By Barbara Rabinovitz
The developer of a 290-unit residential community in Tiverton has paid a Rhode Island construction company a $5 million arbitration award, ending a dispute over the termination of a contract that arose when another construction firm was drawn into the multi-phase project.
The award, which included $1.2 million in interest, was paid to O. Ahlborg & Sons, construction manager for The Villages at Mount Hope Bay, by Starwood Tiverton, owner of the condominium development, after a 14-day arbitration led by Cambridge, Mass., attorney Charles R. Heuer.
Providence attorneys Christopher H. Little and Christopher C. Whitney, who represented Ahlborg, said the case is noteworthy not only for the size of the award, but also for the speed and efficiency with which the arbitration was conducted.
Starwood's legal team consisted of Providence attorneys Stephen J. Reid Jr. and Joseph V. Cavanagh III. Contacted at his office last week, Reid would say only that "the award has been paid."
The dispute arose from a disagreement over several change orders that surfaced during the first two phases of the five-phase construction project.
As arbitrator Heuer noted in his report, Starwood "juggled all things on its plate in an attempt to be successful with the Project" and Ahlborg "facilitated [Starwood's] ability to be nimble by responding to the changing demands and requirements without insisting on the formal paperwork that would have taken time and expense and would have severely damaged [Starwood's] ability to react and adapt to the circumstances before it."
With no final accounting resolution on what was owed to Ahlborg, the Austin Ross Construction Co. was brought into the project to commence Phase 3 of the construction. However, Austin Ross was "open-shop," Heuer wrote, and Ahlborg employed union companies, so the two firms could not be working on the project at the same time. Heuer found that there was a termination by Starwood "for convenience" and that Ahlborg was to be paid for work performed under a "cost-plus" agreement.
"In essence, the Construction Manager was entitled to recover its allowable expenditures plus profit," said Heuer, who determined that Ahlborg should be awarded $3.8 million plus $1.2 million in statutory interest.
'Some degree of complexity'
"We looked at the substance of what actually happened and convinced the arbitrator that it was a termination for the convenience of the owner and, therefore, the contractor was entitled to be paid the reasonable costs it expended on the project," Whitney said.
According to Little, Starwood's attorneys "objected strenuously. Early on, Starwood scoffed at our theory of the case and contended it should be looked at more specifically ... documenting every dime and accounting for a sum of money to go for a specific amount of work."
But, Whitney said, he and Little contended it was "less like one construction project and more like 82 individual contracts," referring to the 82 townhouse-style units constructed during the first two phases of the project.
In the end, he and Little asked for approximately $4.2 million, and Heuer awarded the $3.8 million plus the $1.2 million in interest, calculated at 12 percent for the period from April 15, 2005, through Nov. 30, 2007.
"He didn't accept our presentation about damages in toto, but he accepted most of it," Little said. As for the interest, "usually, the practice in arbitration has been to award interest — but usually at a lower rate, not the statutory rate. We persuaded [Heuer] that Rhode Island law required the award at statutory interest."
Commenting on the final amount of the award, Little said that "there are very, very few construction matters that end up with awards of this magnitude. It's rare that a dispute gets to this magnitude of dollars."
Also noteworthy, in the opinion of Little and Whitney, was the relatively rapid pace at which the arbitration hearing moved, consuming a total of 14 days.
"We employed the use of witness affidavits, which allow the opposing side to be better prepared and allows [a lawyer] to simply identify an affidavit and offer it and reduce the hearing time," Little said.
The fact that no depositions were taken also had an impact on the hearing process, said Whitney, noting that "it was all done through documentation production, the distribution of expert reports and the use of witness affidavits."
The demand for arbitration was filed in the summer of 2006, and Heuer rendered his decision on Nov. 29.
"This was a case of some degree of complexity," Little said. "It would have been a real challenge to do it in a court setting."
Compliments all around
In something of a postscript to the case, Ahlborg is "winding down its affairs" after more than 80 years in the construction business in Rhode Island, according to Little.
"Unfortunately, they had some tough projects, and this project was the death knell for this company," he said. "The loss of this money as working capital for so long caused a great deal of harm [to the company]."
That outcome posed formidable "logistical challenges" for the company's legal team, Little said, "because you have a client going out of business and witnesses going to other jobs."
The closing of Ahlborg notwithstanding, "it feels good, as a lawyer, to be involved in something that brought in money but also vindicated the client in their performance," Little said.
Whitney complimented the opposing counsel in the case for facilitating the resolution of the dispute, thereby making it less costly and time-consuming. "We didn't waste time fighting over the peripheral issues; we got to the heart of the matter."
January 14, 2008
