Construction Law Blog

American Arbitration Association Revises Rules for Construction Arbitration

On July 1, 2015 the American Arbitration Association (“AAA”) issued revisions to its Construction Arbitration Rules and Mediation Procedures intended to address preferences of users for a more streamlined, cost-effective, and tightly managed arbitration process.  The AAA’s press release announcing the rule amendments, which became effectively immediately, states that the changes “reflect what the [AAA] learned from focus groups conducted across the country” structured to “ensure that all industry sectors had the opportunity to provide input.”

Perhaps the most significant change to the rules is the new “mediation step”, which provides subject to any party opting out, all cases with claims that exceed $100,000 must proceed to mediation at some point during the arbitration.  The new mediation step rule requires mediation in accordance with the AAA’s Construction Mediation Procedures and provides that unless specifically agreed to by all parties, the mediator may not be appointed as an arbitrator in the case.  According to the AAA, the mediation step is a “novel approach” to dispute resolution “intended to further assist the parties with the quick and economical resolution of their disputes.”

The amendments also include a new rule regarding a “Preliminary Management Hearing” that generally should take place very soon after the arbitrator is appointed.  The purpose of the hearing is to allow the parties and the arbitrator to “discuss and establish a procedure for the conduct of the arbitration that is appropriate to achieve a fair, efficient, and economical resolution of the dispute.”  The parties and the arbitrator have the option of conducting the preliminary management hearing in person or telephonically.

Other changes brought about by the amendments give the arbitrator a greater degree of control over the discovery process, the power to impose sanctions upon parties that fail to comply with the mandates of the arbitrator and the ability to allow parties to file dispositive motions.  Finally, the amendments contain a new mechanism that will allow the AAA to appoint an emergency arbitrator within one day to rule upon requests for emergency relief (but only for claims arising from contracts entered into on or after July 1, 2015) and contain time limits and filing requirements intended to streamline the consolidation and joinder processes.

More information about the AAA’s changes to its Construction Arbitration and Mediation Processes is available on the AAA’s website.

New Supplementary Rules for Fixed Time and Cost Construction Arbitration have been developed by the American Arbitration Association

Arbitration has historically been the preferred method for resolving construction disputes in the United States, as many in the industry have (1) preferred the idea of having complex construction disputes decided by someone with construction-specific experience and expertise, and (2) viewed arbitration as being quicker and more cost-effective than litigation.  More recently, however, arbitration has lost some of its reputation as the best method to satisfy the construction industry’s desire for efficient and cost-effective alternative dispute resolution. See Thomas J. Stipanowich, Arbitration and Choice: Taking Charge of the “New Litigation,” 7 DePaul Bus. & Com. L.J. 383 (Spring 2009) (“Despite meaningful efforts to promote better practices and ensure quality among arbitrators and advocates, criticism of American arbitration is at a crescendo”).

In response to some of this recent criticism, on June 15, 2014, the American Arbitration Association (“AAA”) implemented new supplementary rules, in which parties involved in construction disputes will now have the ability to limit the time and cost of arbitration.  In conjunction with the National Construction Dispute Resolution Committee, the AAA created Supplementary Rules for Fixed Time and Cost Construction Arbitration (the “Supplementary Rules”) that are intended “to provide an arbitration process that will be predictable in terms of total time and cost.”  The Rules “envision the parties and their representatives working in a collaborative manner to move cases along within the required timeframes.”  For example, for cases in the $250,000 to $500,000 range, the Supplementary Rules prescribe a maximum of 180 days from filing to award, with no more than three (3) 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 $5,000.00

“Parties involved in certain construction dispute cases can now be more certain about the time and cost associated with their arbitration,” says Rodney Toben, AAA Vice President, Construction Division.  “We believe the solution responds to many concerns that arbitration costs in terms of dollars and time may have grown unpredictable.  We see the new supplementary rules as innovative, reasonable, and clearly defined so that all parties benefit,” M. Toben said. To learn more about the Supplementary Rules, please visit http://go.adr.org/FixedTimeandCost.