Returning Arbitration to an Effective Process in CONSTRUCTION CONTRACTS

Article excerpt

This article discusses the advantages of arbitration for construction disputes and how to tailor the process to the needs of the parties. It also addresses the recent change in the AIA standard form construction contract making arbitration an election rather than the default process.

In recent years, the arbitration process has been under increased scrutiny in both the local and national press. Lawyers and business commentators alike have expressed divergent views about whether arbitration, in practical terms, is any less expensive or time-consuming than litigation. That debate, however, has often focused on abuses of the arbitration process that make it more like traditional litigation, rather than on any inherent problems in arbitration and, as a result, has overlooked the fact that arbitration can be an efficient way to resolve disputes outside the court system.

Within the construction industry, that debate is particularly relevant. Deciding between arbitration and litigation as the favored dispute resolution process for disputes arising out of construction projects has never been more important because of recent changes in the standard construction contracts published by the American Institute of Architects (AIA). Every 10 years the AIA revises and updates these standard contracts, which are the primary contract documents used across the country on every type of construction project.

In early November 2007, the AIA released the latest revision to its most widely used standard contract document, AIA A201, "General Conditions of the Contract for Construction." Under the 1997 version of A201, boilerplate provisions mandated that when disputes arise, the parties to the contract must participate in the arbitration process. But that is no longer true. Under the new version of A201, the parties must elect to use arbitration by checking the arbitration box. If they don't, they will be opting, by default, for litigation.

For everyone in the construction industry, that's an important change. Many construction participants already know the benefits of arbitration and will elect to arbitrate disputes that cannot be settled in mediation. Others, however, will have to consider their options in order to decide how to deal with the dispute resolution provisions under the new AIA contract documents. In other words, they will have to decide which is the better option-arbitration or litigation. The purpose of this article is to help them make that decision by explaining the advantages of arbitration and how the process can be made to work effectively and efficiently.

Advantages of Arbitration

Greater Efficiency. Construction arbitration proceedings are almost always less time-consuming than litigation. This is because the process allows only limited discovery-usually just an exchange of relevant documents and few if any depositions-while litigation permits extremely wide discovery and lengthy depositions. Without question, the discovery part of the litigation process-which can include lengthy requests for documents and long lists of written questions called interrogatories (which can have multiple subparts)-can cause the time spent litigating (and hourly legal fees) to add up. Other causes of high litigation costs include the time spent questioning witnesses under oath in pretrial depositions.

Another reason why litigation takes much longer than arbitration is that a respondent is allowed 20 days to answer a complaint, and then each side has 30 days to answer each discovery request served. When these time periods are close to running out, the parties' counsel often send out requests to extend these time periods.

Then there is the motion practice associated with litigation. It is normal litigation practice for the attorneys to file every possible motion they can. When a motion is filed, the attorney for the moving party needs to prepare a memorandum of law (also called a legal brief) for the court and this takes a lot of lawyer time. …