Texas Court of Appeals, Fifth District

Case no.: 05-24-00253-CV
Date filed: January 30, 2026

A Texas appeals court has ruled that under the AIA General Conditions, the decision of the designated initial decision maker (IDM) was not final and binding. The project owner could not simply convert that sum into a judgment against the contractor and its performance surety.

ADC West Ridge L.P. awarded a contract to KWA Construction L.P. to construct a 132-unit apartment complex in McKinney. The contract incorporated the 2007 edition of the American Institute of Architects Document A201, General Conditions of the Contract for Construction.

The AIA General Conditions call for designation of an IDM to resolve disputes under the contract. This contract designated the project architect, Frank Pollacia, as the IDM. Section 15.2.5 states: “The initial decision shall be final and binding on the parties subject to mediation and, if the parties fail to resolve their dispute through mediation, to binding dispute resolution.”

KWA experienced delays from the outset of the project: problems with the civil engineering drawings, municipal conflicts regarding water supply to the site and other utility issues. The contractor filed numerous claims for additional compensation, release of retainage and time extensions. Pollacia rejected the claims for lack of “specifics.” Despite this, KWA completed the project, and the property was generating more than $100,000 per month in rental income within months of completion.

Pollacia performed a 12-month warranty inspection in August 2019, which concluded that nearly $1.89 million in remedial work was required. KWA Construction had filed a mechanic’s lien on the property in March 2018 for non-payment—a dispute that was still unresolved in 2019. Three years after the warranty inspection, Pollacia asked a construction company, J4 Development, to update the corrective costs in light of current construction conditions. J4 submitted a proposal and a spreadsheet for $12,149,284 in remedial work. The project architect issued a decision, which adopted J4’s spreadsheet as the cost of correcting defective or incomplete work.

KWA Construction sued ADC West Ridge for breach of contract. The project owner counterclaimed against the contractor and its performance bond surety, Hartford Fire Insurance Company. ADC argued the project architect’s decision was final and binding. A trial court agreed, granting judgment in favor of ADC in the amount of $12,149,284, plus more than half a million dollars in attorney fees. KWA and Hartford appealed.

The Court of Appeals of Texas said the project owner completely misconstrued the authority of the IDM under the AIA General Conditions. The initial decision was simply that—a first step in a dispute resolution process that progresses to nonbinding mediation and then binding resolution in a forum stipulated by the parties. The parties to this contract had in fact engaged in mediation at three points in the dispute. None of the mediation sessions had produced a resolution. This triggered the right to litigate, the method selected by the parties.

“After the mediations were unsuccessful, KWA retained the authority under the contract to then challenge the IDM’s decision in court. Thus, the IDM’s … decision was not final and binding, the trial court was not bound by it, and KWA did not lose its right to challenge it in a judicial proceeding.”

The court said the initial decision in this case was not only nonbinding, it did not even constitute credible evidence. “[W]e conclude KWA met its burden of demonstrating that there is no evidence to support the adverse finding…. ADC provided no evidence explaining how J4 determined which items to include in the bid, how it derived its estimates for quantities and pricing, and whether those estimates were reasonable and necessary. Thus, the trial court’s award of $12,149,284.27 in actual damages is legally insufficient.”

The AIA dispute resolution procedures are clear and well litigated. It is inexplicable that a county court took it upon itself to treat an initial decision as final and binding.

Neither party followed the contractual requirement for written demand for mediation. This became moot when the parties voluntarily participated in mediation multiple times. It is best practice, however, to strictly adhere to these requirements.

Participants: No attorneys of record listed.

Before: Justices Kennedy, Barbare, and Jackson

Opinion by: Justice Barbare

Outcome: Reversed in part, affirmed in part

Source: Please click here to read the complete opinion.