Increasingly we see construction contracts and subcontracts that empower an employee of the owner, or the contractor, to determine all claims arising under the contract, subject to only limited judicial review. We also see subcontracts that limit subcontractor claims to whatever amount the prime contractor can get through the owner’s claim procedure. Are such one-side claim review clauses enforceable? And in the latter case, does a subcontractor have any rights at all? Both questions were answered in the recent case of E.W. Howell Co., LLC v. Hill International, Inc.

Howell was a subcontractor to Hill on a construction project for the New York City University Construction Fund (“Owner”). That subcontract required Howell to give Hill prompt written notice of any claims for additional time or compensation, and specified that Hill would either decide those claims itself or submit them for decision to an employee of the City University of New York (“CUNY”), the Owner’s agent. In the latter case, if the subcontractor didn’t like the result it could appeal to another CUNY representative. That decision, though, was final and reviewable by a court only to the extent that it was “arbitrary and capricious.”

As the work progressed, Howell served several notices on Hill, claiming that the Owner or its consultants were impeding the work and requesting additional compensation and time. At the end of the job Hill submitted Howell’s claims to CUNY for determination. Predictably, CUNY denied them, initially and after appeal, finding that they were insufficiently supported and were foreclosed by a contractual no-damages-for-delay clause, despite Howell’s claim of exceptional circumstances.

Howell first sued Hill and the Owner, arguing that the dispute resolution (“ADR”) process in its subcontract was unenforceable because of the inherent self-interest of both Hill and CUNY in denying Howell’s claims. That challenge failed, based on a 1993 decision of New York’s highest Court, which had upheld a provision in a public works contract that appointed the owner’s employee as the sole arbiter of contractual disputes. The Court of Appeals explained that: 

. . . [T]he public policy of New York State favors and encourages arbitration and alternative dispute resolutions. These mechanisms are well recognized as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process.

Observing that the contractor in that case “chose, with its business eyes open,” to accept a dispute resolution clause with a partisan arbitrator, public policy was not offended as long as some level of judicial review was available. 

Based on that prior decision the Howell Court dismissed Howell’s claim that the ADR clause in its subcontract was unenforceable. 

But Howell also sued Hill separately for failing to fairly present its claims to CUNY’s decision-makers, thereby preventing their fair consideration. Howell argued that every contract includes an implied covenant by each party of good faith and fair dealing, and that Hill had breached that covenant by failing to fairly advance Howell’s claims and Howell’s documentation. The Court allowed that claim to stand. It explained: 

Notwithstanding CUNY’s denial of damages, Howell raised triable issues of fact as to whether Hill breached the implied covenant of good faith and fair dealing by subverting the ADR process and whether its conduct caused damages. Among other things, Howell sufficiently raised issues of fact as to whether at least one of the four exceptions to the general rule that a no-damages-for-delay contract provision barred any claims for delay damages. [Citation omitted.] Howell contends that defendant may have been responsible for CUNY’s denial of claims on the ground that there was no proper documentation supporting Howell’s delay damage claims; CUNY may have found such an exception had Hill properly forwarded all of Howell’s materials to CUNY and had Hill otherwise properly administered the ADR process. 

There are two lessons here. The first is to read the dispute resolution terms of a contract before signing or submitting a bid. If those terms refer legitimate claims to a one-sided process that you are likely to lose then that fact should enter into your calculus, and maybe your bid number.

The second lesson is that with control over how subcontractor claims are advanced to an owner comes responsibility for exercising that control fairly. Any desire to shield a client-owner from subcontractor claims should be balanced against the risk of having to pay that claim yourself for failing to advance it in good faith.

1.  235 AD3d 423, 424-425 (1st Dept. 2025).
2. Westinghouse Elec. Corp. v. New York City Transit Auth., 82 NY2d 47, 53-54 (1993) (citations and internal quotation marks omitted).

Tony Adams is a founding partner of Adams Leclair, LLC. You can find out more about Tony on his profile page.