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Menard County Housing Authority v. Johnco Construction

July 18, 2003


Appeal from Circuit Court of Menard County No. 02MR9 Honorable M. Carol Pope, Judge Presiding.

The opinion of the court was delivered by: Justice Cook


Defendant, Johnco Construction, Inc. (Johnco), appeals an order of the Menard County circuit court denying Johnco's motion to stay and to compel arbitration pursuant to the Uniform Arbitration Act (710 ILCS 5/1 through 23 (West 2000)). We reverse and remand.

In March 2000, the Menard County Housing Authority (MCHA) hired Johnco to renovate an MCHA public housing building. The contract provided that Johnco would complete the renovations within 365 days with exceptions for unforseen or unavoidable causes for delay. The contract included a liquidated-damages provision, which provided that liquidated damages would be assessed at a rate of $100 per calendar day for every day that Johnco took to finish the renovations beyond 365 days. The contract also had an optional arbitration clause. It provided that when the contracting officer made a final decision regarding a claim arising under or relating to the contract, Johnco could appeal that decision to an arbitrator or mediator, but it had to do so within 30 days of the contracting officer's decision. Finally, the contract provided that Johnco would "proceed diligently" with performance of the contract, even while claims relating to the contract were pending.

On November 15, 2001, Anne Smith, who was the executive director of MCHA and listed as the contracting officer in the contract, sent a letter to Johnco informing it that $20,400 in liquidated damages had accrued because of the delay in finishing the renovations. Johnco had finished the actual physical renovations to MCHA's building, but it took longer than 365 days. MCHA offered to forego 10% of the liquidated damages if Johnco would finalize the project by producing certain close-out papers pursuant to the contract, such as lien releases from subcontractors, architect-requested documents, and a final pay request, by December 10, 2001. MCHA needed these close-out documents to administratively complete the project and be able to secure funding for the project.

Johnco responded with a letter dated November 16, 2002, which generally alleged that the delays had not been Johnco's fault and that no liquidated damages should have accrued. According to Johnco, the delay occurred because MCHA had failed to disclose that the heating system in the building made it impossible to do any renovations in the winter and still have heat for the tenants of the building. Johnco had anticipated being able to work during the winter months when it set a completion date for the project. Johnco did not provide the requested close-out papers.

On May 3, 2002, MCHA's attorney mailed a letter to Johnco again requesting that Johnco produce the previously requested close-out papers. The letter acknowledged Johnco's argument that the delay in completing the renovations was not Johnco's fault but stated that "[MCHA] has previously taken into account the substance of said protest in modifying its assessment of liquidated damages and is not amenable to further adjustment." The letter finished by saying that if the requested close-out documents were not produced, MCHA would pursue legal proceedings to force Johnco to produce the documents.

Johnco responded to the May 3, 2002, letter with a letter addressed to Anne Smith dated May 16, 2002. This letter generally reiterated Johnco's claim that the delays in finishing the renovations were not Johnco's fault and that any assessment of liquidated damages was unwarranted. The letter ended with the following paragraph:

"Please review and advise what course of action you want to take. We are prepared for anything. If MRA and MCHA want to pursue legal action, so be it. We are very optimistic that somewhere, someone in the legal system will be open-minded, reasonable, and understanding."

Johnco did not produce the requested close-out documents.

MCHA filed its complaint for declaratory judgment and for further relief on June 26, 2002. The complaint sought a declaration that Johnco was obligated pursuant to the contract to provide the close-out papers and an order compelling Johnco to provide those documents. Johnco responded with a motion to stay and to compel arbitration pursuant to the contract's arbitration provision.

The trial court denied Johnco's motion to compel arbitration, finding that Johnco could no longer invoke the arbitration provision in the contract. The contract provides that the "Contracting Officer" will decide any claims made by either party and:

"The Contracting Officer's decision shall be final unless the Contractor [(Johnco)] (1) appeals in writing to a higher level in the PHA/IHA in accordance with the PHA's/IHA's policy and procedures, (2) refers the appeal to an independent mediator or arbitrator, or (3) files suit in a court of competent jurisdiction. Such appeal must be made within [30 days] after receipt of the Contracting Officer's decision."

The court found the May 3, 2002, letter from MCHA's attorney rejecting Johnco's claim that it was not liable for liquidated damages was a final decision of the contracting officer and that 30 days had passed without Johnco referring the appeal to an arbitrator. Therefore, pursuant to the terms of the ...

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