Many construction professionals are used to seeing venue and choice-of-law provisions in construction contracts. For example, a contract might say that “the parties agree that any controversy or dispute arising out of this agreement shall be resolved only in the courts of the Commonwealth of Massachusetts” and that “the rights and obligations of the parties shall be governed by the laws of Massachusetts.”

These provisions usually appear in the in the “boilerplate” near the end of the contract, and typically don’t attract much attention. But it’s worth understanding how such provisions function and in what circumstances they are enforceable. The alternative can mean being stuck in a court far from home—often in the backyard of the disputing party, where a contractor would rather not be forced to litigate a case.

First, as a general principle, courts enforce contractual venue and choice-of-law provisions as drafted. For example, a large contractor based in California signed a contract for a job in Texas. The contract contained a provision stating that any disputes arising out of the work must be resolved in Texas courts. If the contractor brings suit against the contract partner in a California court, it should expect that court will likely dismiss the claims based on the venue provision in the contract. The same applies for contractual provisions that mandate arbitration of disputes before the American Arbitration Association or another arbitration body. In those instances, the arbitrator will require that the arbitration hearing take place in the locale stated in the contract—regardless of where filing the demand.

Venue and governing law clauses will not be enforced, however, where projects occur in states that have “home court,” or “home rule” statutes. More than half of states now have laws requiring that disputes surrounding construction projects must be resolved within the in the state where the project took place. These laws typically state that any contractual agreement between the parties to resolve a dispute in a different state—or under another state’s laws is voidable by the party that agreed to do the work. The purpose of these provisions is usually to protect local contractors and subcontractors who may have been hired by an out of state developer or contractor, and who may be deterred from suing to collect unpaid bills if they have to do so hundreds of miles away. The cost and risk of finding new attorneys to sue in a distant court may prevent companies from collecting on valid debts.

There is also another, more reliable exception to when such “home rule” laws apply: agreements selecting the governing law or venue for an arbitration conducted in another state are enforceable even when a state statute says they aren’t.

Arbitration has become a popular method of resolving construction disputes; it is more private, and in theory, less expensive and more efficient than resolving a dispute through a traditional court proceeding. Many decades ago, Congress enacted a law called the Federal Arbitration Act that favors arbitration and places arbitration agreements on equal footing with all other contracts. And because the U.S. Constitution makes federal law the supreme law of the land, federal laws “preempt,” or override, state laws that are inconsistent with them. As a result, several federal appeals courts have decided that where a state law purports to invalidate a provision in a construction contract that disputes must be resolved via arbitration in another state, the state law is preempted by the Federal Arbitration Act, and therefore has no effect. The contract wins out.

The picture that emerges is a growing consensus in the federal courts that “home rule” laws are invalid to the extent they attempt to invalidate parties’ agreements mandating arbitration in a certain place. Of course, this does not mean that the state “home rule” laws are invalid when applied to venue provisions in construction contracts that do not mandate arbitration. In that circumstance, the “home rule” law applies, and a provision requiring that disputes be heard in another state’s courts is voidable.

While the legal rules surrounding venue and choice-of-law clauses in construction contracts can initially seem convoluted, they are actually fairly simple: Courts generally enforce venue and choice-of-law clauses, unless there is a “home rule” law on the books in the state where the project is built. But thanks to federal law, arbitration provisions are virtually sacred: even if a given state has a “home rule” law, it will not apply to contracting parties’ chosen venue for arbitration.

When drafted effectively, venue provisions in contracts can be an effective way to limit uncertainty about where and how disputes will be resolved. However, at the same time, the prevalence of “home rule” laws in many states means that such provisions cannot always be taken at face value—even by the party that drafts the contract.