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Sub Says Contract Still Good

A prime contractor for operation of Army family health center facilities who had to renegotiate its prime contract after a successful bid challenge, and a subcontractor on a subcontract awarded before the original prime contract award who asserts the original subcontract remains in effect, will see the matter submitted to arbitration in this decision from the Alexandria U.S. District Court.

The first step in the arbitration analysis – whether the court or the arbitrator determines whether a particular dispute is arbitrable – is fairly easy. Under Supreme Court precedent, there must be a provision in an agreement’s arbitration clause that “clearly and unmistakably” provides that the arbitrator determines the scope of his own jurisdiction in order to negate the presumption that the court decides the scope of the arbitrator’s jurisdiction. The 4th Circuit found the “clearly and unmistakably” standard to be “exacting” and has said that a broad arbitration clause that does not specifically address who is to decide the scope of arbitration will not be sufficient to overcome the presumption that the decision is for the court.

Here, the subcontract contains no such “clear and unmistakable” provision conferring on the arbitrator the power to decide, and it follows that the court, not the arbitrator, must decide whether the disputes are arbitrable.

The second step – whether the disputes are arbitrable – is not so easy. Here, all three disputes turn on the question of whether the subcontract survived the termination of Prime Contract 6, and as defendant contends, remained operative once plaintiff, Spectrum Healthcare Resources Inc., entered into Prime Contract 12 with the Army. Defendant argues the subcontract remains operative with respect to Prime Contract 12 because the subcontract refers only generally to the “Prime Contract” without limiting this term to Prime Contract 6. The focus on the arbitrability question should be on whether the subcontract term “Prime Contract” is ambiguous and should be construed as Spectrum argues or instead as defendant argues. Given that the arbitration question focuses on the construction of a term in the subcontract, and given that there is a strong presumption in favor of arbitrability under the Federal Arbitration Act, there is little doubt that the subcontract’s arbitration clause encompasses such a dispute. The parties’ dispute is clearly arbitrable.

The continued application of the arbitration clause hinges on the construction or interpretation of a subcontract term. Where, as here, the duration of the contract depends on the interpretation of a term in the contract, the presumption in favor of arbitrability controls and arbitration is required. Where, as in this case, an ambiguity exists that goes to the parties’ intent as to the duration and application of the subcontract, the ambiguity must be resolved in arbitration, not in court.

An order will issue compelling the parties to submit their disputes to arbitration in accordance with the subcontract, and the case will be stayed rather than dismissed.

Spectrum Healthcare Resources Inc. v. Ingenesis Arora Military LLC (Ellis) No. 1:12cv645, Sept. 24, 2012; USDC at Alexandria, Va. VLW 012-3-483, 9 pp.

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