Arbitration - Promises Made, Promises Broken

By Braun, Joseph | Public Management, November 1998 | Go to article overview

Arbitration - Promises Made, Promises Broken

Braun, Joseph, Public Management

One of the current truisms is that the resolution of disputes in arbitration is both faster and less expensive than litigation in court. Arbitration also is commonly described as simpler, fairer, and less onerous than a lawsuit. My recent experience with arbitration makes clear that this truism is nonsense. Arbitration can be an expensive, unending kangaroo court in which the concepts of justice and fairness are trampled and neither the arbitrators nor the arbitration association seems to have any interest in anything other than maximizing the fees paid to them by the parties.

Beacon's Experience

My visit through the looking glass to the surreal world of arbitration began innocently enough. The city for which I am administrator was undertaking a large construction project that was to be a centerpiece for the community. A great deal of planning was done to make sure that the construction would go smoothly. Part of that planning involved the preparation of contract documents to be used by the various contractors who had succeeded in bidding for the work.

During that preparation of contract documents, the issue arose of whether to include a provision in the contract that would require the resolution of all disputes by arbitration. The city's attorney advised that arbitration should not be used because resolution of disputes in court would give the city clear advantages. In retrospect, this was outstanding advice.

We chose, however, to include an arbitration provision. After all, arbitration was supposed to be faster and less expensive. It also was supposed to result in rough justice without all of the complicated procedures followed in a court. We thought that by choosing arbitration, we were assuring a fair hearing both for the city and for its contractors. We later found out that we had been acting on the basis of a delusion.

Unfortunately, we were forced to make use of the arbitration provision of the construction contracts. After the construction project began, serious problems arose that affected the cost and schedule of that work. The city had to pay costs for extra work amounting to about 15 percent of the contract price and had to give lengthy extensions of time for completion of the work.

Despite these payments and time extensions, the city's contractor quickly started filing claims and continued this conduct throughout the job until there were more than 100 claims awaiting resolution. In fact, in late 1995, about 10 months into the project, the contractor demanded arbitration of its claims and filed the necessary papers with the American Arbitration Association.

The commencement of arbitration required Beacon to hire lawyers to deal with the claims in that proceeding. It also cast a pall over the entire construction project because everything now was seen in the context of the arbitration. As a result, I hoped that arbitration would quickly resolve the disputes. Unfortunately, this did not happen. Instead, the contractor kept adding and removing claims to arbitration as the job continued, and the resulting problems on the construction project went on unabated.

Process Problems

In the meantime, the city and the contractor chose arbitrators under the supervision of the American Arbitration Association. This selection process continued for more than a year and resulted in the arbitration association's naming a panel of three arbitrators who were supposedly knowledgeable about the construction industry in general and municipal construction in particular.

I expected to see contractors or owners/developers on the panel but found that no such people had been chosen. Instead, two lawyers had been appointed, together with an architect who said he had never been involved with a municipal construction project. The true impact of the selection of these arbitrators was not clear until the hearings had actually begun.

At the preliminary conference, which was our first meeting with the arbitrators, both the city and the contractor agreed that the arbitration would take at most eight days of hearings and told the arbitrators of this estimated duration. …

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