcontractor.
5.2.2 The Contractor shall not contract with any Sub-
contractor or any person or organization (including those
who are to furnish materials or equipment fabricated to
a special design) proposed for portions of the Work
designated in the Contract Documents or in the instruc-
tions to Bidders or, if none is no designated, with any
Subcontractor provosed for the principal portions of the
Work who has been rejected by the Owner and the Ar-
chitect. The Contractor will not be required to contract
with any Subcontractor or person or organization against
whom he has a reasonable objection.
67a
5.2.3 If the Owner or Architect refuses to accept any
Subcontractor or person or organization on a list sub-
mitted by the Contractor in response to the requirements
of the Contract Documents or the instructions to Bidders,
the Contractor shall submit an acceptable substitute and
the Contract Sum shall be increased or decreased by the
difference in cost occasioned by such substitution and an
Appropriate Change Order shall be issued; however, no
increase in the Contract Sum shall be allowed for any
such substitution unless the Contractor has acted promptly
and responsively in submitting for acceptance any list
or lists of names as required by the Contract Documents
or the instructions to Bidders.
5.2.4 If the Owner or the Architect requires a change of
any proposed Subcontractor or person or organization
previously accepted by them. the Contract Sum shall be
increased or decreased by the difference in cost occa-
sioned by such change and an appropriate Change Order
shall be issued.
5.2.5 The Contractor shall not make any substitution for
any Subcontractor or person or organization who has
been accepted by the Owner and the Architect, unless
the substitution is acceptable to the Owner and the Archi-
tect.
5.8 SUBCONTRACTUAL RELATIONS
5.3.1 All work performed for the Contractor by a Sub-
contractor shall be pursuant to an appropriate agree-
ment between the Contractor and the Subcontractor (and
where appropriate between Subcontractors and Sub-
subcontractors) which shall contain provisions that:
.l preserve and protect the rights of the Owner and
the Architect under the Contract with respect to
the Work to be performed under the subcontract
so that the subcontracting thereof will not preju-
dice such rights;
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require that such Work be performed in accord-
ance with the requirements of the Contract Docu-
ments;
.38 require submission to the Contractor of applica-
tions for payment under each subcontract to which
the Contractor is a party, in reasonable time to
enable the Contractor to apply for payment in ac-
cordance with Article 9;
4 require that all claims for additional costs, exten-
sions of time, damages for delays or otherwise
with respect to subcontracted portions of the Work
shal be submitted to the Contractor (via any Sub-
contractor or Sub-subcontractor where appropriate)
in sufficient time so that the Contractor may comply
in the manner provided in the Contract Documents
for like claims by the Contractor upon the Owner;
5. waive all rights the contracting parties may have
against one another for damages caused by fire or
other perils covered by the property insurance de-
scribed in Paragraph 11.3 except such rights as they
may have to the proceeds of such insurance held
by the Owner as trustee under Paragraph 11.3; and
.6 obligate such Subcontractor specifically to consent
to the provisions of this Paragraph 5.3.
5.4 PAYMENTS TO SUBCONTRACTORS
5.4.1 The Contractor shall pay each Subcontractor, upon
receipt of payment from the Owner, an amount equal to
the percentage of completion allowed to the Contractor on
account of such Subcontractor’s Work, less the percentage
retained from payments to the Contractor. The Con-
tractor shall also require each Subcontractor to make
similar payments to his subcontractors.
5.4.2 If the Architect fails to issue a Certificate for Pay-
ment for any cause which is the fault of the Contractor
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and not the fault of a particular Subcontractor, the Con-
tractor shall pay that Subcontractor on demand, made at
any time after the Certificate for Payment should other-
wise have been issued, for his Work to the extent com-
pleted, less the retained percentage.
5.4.3 The Contractor shall pay each Subcontractor a
just share of any insurance moneys received by the Con-
tractor under Article 11, and he shall require each Sub-
contractor to make similar payments to his subcontractors.
5.4.4 The Architect may, on request and at his discre-
tion, furnish to any Subcontractor, if practicable, infor-
mation regarding percentages of completion certified to
the Contractor on account of Work done by such Subcon-
tractors.
5.4.5 Neither the Owner nor the Architect shall have any
obligation to pay or to see to the payment of any moneys
to any Subcontractor except as may otherwise be required
by law.
ARTICLE 6
SEPARATE CONTRACTS
6.1 OWNER’S RIGHT TO AWARD SEPARATE CON-
TRACTS
6.1.1 The Owner reserves the right to award other con-
tracts in connection with other portions of the Project
under these or similar Conditions of the Contract.
6.1.2 When separate contracts are awarded for different
portions of the Project, “the Contractor” in the contract
documents in each case shall be the contractor who signs
each separate contract.
6.2 MUTUAL RESPONSIBILITY OF CONTRACTORS
6.2.1. The Contractor shall afford other contractors rea-
sonable opportunity for the introduction and storage of
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their materials and equipment and the execution of their
work, and shall properly connect and coordinate his Work
with theirs.
6.2.2 If any part of the Contractor’s Work depends for
proper execution or results upon the work of any other
separate contractor, the Contractor shall inspect and
promptly report to the Architect any apparent discrepan-
cies or defects in such work that render it unsuitable for
such proper execution and results. Failure of the Con-
tractor so to inspect and report shall constitute an ac-
ceptance of the other contractor’s work as fit and proper
to receive his Work, except as to defects which may de-
velop in the other separate contractor’s work after the
execution of the Contractor’s Work.
6.2.3 Should the Contractor cause damage to the work
or property of any separate contractor on the Project, the
Contractor shall, upon due notice, settle with such other
contractor by agreement or arbitration, if he will so set-
tle. If such separate contractor sues the Owner or ini-
tiates an arbitration proceeding on account of any dam-
age alleged to have been so sustained, the Owner shall
notify the Contractor who shall defend such proceedings
at the Owner’s expense, and if any judgment or award
against the Owner arises therefrom the Contractor shall
pay or satisfy it and shali reimburse the Owner for all
attorneys’ fees and court or arbitration costs which the
Owner has incurred.
6.3 CUTTING AND PATCHING UNDER SEPARATE
CONTRACTS
6.3.1 The Contractor shall be responsible for any cut-
ting, fitting and patching that may be required to com-
plete his Work except as otherwise specifically provided
in the Contract Documents. The Contractor shall not
endanger any work of any other contractors by cutting,
excavating or otherwise altering any work and shall not
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cut or alter the work of any other contractor except with
the written consent of the Architect.
6.3.2 Any costs caused by defective or ill-timed work
shall be borne by the party responsible therefor.
6.4 OWNER’S RIGHT TO CLEAN UP
6.4.1 Ifa dispute arises between the separate contractors
as to their responsibility for cleaning up as required by
Paragraph 4.16, the Owner may clean up and charge the
cost thereof to the several contractors as the Architect
shall determine to be just.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 GOVERNING LAW
7.1.1 The Contract shall be governed by the law of the
place where the Project is located.
7.2 SUCCESSORS AND ASSIGNS
7.2.1 The Owner and the Contractor each binds himself,
his partners, successors, assigns and legal representatives
to the other party hereto and to the partners, successors,
assigns and legal representatives of such other party in
respect to all covenants, agreements and obligations con-
tained in the Contract Documents. Neither party to the
Contract shall assign the Contract or sublet it as a whole
without the written consent of the other, nor shall the
Contractor assign any moneys due or to become due to
him hereunder, without the previous written consent of
the Owner.
7.3 WRITTEN NOTICE
7.3.1 Written notice shall be deemed to have been duly
served if delivered in person to the individual or member
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of the firm or to an officer of the corporation for whom
it was intended, or if delivered at or sent by registered
or certified mail to the last business address known to him
who gives the notice.
7.4 CLAIMS FOR DAMAGES
7.4.1 Should either party to the Contracts suffer injury
or damage to person or property because of any act or
omission of the other party or of any of his employees,
agents or others for whose acts he is legally liable, claim
shall be made in writing to such other party within a rea-
sonable time after the first observance of such injury or
damage.
7.5 PERFORMANCE BOND AND LABOR AND MA-
TERIAL PAYMENT BOND
7.5.1 The Owner shall have the right to require the Con-
tractor to furnish bonds covering the faithful perform-
ance of the Contract and the payment of all obligations
arising thereunder if and as required in the instruction
to Bidders or elsewhere in the Contract Documents.
7.6 RIGHTS AND REMEDIES
7.6.1 The duties and obligations imposed by the Contract
Documents and the rights and remedies available there-
under shall be in addition to and not a limitation of any
duties, obligations, rights and remedies otherwise im-
posed or available by law.
7.7 ROYALTIES AND PATENTS
7.7.1. The Contractor shall pay all royalties and license
fees. He shall defend all suits or claims for infringement
of any patent rights and shall save the Owner harmless
from loss on account thereof, except that the Owner shall
be responsible for all such loss when a particular design,
process or the product of a particular manufacturer or
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manufacturers is specified, but if the Contractor has rea-
son to believe that the design, process or product specified
is an infringement of a pttent, he shall be responsible for
such loss unless he promptly gives such information to
the Architect.
7.8 TESTS
7.8.1 If the Contract Documents, laws, ordinances, rules,
regulations or orders of any public authority having juris-
diction require any Work to be inspected, tested or ap-
proved, the Contractor shall give the Architect timely no-
tice of its readiness and of the date arranged so the
Architect may observe such inspection, testing or ap-
proval. The Contractor shall bear all costs of such inspec-
tions, tests and approvals unless otherwise provided.”
7.8.2 If after the commencement of the Work the Archi-
tect determines that any Work requires special inspec-
tion, testing, or approval which Subparagraph 7.8.1 does
not include, he will, upon written authorization from the
Owner, instruct the Contractor to order such special in-
spection, testing or approval, and the Contractor shall
give notice as in Subparagraph 7.8.1. If such special in-
spection or testing reveals a failure of the Work to com-
ply (1) with the requirements of the Contract Documents
or (2) with respect to the performance of the Work,
with laws, ordinances, rules, regulations or orders of any
publie authority having jurisdiction, the Contractor shall
bear all costs thereof, including the Architect’s additional
services made necessary by such failure: otherwise the
Owner shall bear such costs, and an appropriate Change
Order shall be issued.
7.8.3 Required certificates of inspection, testing or ap-
proval shall be secured by the Contractor and promptly
delivered by him to the Architect.
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7.8.4 If the Architect wishes to observe the inspections,
tests or approvals required by this Paragraph 7.8, he will
do so promptly and, where practicable, at the source of
supply.
7.8.5 Neither the observations of the Architect in his
Administration of the Construction Contract, nor inspec-
tions, tests or approvals by persons other than the Con-
tractor shall relieve the Contractor from his obligations
to perform the Work in accordance with the Contract
Documents.
7.9 INTEREST
7.9.1 Any moneys not paid when due to either party
under this Contract shall bear interest at the legal rate
in force at the place of the Project.
7.10 ARBITRATION
7.10.1 All claims, disputes and other matters in question
arising out of, or relating to, this Contract or the breach
thereof, except as set forth in Subparagraph 229 with
respect to the Architect’s decisions on matters relating to
artistic effect, and except for claims which have been
waived by the making or acceptance of final payment as
provided by Subparagraphs 975 and 976 shall be decided
by arbitration in accordance with the Construction In-
dustry Arbitration Rules of the American Arbitration
Association then obtaining unless the parties mutually
agree otherwise. This agreement to arbitrate shall be
specifically enforceable under the prevailing arbitrat:on
iaw. The award rendered by the arbitrators shall be final,
and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction
thereof.
7.10.2 Notice of the demand for arbitration shall be
filed in writing with the other party to the Contract and
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with the American Arbitration Association, and a copy
shall be filed with the Architect. The demand for arbi-
tration shall be made within the time limits specified in
Subparagraphs 2.210 and 2.211 where applicable, and in
all other cases within a reasonable time after the claim,
dispute or other matter in question has arisen, and in no
event shall it be made after the date when institution of
legal or equitable proceedings based on each claim, dis-
pute or other matter in question would be barred by the
applicable statute of limitations.
7.10.3 The Contractor shall carry on the Work and
maintain the progress schedule during any arbitration
proceedings, unless otherwise agreed by him and the
Owner in writing.
ARTICLE 8
TIME
8.1 DEFINITIONS
8.1.1 The Contract Time is the period of time alloted in
the Contract Documents for completion of the Work.
8.1.2 The date of commencement of the Work is the
date established in a notice to proceed. If there is no
notice to proceed, it shall be the date of the Agreement
or such other date as may be established therein.
8.1.3 The Date of Substantial Completion of the Work
or designated portion thereof is the Date certified by the
Architect when construction is sufficiently complete, in
accordance with the Contract Document, so the Owner
may occupy the Work or designated portion thereof for
the use for which it is intended.
8.1.4 The term day as used in the Contract Documents
shall mean calendar day.
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8.2 PROCESS AND COMPLETION
8.2.1 All time limits stated in the Contract Documents
are of the essence of the Contract.
8.2.2 The Contractor shall begin the Work on the date
of commencement as defined in Subparagraph 8.1.2. He
shall carry the Work forward expeditiously with adequate
forces and shall complete it within the Contract Time.
8.2.3 If a date or time of completion is included in the
Contract, ii shall be the Date of Substantial Completion
as defined in Subparagraph 8.1.3, including authorized
extensions thereto, unless otherwise provided.
8.3
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