Are the Choice of Law and Venue Provisions in your Construction Agreement Enforceable?

Large companies with facilities in many states might prefer that venue and choice of law be set for the state the corporate headquarters is located.  However, that may not be an option in certain “home rule” states like Nebraska and Kansas.

The choice of law and venue section of a construction contract is normally at the end, and parties tend to gloss over them.  However, forum-selection and choice-of-law clauses control are very important.  They control every aspect of the parties' respective obligations and liabilities undertaken on a project from lien issues to indemnity. Payment, suspension of work and termination, good faith and fair dealing, indemnification, limitations of liability, third-party and extra-contractual liabilities, recovery of fees and cost shifting, and statutes of limitations all can be substantively affected by these negotiated terms. Given the complex risk allocation that occurs, project owners understandably expect that the parties' agreement to submit whatever disputes may arise to a specific venue, applying a specific state's laws, will be honored or enforced.

Companies with headquarters outside of Nebraska and Kansas, but completing projects in these should be aware that in effect, Nebraska and Kansas statutes require that all disputes arising out of construction projects in the state be litigated in that, applying that state’s law, regardless of the parties' negotiated terms.

Neb. Rev. Stat. § 45-1209 indicates that:

The following provisions in any contract or subcontract for construction work performed within the State of Nebraska shall be against public policy and shall be void and unenforceable:

(1) A provision that purports to waive, release, or extinguish rights to file a claim against a payment or performance bond, except that a contract or subcontract may require a contractor or subcontractor to provide a waiver or release of such rights as a condition for payment, but only to the extent of the amount of the payment received;

(2) A provision that purports to make any state law other than that of Nebraska applicable to or governing any contract for construction within the state; or

(3) A provision that purports to require that the venue for a court or arbitration hearing be held at any location outside of the state.

Kan. Stat. Ann. § 16-121(e) indicates that:

Notwithstanding any contractual provision to the contrary, the laws of the state of Kansas shall apply to and govern every contract to be performed in this state. Any litigation, arbitration or other dispute resolution proceeding arising from such contract shall be conducted in this state. Any provision, covenant or clause in such contract that conflicts with the provisions of this subsection shall be void and unenforceable.

Nebraska and Kansas are not the only state to have enacted home-court rules specific to home-state construction projects. By recent count, laws in 25 other states also mandate home-court rules specific to disputes arising out of contracts to build in-state projects: in Arizona, California, Connecticut, Florida, Illinois, Indiana, Kansas, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, and Wisconsin. Although the language and reach of such statutes somewhat vary, most cite public policy reasons for deeming void any provision in a contract to improve real property within the state that requires related litigation in, or subject to the laws of, another state. 

Many of our clients with headquarters in a given state would like all of their contracts, including construction agreements, to be subject to the law and venue of their headquarters’ state.  However, that is not an option when the construction project is located in these noted states where home rule is required. If you have questions regarding construction agreements, call an attorney at our Sioux Falls, Sioux City, or Omaha office today.

Angela Madathil is a Nebraska Construction Attorney and provides legal assistance to Contractors, Roofing Companies, Siding Companies, Architects, and Engineers in Nebraska, Missouri, and Kansas.   This can involve contract review and negotiation, ongoing contract guidance during a project, and risk mitigation when issues arise.  The Goosmann Law Firm team advises Contractors, Architects, and Engineers throughout the Midwest and has attorneys licensed in Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and other states.