January 12, 2015
Author: , Esq.

For many years, construction project stakeholders preferred to have their disputes resolved through binding arbitration. Arbitration offers many advantages for these types of disputes: the ability to manage the process in accordance with the wishes of the parties; selection of an arbitrator with expertise in construction, or, for large cases, a panel with mixed expertise – such as a design professional, a construction manager, and a construction law attorney; finality (since there are very few bases to overturn an arbitration award); and reduced time to reach hearings, which generally results in cost savings.

Over the past couple of decades arbitration has come under fire in the construction and other commercial industries. The main complaint is that time and cost have both increased dramatically as arbitrations have come to mirror litigation. The result is that parties are rethinking whether to designate arbitration as the form of dispute resolution in construction contracts. In fact, the 2007 edition of the American Institute of Architects construction forms revised the dispute clause that formerly designated arbitration as the default process and now requires parties to affirmatively check off either arbitration or litigation.

Dispute resolution administrative providers, have made efforts to meet these complaints, through optional new procedures for a streamlined approach and through ongoing seminars for arbitrators to encourage what is often referred to as “muscular arbitration” – where the arbitrator takes a proactive approach to case management in order to rein in costs, without sacrificing the ability of parties to effectively prosecute and defend their cases.

The assistance of arbitration providers in achieving the goals of fairness and efficiency is central. But the parties to the dispute – and their counsel – can take affirmative steps both before and during the arbitration process to resolve the dispute with speed and economy, without sacrificing due process rights.

Arbitration Clauses

Counsel for contractors, design professionals and project owners should consider modifying boilerplate clauses, such as those included in the AIA documents, in order to take control of the arbitration process even before a dispute develops. For small projects, their clients may be comfortable with agreeing to no or a very limited number of depositions, or agreeing that there will be no dispositive motions prior to hearings. For larger projects, even if the parties and counsel want to make sure that they retain the option to engage in discovery that more closely resembles that allowed for in litigation, they can limit the discovery process. For example, they can agree that there will be no interrogatories and that depositions will be limited a certain number of witnesses or days. Alternatively, the clause can avoid a specific restriction in order to retain wiggle room, but still signal to the arbitrator that the parties seek a streamlined approach. For example:

The parties acknowledge and agree that they are choosing arbitration of any disputes arising out of or related to this Agreement, in part, in order to achieve an economical and efficient method of dispute resolution, while preserving their rights and ability to effectively prosecute and/or defend against any claims. The parties agree to work cooperatively with the arbitrator(s) to develop discovery and hearing protocols to achieve these goals.

Arbitrator(s), who have limited authority to control the process, can rely upon such a clause when making case management decisions that reduce time and cost even in the face of pushback by one of the parties.

Arbitration Panel

For larger cases, three-person panels are typically used. Under the AAA Rules, cases over $1 million are automatically assigned to a panel. The parties should bear in mind that even with this default, the process is under the control of the parties – they can decide that they do not want to pay that expense and agree to use a single arbitrator. This choice should be made carefully, however – a three-person panel offers a range of expertise and generally reduces the likelihood that a key technical point will not be overlooked or misunderstood.

If a three-person panel is chosen, the parties can decide that the chair (typically a construction law attorney) will handle all pre-hearing case management, while the full panel will consider any dispositive motions and participate in all hearings and the award process.

Document Production

For smaller projects, the parties may agree simply to produce their entire project files, without having to make and answer specific document requests.

For larger projects, rather than asking for the entire project file, counsel can identify categories of documents, review the responses, and, if necessary, serve a supplementary round of requests for items that appear to be missing. Counsel may even consider exchanging only those documents upon which the adverse party will rely to prosecute or defend their case. While attorneys are geared to trying to find a “smoking gun,” in the vast majority of construction disputes, such a document does not exist and the time and cost necessary to review every document, or to use search terms for electronically stored documents, is not worth it. Counsel, the parties and the arbitrator should strive to cut through the litigation mentality to arrive at a discovery process that matches the particular dispute.

Parties may be able and willing to allow certain project file documents, including plans and schedules, to be viewed on a project website. If one party is requiring much more extensive e-discovery than the other, the arbitrator can allocate costs accordingly.

Interrogatories and Depositions

There are very few cases for which interrogatories are necessary. Parties can simply exchange a list of fact witnesses, with a brief description of the factual knowledge of each witness. Depositions can then be limited to the smallest number necessary. Generally, two depositions of fact witnesses per party may be all that is really needed.

Expert reports can be exchanged simultaneously, with an opportunity for a rebuttal or other supplementary report for each side thereafter. There is generally no need to depose the experts. One of the advantages of arbitration is that the panel will consist of one or more construction experts who should be able to drill down on the report’s strengths and weaknesses without the need for deposition testimony.

Motion Practice

The standard for pre-hearing motions should be quite high if the parties want to rein in time and costs. Counsel may be required to submit a letter explaining why the motion will streamline the process. While a motion to dismiss based on statute of limitations may be appropriate to have the matter dismissed pre-hearing, summary judgment motions should generally be discouraged, since any question of fact will require a hearing. The idea of “educating” the arbitrator about the factual and legal position of the moving party, which is sometimes the motivating factor in the litigation arena, is counterproductive.

The parties may agree to submit a dispositive legal issue to the arbitrator and then resolve the remaining dispute themselves. For example, if the dispute centers on whether unsigned change orders should be compensated, once the arbitrator rules on that issue, the parties may want to negotiate the resulting amount due, rather than spend significant time and money on  putting in the necessary proofs to document those costs.

Hearing Protocol

 The parties should strive to submit joint statements of facts not in dispute and joint exhibit binders to the extent possible. In very large cases, the parties may want to submit a binder of key documents that will be referred to frequently throughout the case, in order to reduce the time needed to search for them during the hearing. Exhibits may be admitted in bulk.

An outline of direct testimony may be submitted prehearing, with a limit of time (for example, fifteen minutes) to review the direct testimony at the hearing, followed by cross-examination. Affidavits of non-critical witnesses may be considered, rather than in-person testimony.

Experts may be brought in at the close of all fact witnesses to provide testimony in sequence, possibly with the ability of the experts to pose questions to each other.

Out-of-state witnesses may provide testimony by telephone or video conference.

Briefs

The parties can agree to page limitations for pre-and post-hearings briefs or, in small cases, not to have pre-hearing briefs at all.

AAA Fixed Time and Cost Construction

In June 2014, the AAA inaugurated a new set of optional rules that parties can use to limit the maximum time to complete the arbitration, the number of hearing days the arbitration will run, the arbitrator costs, and the AAA administration fees. For example, for cases in the $250,000 to $500,000 range, the fixed time and cost rules prescribe a maximum of 180 days from filing to award, with no more than three hearing days. Arbitrator compensation for hearing days and study time (limited to 12 hours) is capped at $275 an hour. Administrative fees to the AAA are fixed at $5000.

JAMS Streamlined Arbitration Rules & Procedures

 Another approach to streamlining arbitration is to require parties to furnish detailed information regarding claims and defenses early in the process. For example JAMS Streamlined Rules No. 7 requires claimants to file a detailed statement of the claim, including all material facts to be proved, the legal authority relied upon, copies of all documents that the claimant intends to rely upon in the arbitration and names of all fact and expert witnesses that it intends to call at hearings.

Conclusion

The bottom line is that the parties are in control of their own arbitration process. The ideas being offered by arbitral institutions and individual arbitrators can be mulled over and molded into the process that the parties want to fit their unique situation. Arbitration remains well-suited as a means to reach a just, equitable and binding award of construction disputes. The key to keeping down the costs and time needed to reach that award is to be proactive and creative before and during the arbitration process and to work cooperatively with adverse counsel and the arbitrator in making the process work for you.