Victoria Davies | ConsensusDocs
If you have used a ConsensusDocs® construction agreement or another industry association construction agreement for one of your projects, you are accustomed to seeing the laws of the state where the construction project is located as the governing law. There are good reasons for the laws of the state where the project is located to govern the construction agreement for the project. Even if not headquartered in the state, the parties have a presence there by virtue of their participation in the project in the state. Personnel and records that may be needed to resolve a claim may be located in the state. If there are experts that need to be engaged, they will likely need to visit the site. These reasons of efficiency and convenience, alone, may justify the parties’ decision to select the project state’s laws to govern their construction contract. However, there is also the policy interest of the project state, whose laws may even mandate that the project state’s laws govern construction contracts for in-state projects and that the parties resolve their disputes in state as well.
Several states have laws that require construction disputes for projects in the state to be resolved under its laws and/or litigated or arbitrated in the state. Some states require only that its laws govern and do not also require that the dispute resolution take place in the state, but some require both – that its laws govern and the disputes be resolved there. There may be different triggers as to when the statute applies. For example, in some states, the statute applies to any construction contract for a project in the state. In others, the law may only be triggered if one of the parties is domiciled in the state.
What if you are about to start work on a project in one of the states that has these home state laws and you want another state’s laws to apply to your construction contract (for example, the laws of the state where you are headquartered, where the majority of your people and your attorneys are located, and with which you are most familiar)? What if you receive a construction contract from an owner or general contractor that has another’s states law applying to the contract (likely because the owner or the general contractor has the same ties, familiarity, and preference for the laws of the selected state)? In response to the first question, there may be a way to have your preferred state’s laws govern, and in response to the second question, do not assume that the choice of law provision in the owner or general contractor’s contract is invalid. This would be a good point to contact your construction attorney to explore your options.
If you are the person wanting another state’s laws to apply to your construction contract and you are working in a state with a statute that voids provisions requiring a state’s laws other than the project state’s laws to govern and that statute applies to your contract, there may still be a path for you to have your preferred law apply and for you to resolve disputes in your preferred location outside of the project state. That path may be through arbitration, specifically, by your including an agreement to arbitrate in your construction contract that specifies the governing law of the arbitration and the location of the arbitration. Courts in some states with these construction contract governing law statutes have held that the Federal Arbitration Act, which is the federal legislation favoring arbitration agreements, preempts the state statute and have upheld parties’ agreements to arbitrate construction disputes in other states and under other states’ laws.
If you are open to arbitration as the method of dispute resolution in your contract, particularly if it means that you can have your preferred state’s laws govern and allows you to resolve disputes in your locale, then we recommend that you consult with your construction attorney. Your attorney can inform you about the laws in the project state, both as to the existence and substance of a governing law statute and as to whether courts in the project state have upheld agreements to arbitrate governed by other state’s laws and at locations outside the project state, and help you craft appropriate contract language. If you do not have experience with arbitration, you can also use this opportunity to ask your attorney their views on arbitration to help you decide whether it makes sense for your contract, particularly considering any unique circumstances of your project or your relationship with the other parties involved. You may decide that arbitration is not right for your project and stick with the law of the project site for your contract.
On the flip side, you may want the project state’s laws to apply to your contract due to your familiarity with it and the protections that it may afford you. The problem is you may have just received a custom contract from an owner or general contractor (or even a modified ConsensusDocs® agreement) that has the laws of their headquarters located outside the project state governing the contract and disputes being resolved there. You may not be familiar with those laws, including the laws on indemnity and payment, or you may be familiar with those laws from other projects and know that they are less favorable to you than the laws of the project state. Again, do not assume that the owner or general contractor’s choice of law provision will be struck. You may be working in a state without a statute on point. There may be a statute but it is not triggered or it would be preempted by the arbitration provision in the contract. If you find yourself in this position, consult with your construction attorney. With their advice, you may decide to push back on the selected governing law and dispute resolution provisions in the contract or you may decide to focus your efforts on making the indemnity and payment terms, as examples, more favorable to you in light of the proposed governing law.
So, it is not quite as simple as the law of the project site always governs. It could be that simple if both parties agree, but sometimes you or your contract counterparty may have a strong preference for another law to apply. In that case, be sure to talk with your construction attorney, who can help guide you on the issue.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.