The newest members of Hinckley, Allen & Snyder’s Construction Practice Group in Hartford all played a role in the long-running arbitration saga that ended recently with the Connecticut Supreme Court’s decision in Bacon Construction Company v. Department of Public Works, 294 Conn. 695 (2010). Timothy T. Corey was lead counsel for Bacon Construction and successfully argued the case to the state Supreme Court. Jared Cohane was co-counsel during the initial phase of the proceedings, and Peter J. Martin was co-counsel during the second phase of the proceedings and for the confirmation of the arbitration award.

The Bacon Construction case involved court challenges to arbitration, and specifically the arbitrators’ authority to decide whether claims were subject to arbitration in the first place. The case demonstrates that where an arbitration clause is vague or unclear, the issue of what exactly is subject to arbitration can create traps for the unwary. If I did not agree to arbitrate a certain issue or dispute, is that issue submitted to the arbitrator to decide? Is court intercession necessary? If I do not run to court to address what is subject to arbitration, what are the risks? In Connecticut, at least, the answers to these questions just got a little clearer thanks to the Connecticut Supreme Court’s ruling.

The case arose out of a dispute between a masonry trade contractor and the Connecticut Department of Public Works in the construction of a prison in the early 1990s. In order to bring an action against the State, the contractor must provide notice of its claim within two years of termination of the contract or issuance of a certificate of acceptance by the State, whichever event is earlier. In addition, the contractor must commence an action on the claim within three years of termination or issuance of a certificate of acceptance, depending upon whichever event occurs first. Although Bacon completed its work in 1996, the State never issued a certificate of completion and did not terminate Bacon’s contract for default or convenience. Bacon asserted, therefore, that its claim was still timely even though it last worked on the job in 1996, filed notice of claim in 2004, and demanded arbitration in 2005.

During the arbitration, the State asserted that the arbitrator lacked authority to consider Bacon’s claims because Bacon had not filed notice of its claim and had not commenced the arbitration within the three years from completion of the work. The State agreed to allow the arbitrator determine this issue. The State’s argument was premised upon the meaning of the term “termination” as used in the statute allowing contractors to sue the State. The State contended “termination” meant the end of performance, while Bacon argued that “termination” had the common meaning used in the construction industry and in the construction contract itself – meaning termination of the performance for either default or convenience. The arbitrator accepted Bacon’s interpretation of “termination” – the construction industry meaning of termination – as the owner’s act of terminating the contract, either for default or for convenience. The arbitrator went on to award Bacon monetary damages.

The State refused to pay the award, forcing Bacon to apply to the courts to have the award confirmed and turned into a judgment. The trial court granted Bacon’s application, and the State appealed. The matter was ultimately heard by the Connecticut Supreme Court, which determined that the State had agreed that the arbitrator would be the final authority on the issue of whether the arbitrator had authority to hear the dispute.

The case adds clarity to two distinct issues. First, with reference to public contracts with the State of Connecticut, absent a termination for convenience or default or the issuance of a certificate of acceptance, the three-year statute of limitations to commence arbitration (or file suit) against the state does not begin to run. Second, with reference to the procedure for challenging arbitrability, while a party may attempt to preserve the issue of arbitrability for judicial review and still proceed with the arbitration, conduct that indicates empowerment of the arbitrator to decide the issue of arbitrability, whether express or implicit, can make the arbitrator’s ruling on the issue final and binding.