Professional Documents
Culture Documents
Arbitration and Construction Disputes-Term Paper .002
Arbitration and Construction Disputes-Term Paper .002
Arbitration and
Construction Disputes
Personal views on arbitration
Larry Yenko
hearing. The decision must be made within 14 days from the cloture of the
hearing.
Procedures for large complex construction disputes are basically the
same as regular arbitration with emphasis on the arbitrator discretion with
expedient and efficient procedures (limiting discovery and other procedures).
Finally, resolution of disputes through submission of documents are
allowed if the parties agree to such procedures. The rules provide for the use
of technology to expedite the procedure and reduce costs. This procedure
may be used for any size claim if agreed upon by the parties.
Other organizations other than the AAA provide arbitration services. A
construction contract will specifically identified the arbitration organization
that controls the procedures and rules of the arbitration.
Besides the AAA, one such organization is the Construction Arbitration
Service (ACBA). The ACBA allows the arbitrator to use his/her discretion
(unlike the AAA) for rules only. The arbitrator must follow the procedures of
the ACBA. The procedures are similar to the AAA except for fees and time
limits. The rules are similar to the AAA, however, they are more general and
less numerous. The rules of evidence (as with the AAA) allow for complete
discretion vested in the arbitrator to modify or ignore the strict rules of
evidence except for the attorney-client privilege and the work product
privilege5.
Arbitration procedures and rules have even been presented by individual
arbitrators6 . Mr. Pierce has adopted by reference, procedures and rules from
Arbitration Services of Portland, Inc.7. These rules and procedures again are
similar to the AAA giving the arbitrator wide discretion in applying the rules
of evidence, testimony, witnesses and other legal procedures.
There are several international bodies that provide procedures and rules for
international arbitration.
England has produced Model Rules of Arbitration consistent with The
Arbitration Act of 1996 (England). The rules were promulgated in conjunction
with many professional organizations including engineers, architects, real
estate interests, surveyors and architects8. The procedures and rules are
similar to the AAA. Consistent with the AAA, provisions for the discretion of
the arbitrator including discretion for the rules of evidence are provided for in
the model rules9.
The International Institute for Conflict Prevention and Resolution (IICPR), a
Manhattan-based nonprofit organization formed in 1979 to promote
alternative dispute resolutions established arbitration rules and procedures
to be applied in arbitrations recognizing it as the controlling body in the
arbitration. The IICPR (consistent with other arbitration organizations
including the AAA) provides for expedited arbitration10. The organization
promotes expedited arbitration with additional expedited arbitration rules
which includes discretion, vested in the arbitrator, as to the application of
the rules of evidence11. In the case of IICPR, the expedited arbitration has
100 day time limit, limited discovery, possible mediation and other
procedures designed to reduce costs and expedite the arbitration while still
maintaining fairness and protections (prehearing procedures, privileges,
secrecy/privacy, appointment of neutrals etc.). Unlike most other arbitration
clauses, the IICPR, including the expedited procedures, provide for an appeal
to be heard by three Federal judges. Enforcement of the arbitration award
(by contract provision) is governed by the Federal Arbitration Act, 9 U.S.C.
1 et seq.
9 id at: Rule 5.1 p. 5
10 id
11 International Institute for conflict Prevention and Resolution, General and
Introductory Rules, (2010, accessed November 27, 2010)
http://www.cpradr.org/ClausesRules/ExpeditedArbitrationofConstructionDisputes/tabi
d/82/Default.aspx
6
should have expertise in the area he/she arbitrates. This is not to change the
subject but to advocate for arbitrators with expertise in the construction
industry and its processes. The more knowledgeable an arbitrator is in the
field he/she is about to arbitrate the better he/she can apply the rules and
procedures to expedite the dispute and minimize the cost.
In Nevada, there is a statutory requirement for nonbinding arbitration
in disputes of less than $50,000, NRS 38.250. The rules of such an arbitration
reflect that formal rules of evidence should be relaxed, Nevada Arbitration
Rules (NAR) 8 (A).This author had participated in several (6 ) arbitrations as
the arbitrator. These arbitrations were heard in Nevada. The procedures
argued in this paper were applied in the arbitrations. The author is also
experienced in administrative hearings (Appeals Office, Nevada Workers
Comp) where the appeals officer has the authority to vary his acceptance to
the rules of evidence in the semi formal proceedings.
Construction
arbitration clauses often incorporate formal laws (in this case, laws of
Nevada) in the language of the contract. Consistent with the purpose of
arbitration, the arbitration clause supersedes the contract language and the
arbitrator is given discretion (reference to arbitration rules in the contract via
controlling organizations such as the AAA) to avoid such formalities (dictated
by that law to be applied) in the interest of time and costs.
Because the arbitrator is both the finder of fact and decision-maker as
to the law and has expertise in the construction field, he/she is in a much
10
better position to weigh the evidence and give the weight it deserves
(without the protections of the formal rules of evidence as a layperson or jury
may require for fairness). The arbitrator should hear evidence that will reach
the merits and truth of the claim (and defense to those claims) in a way that
requires the parties to be precise in their arguments and the evidence they
present to avoid unnecessary delays and expense15.
Construction involves complex activities including design, material
compatibility, installation and warranty. A subpart of the above process
includes many relationships that may be of project duration or longer-term.
In all these long-term complex relationships (owner-contractor, contractorsubcontractor, subcontractor-sub subcontractor) the parties must survive
time limits that are imposed to complete a project. Implied in such schemes
is the need for cooperation even in light of the souring of such relationships.
To survive, the parties must expedite disagreements as the project
continues. This emphasizes the need for a timely resolution to disputes not
to mention minimizing the cost that may affect the bottom line profitability of
the project. Disputes can lead to intractable positions of the parties and
counsel may encourage the application of traditional litigation techniques. It
is the job of the arbitrator to fashion procedures that expedite the process
and reduce costs. An article in The Dispute Resolution Journal, authored by
Allen L Overcash and Erin L Gerdes advocates a five step process to
16 Allen L Overcash and Erin L Gerdes, Five Steps to Fast Track the Large, Complex
Construction Case, 64 issue 2 The Dispute Resolution Journal 36-41 (May-July 2009).
17 Allen L Overcash and Erin L Gerdes, Five Steps to Fast Track the Large, Complex
Construction Case, 64 issue 2 The Dispute Resolution Journal 36-41 (May-July 2009)
12
It has been estimated that even in its present status (litigation like),
arbitration is estimated to be 27% to 47% less expensive than litigation18.
The latest concern of the parties concerning arbitration is the cost.
Arbitration has evolved into a "scorched earth" litigation process19. Widened
discovery, expand and motion practice, extended examination and crossexamination, continuances and delays, all the practices that make litigation
expensive and time-consuming have overtaken the arbitration process. In
1994 the AAA created a task force of construction industry representatives,
design professionals and construction attorneys to address the increasing
costs and time expended. They came up with the three options listed above,
fast-track, standard, and complex construction case options. Since those
modifications to the AAA rules arbitration has evolved again into a expensive
process, so much so that the American Institute of Architects (AIA) has
eliminated the arbitration clause as a default dispute resolution process. The
form now includes several options requiring the parties of a contract to
affirmatively check a box four arbitration. Failure to do so automatically
places disputes into the court system
20
Mediation has become popular with large contractors since the gain far
outweighs the cost (low cost of mediation leading to possible settlement)
especially since mediation is nonbinding. Stephen A Arbittier, the author of
Conditional Arbitration: A New Approach to Construction Arbitration,
advocates a new process of a mini trial he calls Conditional Arbitration. In
this process the arbitrator conducts a mini trial himself for a fixed fee. He
may rely on discovery he sees fit, he may require written reports, he may
question witnesses himself, except affidavits and modify the rules of
evidence that assist him in making a decision including an award. This
decision is nonbinding and is time-limited (1 to 4 months). After the decision
either party has 30 days to accept or reject the arbitrator's findings. If the
decision is rejected the parties may ask the arbitrator to continue on as a
mediator22.
Conditional Arbitration is just another suggestion to reduce costs and settle
disputes in a timely manner. A combination of streamlined procedures,
discretion of the arbitrator to modify traditional rules including the rules of
evidence, nonbinding mini trials or mediation continue to be attempts to
improve alternative dispute resolutions. It is clear to me, that any
arbitrator/mediator must, to take advantage of new procedures, be familiar
with the construction process to make any construction dispute there, timely
and cost-effective. Arbitration and mediation will continue to be a major part
of dispute resolutions in the construction industry.
22 id at 41.
14
Bibliography
American Arbitration Association, Construction Industry Arbitration Rules
and Mediation Procedures, (Rules Amended and Effective October 1, 2009,
accessed November 24, 2010)
2
Construction Arbitration Service, Arbitration Procedures and Rules,
(accessed November 27, 2010)
http://www.acbaservices.com/Construction_Arbitration/CASRulesProcedures_J
1125171.pdf
3
Paul Pierson, Procedures and Rules for Arbitrations, (accessed November
27, 2010) http://brookingslaw.com/arbitration_rules.htm
4
Society of Construction Arbitrators, Construction Industry Model Arbitration
Rules (CIMAR), CIMAR, 1998
5
International Institute for conflict Prevention and Resolution, General and
Introductory Rules, (2010, accessed November 27, 2010)
http://www.cpradr.org/ClausesRules/ExpeditedArbitrationofConstructionDispu
tes/tabid/82/Default.aspx
6
International Chamber of Commerce, Dispute Resolution Services-ADR, ADR
Rules, (July 2001, accessed November 27, 2010)
http://www.iccwbo.org/uploadedFiles/Court/Arbitration/other/adr_rules.pdf
http://www.iccwbo.org/court/arbitration/id4399/index.html
7
International Chamber of Commerce, Dispute Resolution Services-ADR, ADR
Rules, (2009, accessed November 27, 2010)
http://www.iccwbo.org/court/arbitration/id5256/index.html
8
International Chamber of Commerce, International Commercial Arbitration
in Slovenia, How to Settle Your Business Disputes Efficiently, (2010, accessed
November 26, 2010)
9
William C Turner, Esq., A Brief Overview of the Use of Evidence in
Arbitration, October 2010 Nevada Lawyer 21 (2010).
10
Allen L Overcash and Erin L Gerdes, Five Steps to Fast Track the Large,
Complex Construction Case, 64 issue 2 The Dispute Resolution Journal 36-41
(May-July 2009).
11
Susan Zuckerman, Comparing Costs in Construction Arbitration and
Litigation, 62 Issue 2, The Dispute Resolution Journal 42-48 (May-July 2007).
12
Stephen A Arbittier, Conditional Arbitration: A New Approach to
Construction Arbitration, 61 Issue 2 The Dispute Resolution Journal 38-44, 40
(May-July 2006).
Table of Cases
EXBER, Inc. v. Sletten Construction, et al. 92 Nev. 721; 558 P.2d 517 (1976)
15
Broom v. Morgan Stanley DW, Inc. 169 Wn.2d 231. 236 P.2d 182 (2010)
The Arbitration Act of 1996 (England)
Federal Arbitration Act, 9 U.S.C. 1 et seq.
Uniform Arbitration Act, Chapter 7.04A
Uniform Arbitration Act of 2000, NRS Chapter 38
RCW 7.0 4A. 150
NRS 38.231
Federal Arbitration Act, USC Title 9
NRS 38.250
Nevada Arbitration Rules (NAR) 8 (A)
16