Oftentimes a construction contractor will have multiple contracts on a single project, such as a single contract with the Owner and several with subcontractors. In the event of a dispute, the contract determines the type of dispute resolution. If these contracts contain differing dispute resolution provisions, the contractor may find itself at a great disadvantage.

Litigation may be the only choice when multiple parties are involved in a complex dispute. To avoid unnecessary duplication of efforts by courts and litigants, state and federal civil rules of procedure are already designed to handle multiple-party litigation, and can bring all third parties and claims into one lawsuit. Recently there has been a movement away from litigation to other forms of dispute resolution such as arbitration. However, due to its voluntary nature, arbitration is not set up to consolidate claims or force third parties into the arbitration proceedings.

So what is arbitration? Arbitration is a legal alternative to litigation whereby the parties to a dispute agree to submit their respective positions to a neutral third party (the arbitrator) for dispute resolution. The agreement between the parties to submit their dispute to arbitration is a legally binding contract. All arbitral decisions are considered to be "final and binding."

Idaho adopted the Uniform Arbitration Act in 1975 and codified it as Title 7, Chapter 9 of the Idaho Code. In practice arbitration is generally used as a substitute for judicial systems, particularly when the judicial processes are viewed as too slow, expensive, or biased.

A business having multiple contracts on a single project should ensure that the method of dispute resolution outlined in the contracts is consistent. An interesting example of problems that occur when inconsistent dispute resolution provisions are contained in multiparty contracts is found in the construction industry. The owner of a construction project may contract with several different parties including contractors, design professionals, and or construction managers to perform work and provide services on the project. Each of these individual contracts may contain different dispute resolution procedures. For instance, the owner might have a contract with the construction manager on the project that requires all claims and disputes on the project be submitted to arbitration. The owner might then have a separate contract with the general contractor that has no arbitration agreement and instead allows the parties to litigate any claims or dispute on the project. Recently, I was involved in such a situation where I was representing the construction manager, and this is what transpired. The contractor filed suit against the owner alleging breach of contract for unpaid money allegedly owed to the contractor. The owner counterclaimed against the contractor alleging defective work and delay damages on the project. The owner then filed suit against the construction manager for breach of contract and indemnification alleging that the construction manager failed to properly supervise the contractor's work. However, the contract between the owner and construction manager contained an arbitration clause mandating that the parties arbitrate any claim or dispute on the project. In spite of this arbitration provision the owner filed suit against the construction manager, and then filed a motion to consolidate seeking to join the construction manager into the pending lawsuit with the contractor.

How will a court interpret the arbitration agreement between the construction manager and the owner? How should a court reconcile the arbitration agreement with the other pending litigation?

There is no question that in Idaho arbitration agreements between parties will be enforced. However, Idaho courts have not fully addressed the issues presented by an arbitration agreement in the context of multi-party litigation. Although arbitration is generally encouraged by the courts because it expedites the settlement of disputes simply, clearly and inexpensively, in the context of multi-party litigation the opposite can be true. Parties may be forced to duplicate time and costs in two separate proceedings and face the very real possibility of inconsistent judgments between the arbitration and litigation proceedings.

The U.S. Supreme Court has generally held that arbitration must be allowed to proceed even if it would result in the possibility of inefficient maintenance of separate proceedings in different forums and result in "piecemeal" resolution of disputes.

Getting back to my example cited above, ultimately the district court denied the owner's motion to consolidate, and granted the construction manager's motion to stay the proceedings pending arbitration. The result was that the owner had to simultaneously prepare for trial against the contractor AND arbitrate its claims against the construction manager.

If a business is involved in a complex transaction or project with multiple third parties, it would be wise to maintain consistency in the arbitration language of all its contracts, and steer clear of a situation where the business has arbitration agreements with some, but not all, of the parties involved. The business should have its attorneys review all the contracts' dispute resolution language before the contracts are executed.