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Court Defines "Substantial Completion" in AIA Construction Contract

By Francis G.X. Pileggi

Homsey Architects, Inc. v. Nine Ninety Nine, LLC, C.A. No. 4412-VCP (Del. Ch. June 14, 2010), read opinion here.

This 31-page opinion from the Delaware Court of Chancery addressed the definition of 'substantial performance' in connection with rejecting a statute of limitations defense relating to an AIA agreement between an architect and a developer.

Key Issues

1) The discussion in this opinion of 'substantial performance' as that term is defined in the standard AIA Agreement between architects and owners will be useful for the many parties who use that widely exercised agreement.

2) The Court also addresses the 2009 amendments to the Delaware Uniform Arbitration Act ('DUAA') which eliminated the provision that formerly gave the Court of Chancery jurisdiction to address the statute of limitations defense to an arbitration claim.

3) The Court addressed the difference between substantive arbitrability and procedural arbitrability in terms of whether those issues are to be addressed by the Court or by the arbitrator.

Overview

This dispute between an architectural firm and a developer addressed whether the developer could proceed with an arbitration claim against the architectural firm in connection with issues that arose regarding design services on a townhome complex.

This opinion will be of interest to anyone who uses or needs to interpret the AIA document: B141-1997 'Standard Form of Agreement Between Owner and Architect.' The AIA refers to the American Institute of Architects and their agreements are the most commonly used in construction contracts. In this case, the architect incorporated by reference into the agreement the proposals of the consultants used by the architect for engineering, mechanical and electrical matters.

The agreement required that all claims and disputes arising out of the agreement be submitted to arbitration pursuant to the Construction Industry Arbitration Rules of the American Arbitration Association. The agreement also included an accrual clause which provided that the statute of limitations defense would not commence to run any later than the date when the services of the architect were substantially completed. See Section 1.3.7.3 of the agreement. The agreement also contained the definition of 'substantial completion' at Section 9.8.1.

The Court's opinion provides complete and detailed descriptions of the factual foundation of the dispute between the parties. On a procedural level, the architect had sued to obtain an injunction to prevent the developer/owner from proceeding with arbitration based on the argument that the statute of limitations of three years had expired prior to the date that the arbitration demand was made. The Court explained all the factual reasons why it determined that the services of the architect were not substantially completed within three years of the arbitration demand being made. The work of the consultants for the architect was not substantially completed until well after the architect's services were completed. As indicated, the services of the architect were defined to include the services of his consultants which were incorporated by reference into the AIA agreement.

The Court observed that neither party cited to any Court decision that defined when the services of an architect were considered to be 'substantially completed,' as those words are used in the AIA agreement. See footnote 68 (referring to the definition in the AIA agreement). See also footnotes 71 to 74 and accompanying text. The conclusion of the Court's decision was that the owner/developer was allowed to proceed with his arbitration claims against the architect.

 

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on June 17, 2010 (boomark / email).