Matter of Heery International, Inc. (Mekong Development Corp.), 61 N.Y.2d 447 (1984)
When a construction contract incorporates the General Conditions of the Contract for Construction of the American Institute of Architects, the requirement to submit claims to the architect as a condition precedent to arbitration terminates when the architect is no longer responsible for supervising the contractor’s performance, regardless of whether the termination is due to substantial completion or the contractor’s substantial breach.
Summary
Heery International, the contractor, sought arbitration for “change order adjustments” after Mekong Development Corp. terminated their contract for substantial breach. Mekong argued that Heery had to first submit its claim to the architect, per the contract’s General Conditions, before arbitration. The Court of Appeals held that because the architect’s supervisory role ended with the termination of the contract, the submission requirement was no longer in effect. The Court reasoned that the architect’s role as mediator is tied to their ongoing supervisory responsibility, which ceases upon contract termination regardless of the reason for termination. Therefore, Heery did not need to submit its claim to the architect before proceeding to arbitration.
Facts
The contract between Heery International (contractor) and Mekong Development Corp. (owner) incorporated the “General Conditions of the Contract for Construction” of the American Institute of Architects.
Mekong terminated Heery’s services for allegedly breaching the contract.
Heery then sought arbitration for “change order adjustments”.
Mekong argued that Heery was required to submit these claims to the architect as a condition precedent to arbitration, according to the General Conditions.
Procedural History
The Supreme Court denied Mekong’s application to stay arbitration, holding that submission to the architect was not required.
The Appellate Division affirmed the Supreme Court’s decision, with two justices dissenting.
Mekong appealed to the Court of Appeals based on the dissent in the Appellate Division.
Issue(s)
Whether a contractor, whose services have been terminated by the property owner for substantial breach of the contract, must submit their claim for “change order adjustments” to the architect as a condition precedent to arbitration under the “General Conditions of the Contract for Construction” of the American Institute of Architects incorporated in the construction contract.
Holding
No, because the architect’s role as mediator is tied to their general responsibility to supervise the contract, which ends when the contractor’s services are terminated, regardless of whether the termination is due to substantial completion or substantial breach.
Court’s Reasoning
The Court of Appeals relied on its previous decision in Matter of County of Rockland (Primiano Constr. Co.), which held that the architect’s authority is centered on the operational phases of construction, and a claim for delay damages asserted after substantial completion need not be submitted to the architect.
The court reasoned that the controlling factor is whether the architect is still responsible for supervising the contractor’s performance. “Whether the contractor’s services have terminated because of substantial completion of the work or on the ground that he has substantially violated the terms of the contract is not controlling. In either instance the architect’s responsibility to supervise the contractor’s performance and, by extension initially mediate his disputes, is at an end.”
The court distinguished Section 14.2.1 of the General Conditions, which imposes a residual responsibility on the architect to certify the amount to be paid to the discharged contractor or owner. This calculation, to be made after the project is completed, was not intended to serve as a condition precedent to arbitration. The obligation imposed on the architect pursuant to section 14.2.1 is essentially unrelated to this problem. That section simply imposed on the architect the residual responsibility of certifying the amount, if any, to be paid to the discharged contractor or the owner as a result of the work done prior to the contractor’s discharge. It does not expressly require the architect to resolve disputes or assume the role of an on-the-spot mediator for discharged contractors in order to help expedite completion of the project.