Arbitration of Construction

Disputes

Lou Chang, ALC 2004

 What is arbitration?

Private adjudication
Impartial third party/panel
By written agreement, usually
Parties can select arbitrators, specify
desired expertise and background
Parties can design and customize process
Parties can select rules
 Basic Steps in Arbitration

Making an agreement to arbitrate

Initiate process/demand for arbitration
Appoint arbitrator(s)
Pre-arbitration scheduling meeting
Arbitration hearing
Post arbitration memorandum (optional)
Decision and award
Standard Contract Forms
 Hawaii League of Savings
Associations Form A-1 1979
DISPUTES: all disputes arising hereunder shall be submitted to architect and if
none, then to the material company surety on the bond; the architect's
material company [decision] shall be subject to arbitration . If no architect
or material house, then all decisions shall be submitted to arbitration. [O]ne
arbitrator selected by the parties hereto shall determine the disputes and failing
agreement , three disinterested arbitrators (who shall be licensed general
contractors, architects, or structural engineers) shall determine the dispute, one to
be appointed by each party hereto. If either party fails to name his arbitrator
within ten (10) days after notice in writing of the appointment of the first
arbitrator, the first arbitrator may name the second arbitrator. The two shall
name the third arbitrator. If they cannot agree within ten (10) days, either may
request any judge of the circuit court of Hawaii to name the third arbitrator.
The majority decision of the arbitrators shall be final and binding . Each party
shall pay one-half of the costs of the arbitrators fees and each party shall pay all
other costs incurred by such party.
18.
19.
20.
21. DISPUTES: All disputes arising hereunder shall be submitted to the
licensed architect, if any superintending said construction, and if none, then to
the material company which may be surety on the bond; provided, however,
that the architect's decision or the decision of the material company, as the case
may be, shall be subject to arbitration if notice thereof is given by either party
in writing within ten (10) days of the date of the decision. If there shall be no
architect or material house, and all decisions shall be submitted to arbitration.
In the event of arbitration, one arbitrator selected by the parties hereto shall
determine the disputes and failing agreement as to the selection of an
arbitrator, three disinterested arbitrators (who shall be licensed general
contractors, architects, or structural engineers) shall determine the dispute, one
to be appointed by each party hereto. If either party fails to name his arbitrator
within ten (10) days after notice in writing of the appointment of the first
arbitrator, the first arbitrator may name the second arbitrator. The two thus
chosen, in either manner, shall name the third arbitrator. If they cannot agree
within ten (10) days, either may request any judge of the Circuit Court of
Hawaii within which the premises are situated to name the third arbitrator. The
majority decision of the arbitrators shall be final and binding upon the parties
hereto. Each party shall pay one-half of the costs of the arbitrators fees and
each party shall pay all other costs incurred by such party.
AIA General Conditions (A201-1997)

4.6 ARBITRATION

4.6.1 Any Claim arising out of or related to the Contract, except claims relating to aesthetic effect and except those
waived as provided for in subparagraphs 4.3.10,9.10.4 and 9.10.5, shall, after decision by the architect or 30 days
after submission of the Claim to the Architect, be subject to arbitration. Prior to arbitration, the parties shall
endeavor to resolve disputes by mediation in accordance with the provisions of paragraph 4.5.

4.6.2 Claims not resolved by mediation shall be decided by arbitration which, unless the parties mutually agree
otherwise, shall be in accordance with the Construction Industry Arbitration Rules of the American Arbitration
Association currently in effect. The demand for arbitration shall be filed in writing with the other party to the
Contract and with the American Arbitration Association, and a copy shall be filed with the Architect.
 Core Arbitration language:AIA
A201-1997
AIA General Conditions (A201-1997)

4.6 ARBITRATION

4.6.1 Any Claim arising out of or related to the Contract, except claims
relating to aesthetic effect and except those waived as provided for in
subparagraphs 4.3.10,9.10.4 and 9.10.5, shall, after decision by the
architect or 30 days after submission of the Claim to the Architect, be
subject to arbitration. Prior to arbitration, the parties shall endeavor to
resolve disputes by mediation in accordance with the provisions of
paragraph 4.5.

4.6.2 Claims not resolved by mediation shall be decided by arbitration

which, unless the parties mutually agree otherwise, shall be in accordance
with the Construction Industry Arbitration Rules of the American
Arbitration Association currently in effect. The demand for arbitration
shall be filed in writing with the other party to the Contract and with the
American Arbitration Association, and a copy shall be filed with the
4.6.4 Limitation on Consolidation or Joinder. No arbitration arising out of or relating to the
Contract shall include, by consolidation or joinder or in any other manner, the Architect, the
Architect's employees or consultants, except by written consent containing specific reference to
the Agreement and signed by the Architect, Owner, Contractor and any other person or entity
sought to be joined. No arbitration shall include, by consolidation or joinder or in any other
manner, parties other than the Owner, Contractor, a separate contractor as described in Article 6
and other persons substantially involved in a common question of fact or law whose presence is
required if complete relief is to be accorded in arbitration. No person or entity other than the
Owner, Contractor or a separate contractor as described in Article 6 shall be included as an
original third party or additional third party to an arbitration whose interest or responsibility is
insubstantial. Consent to arbitration involving an additional person or entity shall not constitute
consent to arbitration or Claim not described therein or with a person or entity not named or
described therein. The foregoing agreement to arbitrate and other agreements to arbitrate with an
additional person or entity duly consented to by parties to the Agreement shall be specifically
enforceable under applicable law in any court having jurisdiction thereof.
 Construction Parties

G e n e ra l C o n tra c to r A r c h it e c t

S u r e ty
O w ner

S u b c o n tra c to r S u b c o n tra c to r S u p p lie r

 Pre-arbitration scheduling
meeting
Identify & clarify claims, counterclaims and
defenses
Arrange information exchange
Establish realistic working schedule
Identify witnesses
Opportunity to discuss streamlining process
Schedule hearing
 Advantages of Arbitration
Choice of decision maker with expertise
Speed
Lower-cost
Flexible
Private
Less formal than court
Fewer grounds for appeal
Enforceability of award
 Disadvantages of Arbitration

Cost: parties pay for arbitrator and agency

Limited rights of appeal, fewer means to
delay and challenge award
Lack of formal discovery
Waiver of right to jury
 When might arbitration not be
desired?
Jury desired Faster resolution available
Legal precedent needs to (mediation, application on
be set payment bond)
Constitutional principle Special judicial relief
needs to be declared available
Mechanics lien and Want full formal
foreclosure of third party discovery
rights Want slower, costlier court
Want broader appeal procedure
rights
 Finding the Right Arbitrator
Determine qualifications and experience desired
for your case
Review resume and written qualifications
Get recommendations and referrals, comments on
judgment, fairness, fair hearing and enforceable
award
Obtain and carefully review written disclosure of
all potential conflicts
Up to date training and ethics code
 Types of Arbitration

Traditional: arbitrator hears witnesses,

considers evidence and renders decision
Fast track: accelerated and simplified
procedures for prompt decision
Baseball: each site submits final offer,
arbitrator picks most reasonable
High-low: arbitrators decision to be
adjusted within range set by parties
 Must you hire an attorney?

Not mandatory: informal, business like

setting of arbitration theoretically can be
handled without engaging an attorney
Hawaiis new Revised Uniform Arbitration
Act (RUAA) has made arbitration more like
litigation
Increasingly, it is wise to have an attorneys
guidance through the arbitration process
Arbitration tips: During Contract
Review-1
RUAA applies to all agreements to arbitrate
made on or after July 1, 2002
RUAA applies to all agreements to arbitrate
whenever made starting July 1, 2004
Many, not all provisions can be waived
Arbitration agreements may/should be
customized to fit specific needs and
circumstances
Arbitration tips: During Contract
Review-2
Keep discovery simplified and inexpensive
Limit arbitrator to award of reasonable actual and
compensatory damages, no punitives
Provide for fast track procedures
Allow arbitrator to retain jurisdiction for specified
timeframe to address specific performance,
implementation and interpretation
 Include necessary parties for
effective and efficient arbitration
Common standard clauses do not address
this adequately
Must decide what specifically fits your
circumstances
Subcontracts, bond, design professional
agreements and major purchase orders may
need to be adapted to include critical parties
in potential mediation and arbitration
 Construction Parties

G e n e ra l C o n tra c to r A r c h it e c t

S u r e ty
O w ner

S u b c o n tra c to r S u b c o n tra c to r S u p p lie r

 Hawaii League of Savings
Associations Form A-1 1979
DISPUTES: all disputes arising hereunder shall be submitted to architect and if
none, then to the material company surety on the bond; the architect's
material company [decision] shall be subject to arbitration . If no architect
or material house, then all decisions shall be submitted to arbitration. [O]ne
arbitrator selected by the parties hereto shall determine the disputes and failing
agreement , three disinterested arbitrators (who shall be licensed general
contractors, architects, or structural engineers) shall determine the dispute, one to
be appointed by each party hereto. If either party fails to name his arbitrator
within ten (10) days after notice in writing of the appointment of the first
arbitrator, the first arbitrator may name the second arbitrator. The two shall
name the third arbitrator. If they cannot agree within ten (10) days, either may
request any judge of the circuit court of Hawaii to name the third arbitrator.
The majority decision of the arbitrators shall be final and binding . Each party
shall pay one-half of the costs of the arbitrators fees and each party shall pay all
other costs incurred by such party.
 Core Arbitration language:AIA
A201-1997
AIA General Conditions (A201-1997)

4.6 ARBITRATION

4.6.1 Any Claim arising out of or related to the Contract, except claims
relating to aesthetic effect and except those waived as provided for in
subparagraphs 4.3.10,9.10.4 and 9.10.5, shall, after decision by the
architect or 30 days after submission of the Claim to the Architect, be
subject to arbitration. Prior to arbitration, the parties shall endeavor to
resolve disputes by mediation in accordance with the provisions of
paragraph 4.5.

4.6.2 Claims not resolved by mediation shall be decided by arbitration

which, unless the parties mutually agree otherwise, shall be in accordance
with the Construction Industry Arbitration Rules of the American
Arbitration Association currently in effect. The demand for arbitration
shall be filed in writing with the other party to the Contract and with the
American Arbitration Association, and a copy shall be filed with the
4.6.4 Limitation on Consolidation or Joinder. No arbitration arising out of or relating to the
Contract shall include, by consolidation or joinder or in any other manner, the Architect, the
Architect's employees or consultants, except by written consent containing specific reference to
the Agreement and signed by the Architect, Owner, Contractor and any other person or entity
sought to be joined. No arbitration shall include, by consolidation or joinder or in any other
manner, parties other than the Owner, Contractor, a separate contractor as described in Article 6
and other persons substantially involved in a common question of fact or law whose presence is
required if complete relief is to be accorded in arbitration. No person or entity other than the
Owner, Contractor or a separate contractor as described in Article 6 shall be included as an
original third party or additional third party to an arbitration whose interest or responsibility is
insubstantial. Consent to arbitration involving an additional person or entity shall not constitute
consent to arbitration or Claim not described therein or with a person or entity not named or
described therein. The foregoing agreement to arbitrate and other agreements to arbitrate with an
additional person or entity duly consented to by parties to the Agreement shall be specifically
enforceable under applicable law in any court having jurisdiction thereof.
 Obtain Insurance Review

Have liability insurance policies reviewed to

confirm defense and coverage in mediation,
arbitration and/or litigation
Confirm whether available insurance
satisfies requirements of construction
contracts, especially non-standard, with
regard to indemnity, primary insurance and
defense obligations
 Tips: Before the Arbitration
Hearing-1
Develop clear focus on key issues
Clarity of focus will narrow preparation,
discovery and shorten hearings
Be proactive. Get arbitrators help early
Get early articulation of all claims,
counterclaims and defenses
Accelerate and simplify discovery and
information exchange
 Tips: Before the Arbitration
Hearing-2
Identify areas of consensus/stipulate to
uncontested facts and issues
Determine if bifurcation and early
resolution of threshold issues can simplify
and streamline process
Consider use of single neutual fact finder to
avoid costly battle of the experts
 Streamlined Information
Exchange
Set reasonable, scheduled informal
document and information exchange
Consider first phase focus on information
needed to assess case and settlement options
Use joint exhibit list to avoid duplication
Tabbed, organized and numbered
Stipulate all documents into record except
for impeachment and rebuttal
 Expert Witnesses

Advance exchange of resumes,qualify

expert before hearing, stipulate or allow
arbitrator to determine qualification of
expert
Clarify whether report required, all opinions
expressed, no later tests or surprise
testimony
 At the Hearing-1
Key witness or Determine if certain
advocate can provide issues are resolved/ask
overview, context and arbitrator to make
chronology interim decisions to
Use chronology and narrow focus of case
reference charts Focus evidence and
Identify all claims and witnesses on
issues that arbitrator remaining issues of
must decide disagreement
 At the Hearing-2
Although informal, you, your client and key
witnesses are always on stage
Remind client and witnesses to maintain courtesy,
respect and dignity at all times including during
breaks
Arbitrators have more opportunity and do observe
telling actions and hear statements that affect their
view of the case
Credibility is always at issue, protect it carefully
 Flexible Arbitration Options for
Acceleration of the Hearing
Use a neutral fact Witness by
finder telephone/computer
Consider tandem camera
expert testimony or Affidavits or deposition
round table format excerpts
Written direct Bifurcation of liability and
testimony with cross damages, causation and
examination and fix or claims and
supplementation at counterclaims
hearing Clarify fix, then liability
 Quick Summary

Be proactive
Involve the arbitrator early
Develop focus as early as possible
Take advantage of the flexibility to shape
and customize arbitration
Watch out for standard clauses
Best to review upfront