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A contractor performing work on a federal project in Oregon could be sued or forced to sue in Hawaii over disputes arising out of work on that federal project within Oregon. Likewise, a contractor that agrees to a single contract requiring work on federal projects in multiple states could be forced to litigate claims that arise out of that single contract in multiple states.

The place where disputes are resolved will have a strong bearing on one鈥檚 resolution perspective. Litigation in one鈥檚 backyard is substantially easier to manage than litigation on the other side of the country. Litigation in numerous states could be crippling, where the same litigation in one state would make financial sense.

What鈥檚 more: states have different rules regarding interest that accrues on unpaid amounts, the types of claims a contractor might bring, and the sorts of witnesses that are available. You might not be in Kansas anymore; or, more precisely, you may have a problem because you are in Kansas. This strange situation makes it very important that an acceptable location for dispute resolution be chosen for contracts for federal construction projects.

The Oregon Legislature anticipated this potential issue and enacted a statute to ostensibly protect Oregon contractors. Under ORS 701.640, 鈥渁 construction contract鈥� may not include any clause that 鈥渞equires any litigation, arbitration or other dispute resolution proceeding arising from the construction contract to be conducted in another state.鈥�

Other states have enacted substantially similar statutes, which appear to be based on an assumption that the location of construction should also be the place where related litigation occurs. But those statutes fail to consider federal projects, which do not necessarily arise in any state and can involve work in multiple states.

For example, a federal court in Texas ruled in a case involving J-Crew Management Inc. and Atlantic Marine Construction Co. that a dispute arising out of work on a federal project in Texas could be litigated in Virginia because the parties鈥� contract chose Virginia as its dispute resolution state. The court explained that the state of Texas had no right to 鈥渆xercise legislative jurisdiction over property located entirely within the federal enclave.鈥�

So if an Oregon court were to follow the same reasoning, federal projects performed within the boundaries of Oregon could be subject to dispute resolution in far-flung locations.

Federal projects sometimes involve work in multiple states. Imagine a federal project with work in 10 states. A dispute arises over a payment of $500,000. Neither party wants to compromise on that amount of money. They have a forum selection clause for one state, but that state is more favorable to one of the parties. The other party might threaten to force litigation in all 10 of the states where the work was performed.

How could that be done? Statutes like ORS 701.640 arguably require that construction disputes be resolved in the state where the construction work occurred. If the construction work occurred in 10 different states, ORS 701.640, the argument goes, would require litigation in 10 different states. No legislature would have intended such an expensive and absurd result; these types of projects are unique and best governed by the dispute resolution provision in the parties鈥� contract, which could have been reviewed by both parties in advance of any dispute.

How should a contractor protect itself in this crazy environment? First, read the dispute resolution clause in the construction contract. Disputes arising out of work on federal projects could be subject to resolution in a far-flung location. Contractors should be aware of whether they are taking that risk.

Second, if a contractor is working on a federal project involving multiple states, that contractor would be well served to choose a single location for litigation. Your friendly lawyer would prefer that you choose Hawaii.

David Anderson is an associate attorney with Schwabe, Williamson & Wyatt. He focuses his practice on real estate and construction. Contact him at 503-796-2456 or at [email protected].