Construction Arbitration Is Too Lengthy & Costly. The AAA Hopes to Fix That.

As I noted last November, there’s a growing concern among construction industry stakeholders and others that arbitration too often fails to serve its intended purpose as a speedy, less costly and more streamlined alternative to civil litigation.  This rising chorus has complained that pre-hearing discovery is too extensive and drawn out, the hearings themselves take too long, and at the end of the day, no meaningful cost savings are actually achieved.

The American Arbitration Association (“AAA”) is taking those concerns seriously.

Last June, it rolled out its shiny new Supplementary Rules for Fixed Time and Cost Construction Arbitration, intended “to provide an arbitration process that will be predictable in terms of total time and cost,” particularly for cases “with discrete issues that would benefit from limited document exchange and discovery.”

Here are five key features of the new rules:

1.  They only apply to two-party disputes, although this limitation does not extend to a surety represented by the same counsel as its principal and which is not asserting any independent claims against the principal in the arbitration.

2.  Demands for arbitration are limited to five (5) pages.  So, too, are answers to such demands — even if the answer contains a counterclaim.

3.  The AAA must schedule an administrative conference to discuss arbitrator selection and explore expediting the proceeding within three (3) days of the arbitration demand.  Fourteen (14) days later, the parties must meet and confer to finalize arbitrator selection, schedule the hearings, identify the total number of hearing days and agree upon the scope of pre-hearing discovery activities.  Should the parties fail to identify three (3) mutually agreeable arbitrator candidates, the AAA will appoint one within five (5) days of the “meet and confer” conference.  If the parties can’t agree on the logistics of the proceeding, the arbitrator will hold an administrative call to resolve the issues within seven (7) days of his/her appointment.

4.  The filing fees, duration of the proceeding, number of hearing days and rate of arbitrator compensation are all spelled out — and, more importantly, capped — in “Schedule 1” of the Supplementary Rules, which I have reproduced for educational purposes below (click the image to see a larger version):

5.  The arbitration award must be made within twenty (20) days from the close of the hearings.

Construction industry stakeholders can incorporate the new rules into their existing contract ADR provisions, but that’s not the sole method for utilizing them.  Even after a dispute arises, parties can submit their claims and defenses to the AAA for administration under the Supplementary Rules.  It’s an option I’ll be thinking about and exploring with my clients whenever limited-issue, two-party disputes come knocking on my door.

A tip of the cap to old friend and Boston construction attorney Chuck Cobb, whose recent tweet on the new rules provided the inspiration for this post:

Thanks, Chuck.  Good luck shoveling.