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Logo Icon AAA Seeks to Fix Construction Arbitration Costs

Parties, insurers, and counsel routinely complain that the time and cost of private arbitration for construction matters is so unpredictable that the process should be avoided as a dispute resolution method. In response to such complaints, the American Arbitration Association ("AAA"), together with the National Construction Dispute Resolution Committee ("NCDRC"), issued Supplementary Rules for Fixed Time and Cost Construction Arbitration (the "Supplementary Rules"). The new rules, which became effective June 15, 2014, seek to provide a process in which time and cost considerations are predictable at the outset of the process.

The AAA considers use of the Supplementary Rules to be most appropriate in cases which involve discrete issues and require limited document exchange and discovery. The Supplementary Rules provide for the adjudication of matters which seek damages in the range of $75,000 to $5 million. The rules provide for a limit on the maximum days from filing to award, the maximum number of days for hearing the matter, and the maximum number of arbitrator study hours. The maximum total fees, exclusive of travel costs, conference calls, site visits, post-hearing brief review, and modifications to the fee schedule by agreement of the parties and AAA, range from $10,500 to $52,000. Fees associated with conference calls, site visits, and post-hearing brief review can increase the maximum total fees, at most, by an additional $5,600.

The process envisioned by the Supplemental Rules involves only two parties with an exception for the inclusion of a surety if the surety is represented by the same counsel as the principal and the surety does not assert an independent claim against its principal or another named party. The process requires that each party identify a designated employee who will receive a copy of all correspondence from the AAA and the arbitrator, so that each party is fully aware of the status of the matter and can cooperate in the process to move the case forward to resolution. The process is exclusively administered by the AAA and requires that the arbitrator be appointed from the AAA's Roster of Construction Neutrals.

The Supplemental Rules also require the parties to participate in a meet and confer conference in which the parties agree on the selection of three prospects for the arbitrator, the time, date, and location of the hearing, the number of hearing dates allocated to each party, and a discovery plan which governs the exchange of documents, a deadline for discovery requests and disputes to be submitted to the arbitrator, and limits on discovery including the use of depositions. After appointment, the arbitrator reviews and approves the discovery plan to ensure that it provides an effective and efficient process within the timeframes mandated by the Supplemental Rules. The Supplemental Rules also afford the AAA the discretion to administer the matter under the Regular Track or Large, Complex Case Track of the Construction Industry Arbitration Rules based upon the parties' failure to comport with the Supplemental Rules. The Supplemental Rules further require the arbitrator to issue his or her award not less than 20 days after the conclusion of the hearings.

The process envisioned by the Supplemental Rules should provide parties with a time and cost effective method to resolve construction disputes provided that the matter fits within the "round hole" dictated by the requirements of the Supplemental Rules. Such cases can only involve two parties and should require little or no discovery and exchange of documents. However, many construction cases are "square pegs," involving multiple parties, significant amounts of documents to be exchanged and numerous depositions of percipient and expert witnesses. Thus, while we hope that the Supplemental Rules will provide for expedited arbitrations with fixed administrative costs and set time periods, we believe that the Supplemental Rules will only be useful to a finite group of cases.