## Facts

- The Loudon County Board of Education contracted with Southern Constructors, Inc. (SCI) for additions and renovations to two county school buildings.
- During construction, SCI’s subcontractor ruptured an electrical cable, disrupting power and damaging switchgear; repairs were completed at no cost to the Board, but parts of a building lacked electricity during the outage.
- Mold and mildew were discovered in an area without power; the Board asked SCI to remediate, and SCI refused, asserting no contractual responsibility.
- The Board hired contractors to remove the mold and mildew for $115,248.22 and withheld that amount from sums otherwise owed to SCI under the construction contract.
- After mediation failed, the parties executed a written post-dispute arbitration agreement (after having removed an arbitration clause from the original contract) and arbitrated before a mutually selected arbitrator.
- The arbitrator ruled primarily for the Board but awarded SCI $10,000 plus interest and certain expenses, without stating reasons; the arbitrator denied SCI’s request for clarification.
- SCI filed suit to vacate the award, arguing the Board lacked statutory authority to enter an arbitration agreement, making the agreement and award void.

## Issues

1. Whether a Tennessee county board of education has legal authority, under the strict construction rule for local governmental powers, to enter into and be bound by an agreement to arbitrate a dispute arising from a school construction contract.
2. Whether the Board’s authority to arbitrate can be fairly implied from its express statutory authority to contract for, manage, and supervise school construction projects.

## Decision

- The Tennessee Supreme Court reversed the chancery court’s denial of the Board’s summary judgment motion and dismissed SCI’s action to vacate the arbitration award.
- The Court reaffirmed Tennessee’s rule that local governmental powers are strictly construed.
- The Court held that the Board’s power to agree to arbitration of construction contract disputes is fairly implied from its express statutory authority to enter and administer school construction contracts.
- Because the Board had authority to arbitrate, the arbitration agreement was valid and SCI’s ultra vires challenge failed; the arbitration award remained in effect.

## Legal Principles

- Local governmental entities possess only those powers expressly granted by statute and those necessarily or fairly implied, or indispensable to accomplishing expressly declared purposes.
- “Strict construction” of local governmental powers permits reasonable implication of incidental powers connected to an express statutory grant.
- When a local governmental entity is expressly authorized to enter into construction contracts, it may, absent statutory prohibition, agree to arbitration as an incident of contracting to resolve disputes arising under those contracts.
- A party seeking to vacate an arbitration award on the ground that a public entity lacked power to arbitrate must show the agreement was beyond the entity’s implied or express statutory authority.

## Conclusion

The court held that a county board of education’s express authority to contract for and administer school construction fairly implies authority to enter a post-dispute arbitration agreement regarding that contract; accordingly, the Board’s arbitration agreement was valid and the contractor’s suit to vacate the award was dismissed.


S. Constructors, Inc. v. Loudon Cnty. Bd. of Educ., 58 S.W.3d 706 (Tenn. 2001)