New Rules for Expedited Construction Arbitration in the United States (Web)
April 30, 2007
JESSE B GROVE III, Retired Partner, Thelen Reid Brown Raysman & Steiner LLP1
The United States construction industry originally embraced arbitration primarily because litigation in state or federal court costs too much and takes too long.2 Arbitration is now subject to the same criticism.
Cost and delay (one inevitably goes with the other) are now the main concerns about arbitration under the rules most widely used. One often hears the lament that “the lawyers have taken over the process”, but what that really means is that the process has become too expensive in the hands of lawyers doing things very much like they do in court. This is no minor issue. Small disputes can hardly be said to be worth the effort. Large disputes produce legal fees that can mount into the millions. Clients are making their lawyers miserable with complaints and the lawyers, once stuck in the process, are helpless to do anything about it. Countless unproductive hours are spent on budgeting, mostly serving to increase the friction due to the woefully inexact nature of the game. Pressures are applied to hourly rates and staffing.
Some in-house counsel are making reputations by ratcheting down outside legal costs regardless of the wisdom of their techniques for doing so. There is hardly any gathering of construction lawyers today that does not feature a panel agonising over how to control costs of dispute resolution.
How we got to this point does not matter. Suffice to say that there will always be tension between dispute resolution efficiency and due process. When organisations like the American Arbitration Association (“AAA”) set up task forces to work on arbitration rules there are fierce battles between those who want the full (or fuller) panoply of procedural protection and those who just want to get it done. The divisions are usually identifiable as being between those who normally expect to be seeking damages (contractors, subcontractors) and those who normally expect to be resisting claims (employers, contractors).
1 The author was the Chairman of the drafting sub-committee of the International Institute for Conflict Prevention & Resolution (CPR) Construction Advisory Committee which produced the new Rules described in this article.
2 That was a big step. Hundreds of years of development of evidentiary and procedural protection of due process and fairness was essentially cast aside in favour of arbitrator discretion. Pt 2] New Rules for Expedited Construction Arbitration in the US 137
CPR PROCEDURES & CLAUSES
Rules for Expedited Arbitration of Construction Disputes
Domestically, the use of arbitration in construction disputes continues unabated as does dissatisfaction with its prolonged time frames and expense.
The United Kingdom’s speedier construction adjudication process propelled CPR to challenge the existing American structure and develop an expedited arbitration procedure for construction disputes centered on a 100–day hearing time frame.
The process retains the hallmarks historically associated with arbitration: a fair, expeditious, private and less expensive process than litigation. It also contains familiar protections to avoid erosion of parties’ rights that could occur with a less carefully-drafted procedure. Nonetheless, it allows tight arbitrator control and fosters compressed time frames to bring about sought-after speed and reduced expense. While party modification of the Rules is permitted, the intent is to retain an expeditious process.
Highlights of the Rules
Compressed Time Frames: Throughout the Rules, time frames are abbreviated for expedition.
100-Day Hearing Window: After conclusion of a pre-hearing conference, the arbitrators set the date to commence the arbitration hearing process to be completed within 100 days which includes 60 days for discovery, 30 days for hearing, and 10 days for award issuance.
Presumptive Use of Three Arbitrators: Parties each select an arbitrator and they select the third. Parties can affirmatively opt, in the pre-dispute clause, to use one or three arbitrators, all appointed by CPR, to expedite selection.
Appointment of Arbitrators by CPR: If any party fails to comply with its appointment obligations, CPR shall appoint arbitrators under tight time frames.
Detailed Pleadings Required: The Statement of Claim and Defense must include facts, law, documents, as well as names of experts and percipient witnesses.
Avoiding Ambush: Respondents can avoid ambush by filing a motion to extend time to respond, in lieu of a Notice of Defense, if good cause exists. The motion can delay the commencement of the 100-day period, but will not expand it.
Limited Discovery: The tribunal will require exchange of documents and may exclude that which was not, and should have been, exchanged; it can permit expeditious and limited discovery, within a standard of “needs of the parties and expeditious, cost-effective discovery,” which may include a few days of depositions or one day for expert depositions; and the Tribunal will impose strict limits on e-discovery.
Time Frame Control: The tribunal may direct the manner of use of time at the hearing.
Subpoena Enforcement: Any member of the Tribunal can conduct a hearing in any location to enforce a subpoena.
Neutral Expert Appointment Possibility: The arbitrators can consider appointment of neutral experts to expedite the process.
Mediation Possibilities: Parties can agree to interrupt the proceedings to pursue mediation at any time and may have a separate mediator sit in on the arbitration proceedings in order to conduct simultaneous mediation. CPR Arbitration Appeal Procedure: The pre-dispute clauses include the option of agreeing to use CPR’s private Arbitration Appeal Procedure that employs three former federal judges; the clause sets out the requirements for easy reference.
Expanded Panel of CPR Construction Neutrals: The Rules are complemented by an expanded CPR Panel of Construction Arbitrators including non-lawyers who have
committed to apply the time periods of these Rules. This addresses one of the main causes of delay: congested arbitrator calendars.
Other Standard CPR Protections
The Rules include standard CPR provisions for arbitration.
• will hold a pre-hearing conference at which procedures are determined;
• will apply the attorney-client and work-product privileges;
• will protect proprietary information, trade secrets, and sensitive data;
• will issue reasoned awards and may issue dissenting views; and
• all arbitrators must be neutral, however appointed. The Rules also comply with CPR Principles for Non-Administered Arbitration.
Download a PDF of the Booklet here