Liles Parker PLLC
(202) 298-8750 (800) 475-1906
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San Antonio, TX | Baton Rouge, LA

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Arbitration Provisions in City Contracts

Arbitration Provisions(September 6, 2011):  When is the last time you examined the contractual provisions set out in contracts entered into by your city or municipality? Arbitration provisions can be very problematic and a city or municipality should think twice before voluntarily agreeing to arbitration or including such provisions in a contract with an outside party. Why are arbitration provisions discouraged? First, agreeing to arbitration or including such a requirement in a contract may result in the loss of certain protections provided by state law being waived the city or municipality. Second, an arbitrator may not have experience in municipal law, and may apply equitable principles that would not apply in a court of law.

I. Background — Arbitration Provisions in City Contracts:

State law will often provide cities extra protection against damages and lawsuits, such as immunity from liability, which protects a city from judgment even if the legislature has agreed to allow it to be sued; alternatively, there may be immunity from suit which means a city cannot be sued unless it consents to be sued. Tex. Dep’t of  Transp. v. Jones, 8 S.W.3d 636, 638 (Tex.1999).  This is a general statement and many times an actual determination of privileges is fact-intensive.

II.  Arbitration Provisions Can Result in the Waiver of Immunity by a Texas City or Municipality:

However, in Texas, whenever a city contracts with a person or entity, then its immunity from suit is waived. See Texas Local Government Code Chapter 271.152. But damages are limited to factors such as the balance owed for services provided, possible increases for costs to perform as a result of city-caused delays; amounts for change orders authorized by the city, reasonable or necessary attorney fees and interest.  Consequential damages are often limited and exemplary damages are not allowed.  An arbitrator may not follow these limitations, whereas a court by law has to apply these limitations. As always it is recommended that both a city or private party contracting with a city consult with an attorney regarding contracts and the provisions therein. For more information, please contact Leonard Schneider in our Houston office.

Leonard Schneider, J.D., Healthcare Attorney serves for multiple Texas cities and municipalities. Leonard Schneider, J.D., is highly experienced in the legal representation of Texas cities and municipalities.  He serves as outside legal counsel and “City Attorney” for a number of Texas cities and towns.  For a free consultation regarding the inclusion of arbitration provisions in your contracts, call: 1 (800) 475-1906.

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