LISS, J., delivered the opinion of the Court.
1. Did the trial court err in granting summary judgment confirming the arbitration award based upon issues presented and considered by the arbitration panel and the decision of the panel?
2. Did the court below err in granting summary judgment confirming the arbitration award in the light of the established standards of review of arbitration awards in Maryland?
In May 1976, appellee Edward M. Crough, Inc., (hereinafter referred to as "Crough") and Dr. Francis P. Chiaramonte entered into a "Construction Management Agreement" by which Crough agreed (a) to provide design consultation, including efficient scheduling of the work and limiting the costs of the construction of a 300 bed full service
The contract contained a "Guaranteed Maximum Price" of $11.4 million. Crough's owner and chief executive officer, Edward M. Crough, testified that his counsel reviewed the CM Agreement and Crough both had prior experience with such clauses and understood them.
Dr. Chiaramonte is the only general partner in the limited partnership which owns the appellant hospital and will hereafter be referred to as the "owner." The owner testified that by entering into a CM Agreement containing the Guaranteed Maximum Price (hereafter, "GMP"), it was his intent to limit the cost of construction to a sum certain of $11.4 million.
Pursuant to its undertaking to perform this job at or below $11.4 million, Crough segregated the work into approximately 25 "line items" or "bid packages," such as excavation, concrete work, mechanical, electrical, landscaping, etc. Crough estimated the cost of each of these bid packages, which were then let out for competitive bidding. After Crough awarded contracts based upon the bids received, a surplus of over $798,000 was generated from the difference between Crough's bid package estimates and the actual contracts awarded. Stated another way, the projected cost of building the hospital was approximately $10.6 million at that point — well below the $11.4 million GMP, providing a "cushion" or "surplus" for the parties.
Even before the owner signed the CM Agreement, the parties were aware of a problem that the structural engineer was having with regard to some soil borings. As a result of ground conditions, the engineer advised changing the nature of the foundation, which had originally been
As a result, the original plans and specifications had to be changed to reflect the required mat foundation and the subcontractors, such as the excavator, whose contracts had already been awarded, were notified of the changes. Those subcontractors asked for and received additional funds to perform the changed work.
The foundation redesign affected not only the excavating bid package, but also a number of other items, such as concrete, mechanical and electrical work. Crough advised the owner that the increased costs caused by the mat foundation could easily be absorbed by the nearly $800,000 surplus.
Article 12 of the General Conditions Section of the CM Agreement sets forth the exclusive method for changing the GMP under the contract. It provides, in relevant part (at Sections 12.1.2 and 12.2.1), as follows:
It is conceded that Crough neither prepared, nor requested anyone else to prepare, a change order during construction of the project, either for the mat foundation work or for any other work (including "extras," which are the subject matter of this dispute). Nor did the owner's architect prepare or request Crough to prepare a change order even though the architect did order and approve many of the changes proposed during the course of the construction of the project. It is clear from the record extract that the owner knowingly permitted non-compliance with the strict terms of the agreement providing the cost of completion of the project did not exceed the $11.4 million GMP.
The hospital was completed sometime in November of 1977, purportedly well within the confines of the $11.4 million GMP. In August of 1978, Crough submitted to the owner a bill for "extras" and thereby sought to recover costs in excess of the GMP.
The facts set forth above were presented to a Board of Arbitration in six days of hearing, following which voluminous briefs were filed by the parties. On February 8, 1980, the Board of Arbitration issued its award, in favor of Crough in the amount of $357,888.72 plus 8% interest.
Cross-motions for summary judgment were filed in the Circuit Court for Prince George's County. Crough's motion sought enforcement of the award, while the owner's motion sought to have the award set aside. The court denied the
1. and 2.
The proceedings below established beyond dispute that both parties agreed to submit the issues raised in the appellee's demand for arbitration to the arbitration panel for resolution. No issue has been raised contesting the jurisdiction or authority of the arbitration panel to decide the issues submitted. Arbitration is a "favored" process in Maryland where disputes are resolved privately by a tribunal rather than publicly by a court.
Appellant at the arbitration hearing presented evidence, examined and cross-examined witnesses and filed a post-hearing brief. Appellant raised the following issues to be decided: (1) whether the owner reasonably believed that the contract's Guaranteed Maximum Price remained intact throughout the construction contract; (2) whether the
Although no memorandum was filed by the arbitrators in explanation of their findings, it is clear that the parties raised the issue before the Board of the appellee's entitlement to payment for the changed or extra work it performed. It is further clear that this issue was within the scope of the arbitration agreement and the arbitrators decided the issue favorably to the appellee in its unanimous award.
The Maryland Code (1976, 1980 Repl. Vol.) Section 3-224 (b) of the Courts and Judicial Proceedings Article sets out the grounds for vacating an arbitration award:
The threshold question before the court below was whether the Board of Arbitrators had the authority to grant the relief sought by appellee. In reviewing the determination of an arbitration panel it has been held that a mere error in the laws or failure on the part of the arbitrators to understand or apply the law will not justify judicial intervention, and the courts' function in confirming or vacating a commercial award is "severely limited." See Ludwig Honold Mfg. Co. v. Fletcher, 405 F.2d 1123, 1127 (3d Cir.1969), and the cases cited therein. The same Court, in describing the exercise of judicial restraint over arbitrators' decisions, said: "The interpretation of arbitrators must not be disturbed as long as they are not in `manifest disregard' of the law...." Id. at 1128; see also Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). Furthermore, it has recently been held that the misapplication of certain rules of
Appellant contends that the trial judge was clearly erroneous in affirming the arbitration award in that it was based on a completely irrational interpretation of the contract between the parties. The standards for review of an arbitration award in Maryland were explicated by this Court in O-S Corporation v. Samuel A. Kroll, Inc., 29 Md.App. 406, 348 A.2d 870 (1975), where it was held:
This Court in Kroll severely restricted the courts in reviewing an interpretation of a contract by arbitrators if that interpretation was supported by some rationality. The Court further stated, "We must judicially accept an arbitrary interpretation of a contract by an arbitrator." Id., at 410.
Not one of the cases cited involved an arbitration award, nor was there any evidence of either a waiver of the requirement of a written change order or of the owner's promise to pay for changed work.
On the record before us, we conclude that the summary judgment in favor of the appellee was properly granted.
Costs to be paid by appellant.