For many in the construction industry, the use of alternative dispute resolution or ADR procedures, primarily mediation and arbitration, is key to handling construction-related claims because ADR provides an alternative to expensive and time-consuming litigation. Recognizing the potential benefits of ADR, owners and contractors frequently place provisions requiring parties to engage in ADR in their construction contracts. This article will focus on the ADR and dispute resolution procedures required by ConsensusDocs 200 and AIA 102 and 201, the standard forms of contract between the owner and contractor.
Both ConsensusDocs and the American Institute of Architects, the two leading providers of standard form construction contracts, have incorporated ADR into their standard contracts. AIA contracts have required some form of ADR since they were first issued in 1888. AIA’s first contract, issued in 1888, required the parties resolve their disputes in arbitration. Over time, the ADR provisions in the AIA contracts have evolved and the current version, published in 2017, contains a sophisticated process for resolving disputes through ADR. ConsensusDocs contracts, first introduced in 2007 by a coalition of organizations in the construction industry, also contain a comprehensive ADR process. The ConsensusDocs contracts where comprehensively updated during 2017.
While both the ConsensusDocs and AIA contracts require parties to pursue alternative dispute resolution to resolve their disputes, they take slightly different approaches in doing so. Given that a significant number of contractors in the construction industry use ConsensusDocs and AIA contracts, it is important that they understand how the dispute resolution provisions in each work. This will allow contractors to work out how they will be required to resolve their disputes before they sign their contracts and will also allow them to consider the pros and cons of the different ADR processes, enabling them to select the best contract for the project. To assist, this article provides a comparison of the dispute resolution processes found in the ConsensusDocs and AIA standard form contracts.
ConsensusDocs and AIA Generally
Both the ConsensusDocs and AIA contracts require that the parties engage in a multi-step ADR process to resolve their disputes. ConsensusDocs, on the whole, has a reputation for taking a more practical approach to construction contracting than AIA, and this extends to their ADR procedures. For example, ConsensusDocs provides more flexible ADR provisions, providing the contracting parties opportunities to elect between different ADR processes to tailor their contract to suit their preferences. AIA, on the other hand, does not present as many options. Which approach is superior depends on the parties. For some, fewer items to negotiate, or even to consider, in a contract may be a benefit, while others may prefer to become more deeply involved with crafting their ADR procedures.
Both ConsensusDocs and AIA require contractors to continue work and for owners to continue to make payment while a dispute is being resolved.
Notice of Claims
AIA and ConsensusDocs differ with regard to whether a party must give notice to adverse parties of their claims. ConsensusDocs requires a contractor to give notice of claims within 14 days after the occurrence giving rise to the claim or discovering the condition giving rise to the claim. It is arguable, however, that a contractor can avoid this deadline by requesting a change order rather than making a claim. ConsensusDocs does not set a time limit on the contractor’s right to request a change order. Under the AIA contract, a party must generally give notice of the claim within 21 days after the occurrence which gave rise to the claim or after discovering the condition giving rise to the claim.
Initial Assessments and Resolution
Both ConsensusDocs and AIA require the parties to engage in what should be a quick first step to resolve their disputes. The ConsensusDocs ADR procedure starts by placing the responsibility of resolving disputes on the parties themselves. Termed the “direct-discussion procedure,” this initial process gives the representatives of each party five days to settle the dispute. If the party representatives are unsuccessful, then senior executives of the parties must try over the next five business days. If the dispute remains after fifteen days from the first discussion in this process, then the contract allows the parties to escalate the dispute to the next step in the ADR process.
Requiring the parties to first tackle resolution on their own is another example of the practical approach ConsensusDocs takes to construction contracting. This step recognizes that the parties will have to live with the outcome of their claims and gives them an opportunity to reach a result that both parties may be satisfied with. As well, the direct-discussion process may save the parties money because it affords them an opportunity to agree on a resolution before claims and expenses escalate. This is in contrast to AIA’s initial placement of responsibility on the IDM—a third party that may not know the intricacies of the dispute or the business implications of the claims and their potential resolutions.
AIA requires the parties to submit claims for an initial assessment by an Initial Decision Maker or IDM, but an IDM decision may be challenged by either party. The architect on the project serves as the default IDM, but the parties are free to designate some other third party if they prefer. If the parties elect a third party to serve as the IDM, they should consider that doing so can leave many open questions. For instance, what qualifications must the IDM possess? Will the IDM be compensated and, if so, how much? Will the IDM need insurance to protect against potential claims arising out of service as the IDM? These questions are not answered by the AIA standard form contracts and could potentially lead to problems if they are not resolved by the parties before they execute the contract.
If the direct-discussion procedure under ConsensusDocs fails, parties may proceed to either mediation, a process by which a neutral third party works with the parties to help settle their claims, or to a project neutral selected or a dispute resolution board established at the beginning of the project. At the time of contracting, parties are able to elect between these two different ADR processes, but mediation is the default if they do not preselect one. If mediation is chosen, ConsensusDocs contracts give the parties the opportunity to name a mediation forum in their contract. The listed options are AAA, JAMS, or some other mediator of the parties’ choosing. If the parties do not pre-select a mediator in their contract, AAA is the default. Under the mediation procedure, the parties have 30 business days to convene the mediation from the end of the direct discussions and 45 days to conclude the mediation. Either party is allowed to terminate mediation at any time after the first mediation session is concluded. The parties are required to share mediation costs equally.
ConsensusDocs offers a second mitigation procedure, not offered by AIA, as an alternative to mediation. It is a procedure by which a third party, either a project neutral or a dispute resolution board, makes a finding on the parties’ claims. This finding is not binding and may be challenged by either party, but if challenged, the finding will be available as evidence in the final binding step of the ConsensusDocs dispute resolution process. Upon contract signing, the parties must mutually select and retain a project neutral or establish a dispute resolution board. The neutral/DBR will be required to visit the project regularly so they are familiar with the project and are up to date with its progress and issues. Such regular visitation may provide the parties a significant benefit because it will allow the neutral/DBR to make well-informed findings should they be presented with a dispute. However, the parties should also consider the potential cost of having their neutral/DBR make regular visits to the project, as the expense may outweigh the potential benefit for some parties.
Under AIA contracts, if a party decides to challenge the decision of the IDM, then the parties must proceed to mediation. Any party may file for mediation after receiving a decision by the IDM, and the parties are required to split the mediation fees. Unless the parties agree otherwise, mediation will be administered by the American Arbitration Association in accordance with AAA’s Construction Industry Mediation Procedures. A request for mediation must be made in writing and provided to the opposing party and filed with the mediator. AAA is the default mediation forum, but parties may agree to select a mediator not affiliated with AAA.
Final Step: Arbitration or Litigation
The final step in the ADR process is the same under both ConsensusDocs and AIA contracts: the parties may elect to seek a binding resolution through arbitration or traditional in-court litigation.
Parties to the ConsensusDocs contract may proceed to either litigation or arbitration if their disputes remain unresolved. ConsensusDocs requires the parties to choose at the time of contracting whether they will go to arbitration or litigation, but litigation will be the default if the parties fail to select one. If parties agreed to arbitration, then they must choose an arbitration forum and the arbitration rules under which they must proceed. Three options are provided: (1) AAA and its AAA Construction Industry Arbitration Rules; (2) JAMS and the JAMS Engineering and Construction Arbitration Rules; or (3) other arbitrator and rules selected by the parties. If the parties fail to select an arbitrator, AAA and its rules are the default.
Under AIA contracts, if the parties do not specifically select arbitration at the time of contracting, then the parties will be required to litigate their dispute in court, but they may later agree otherwise. If the parties select arbitration, then the arbitration will be administered by AAA pursuant to the Construction Industry Arbitration Rules, unless the parties select another forum. A party seeking to go to arbitration must make a demand for arbitration, which cannot be made earlier than the date of filing for mediation and not later than the statute of limitations applicable to their claims. A party submitting claims to arbitration must include all claims that they possess which are known to them at the time.
It is important for contractors to be familiar with the ADR procedures of their contracts because it is the process they must follow to pursue or defend against a claim. Ideally, contractors who use ConsensusDocs and AIA contracts will educate themselves about the differences in their ADR provisions so that they may choose the process that will provide the greatest benefit.