Consider Arbitration Options in Dispute
The author writes that parties
to construction contracts should use the inception of new
AIA contract documents as the perfect time to evaluate their
dispute resolution options.
many years, the American Institute of Architects standard
form of construction contracts has included a provision providing
for arbitration of disputes between the owner and the general
contractor through the American Arbitration Association using
the AAA Construction Industry Rules for administration of
In my practice, I have heard two common complaints over the
years from clients about this format for arbitration. First,
administration of arbitration by the AAA can involve excessive
administrative fees. Second, the arbitrator selection process
does not give the parties as much control over the arbitrators
who are to decide cases as some other arbitration formats.
Under the AIA format, the parties are furnished lists of
potential arbitrators from a panel of construction arbitrators
maintained by AAA. Each party makes some strikes from that
list, then the association makes the final selection. While
the AAA panel is a high-quality, well-trained group, knowledgeable
about the construction industry, the selection of arbitrators
is made by the AAA, not by the parties. This format does not
give the parties as much flexibility in arbitrator selection
as the method in which each party selects one arbitrator and
the two arbitrators then select a third arbitrator to join
them. There are pluses and minuses to both a panel selection
system and the party-picked arbitrator system.
Change is coming to the standard AIA documents. Under the
newest version, contracting parties are given the freedom
to designate the alternative dispute resolution provider of
their choice. Specifically, while the new A141-2004 form requires
mediation as a condition precedent to either arbitration or
litigation, the new form permits selection of any mediation
and arbitration provider on which the "parties mutually
agree." The new AIA documents offer parties the option
to choose the type of binding dispute resolution method that
will govern the agreement. Where the old version required
arbitration, the new version contains three options: 1) Arbitration,
2) Litigation, 3) Other (specify).
This seems to be a step in the right direction because it
forces contracting parties to pay some attention to how they
want to handle disputes if they arise. Contracting parties
ought to consider a range of questions and then tailor a disputes
clause to meet their particular needs and desires.
Important questions to consider before blithely signing a
standard form of contract with an arbitration clause include:
- Do you want to arbitrate at all? You do not pay judges
and jurors, you pay arbitrators.
- Do you think you would have a local advantage in a trial
over the party you are about to enter a contract with?
- Do you want appeal rights - you have them in a trial,
but not effectively in an arbitration.
- Do you want control over arbitrator selection? Do you
want to pay for third party administration of the arbitration?
Arbitrations can be administered by the parties themselves,
with access to the courts in case of disagreement.
- Do you want elaborate, limited or no discovery in an arbitration?
You can provide for discovery, limit or exclude it.
- Where do you want the arbitration hearing to be held?
Do you want to control the cost of the arbitration hearing
itself by providing for limits on the time each party will
have to present its case, the fees to be paid arbitrators,
use of court reporters, etc.?
- Do you want to arbitrate some types of claims but not
others? Do you want to be able to decline arbitration if
you cannot get all the parties necessary to the complete
and final assignment of no fault to take part in the arbitration?
For example, if an owner believes that its architect actually
made the mistake that a contractor is seeking to arbitrate,
would the owner want to arbitrate if the owner cannot get
the architect to join the arbitration as a party?
These questions can be resolved with a properly drafted arbitration
clause. Parties to construction contracts should use the inception
of the new AIA contract documents as the perfect time to evaluate
dispute resolution options. If they are not resolved in advance,
you may be at the mercy of AAA administrators, a court acting
as arbitration administrator or the arbitrators themselves.